Exciting World of Sports Investments: Opportunities and Risks

Introduction

Amidst the unpredictability of today's financial landscape, investors are on the hunt for solidity and reliability. What if I were to tell you about an investment proposition where businesses dating back to the early 1900s still hold significant value? Imagine companies that have an incredibly dedicated customer base, with demand for some of their products, like season tickets, so high that waiting lists span years. This is the allure of professional sports franchises and their affiliated businesses.

The Power and Risks of Sports Investments

The sector we're diving into is professional sports. More precisely, we're focusing on its franchises and ancillary enterprises. Professional sports leagues and their offshoot businesses, including athletic wear and media corporations, have grown into industries worth billions. However, while their potential is evident, these investments aren't free from risks, often posing greater challenges than traditional businesses. Let's dissect the rewards and pitfalls of sinking funds into the world of sports.

The Dream of Owning a Franchise

It's a common dream to own a sports franchise, but it's a reality for only a select few. However, opportunities for fractional ownership in sports teams do exist for average investors through corporate parents who own these franchises.

While immense player contracts may make professional sports seem profitable, many team owners aren't chasing immediate profits but value appreciation. Even before global lockdowns disturbed the operation (and therefore profits) of all professional sports leagues, a considerable number of teams were actually operating at a loss.

Assuming a return to normalcy in the sports world, let's explore ways you can get in the game, even without a Mark Cuban-sized bank account.

Corporate Ownership and Affiliations

Most sports leagues and teams are privately held. For a more concentrated venture into specific sporting events, leagues, and teams, consider these companies:

1. Vail Resorts - A forerunner in winter and mountain sports, Vail Resorts boasts an impressive portfolio of 37 locations worldwide. Known for its flagship property in Colorado, it also has resorts in Utah, California, British Columbia, and Australia.

2. Churchill Downs - Primarily recognized for the annual Kentucky Derby, Churchill Downs expands beyond horse racing with hotels, gaming, and gambling facilities in Kentucky. Additionally, it owns TwinSpires, a prominent online platform for horse-racing wagering and sportsbooks.

3. Manchester United - This stock represents the parent company of the UK's most decorated Premier League team. With about 1.1 billion fans globally, Manchester United is an enormously popular franchise.

Exposure through Exchange Traded Funds (ETF)

Investment can also come through ETFs that hold small stakes in companies with exposure to sports teams. Here are a few worth considering:

• EWJ: The iShares MSCI Japan Index Fund
• FXD: The First Trust Consumer Discretionary AlphaDEX Fund
• IAI: The iShares Dow Jones U.S. Broker Dealers Index Fund
• IST: The SPDR S&P International Telecommunications Sector ETF
• PEJ: The Invesco Trust Dynamic Leisure & Entertainment Portfolio
• PBS: The Invesco Trust Dynamic Media Portfolio

The Unique Case of Green Bay Packers

The Green Bay Packers stand out as the only professional sports team selling stock directly to the public. Formed as a nonprofit by local businessmen in the early 1900s, stock sales occurred in 1923, 1935, 1950, 1997, and 2011. Despite no dividends or capital appreciation, the stocks are primarily bought for bragging rights and team support. Owners also enjoy some unique perks, like exclusive stadium tours and access to rookie practices.

Opportunities in Minor Leagues

If your pockets aren't as deep but you're still keen on owning a piece of a team, minor league teams offer a viable entry point. Recently, venture capitalists and institutional investors have been structuring finance deals for ownership groups targeting teams in smaller markets.

Independent teams, free from the constraints of league affiliations, have been able to upgrade their facilities to compete more effectively with major leagues. The most affordable entry prices can often be found with struggling hockey teams grappling with falling attendance and rising debt. While these investments carry substantial risk, many teams have managed to reverse their fortunes and become highly profitable.

The Upsides of Investing in Sports

In economics, "final demand" is defined by the ability and desire to purchase goods and services. Professional and college sports programs are uniquely poised to elicit strong emotional responses from their audience, leading to high brand loyalty. This connection often translates into financial support from fans.

The National Football League (NFL), for instance, caters to a wealthier customer base, with a single game experience for a family of four potentially exceeding $1,000. Multiply this by several games per year, and the revenue generated is substantial.

In addition, the digitization of sports consumption through live streaming on mobile devices, satellite radio, and pay-per-view broadcasts offers additional revenue streams for these businesses. The lack of competition faced by major sports leagues due to high barriers to entry and certain anti-competition legislations adds to their economic advantage.

The Downside of Investing in Sports

Sports teams and leagues are not insulated from economic upheavals. Economic downturns can reduce attendance at sporting events and decrease revenue. The COVID-19 pandemic, which led to the cancellation or postponement of numerous games, further demonstrated this vulnerability.

From an economic standpoint, demand for sporting events is elastic. Any fluctuation in income or ticket prices can significantly affect demand. Beyond economic risks, investors also need to consider the human factors such as sports scandals that can damage a brand's reputation and value.

Conclusion

Investing in sports presents a unique blend of risks and rewards. While these investments offer an appealing proposition due to high brand loyalty and the emotional connection between teams and fans, they are not immune to economic downturns and non-traditional risks such as scandals. As with any investment, due diligence is critical before diving into the world of sports investments.