Why do some of the world's wealthiest business people — people widely admired for their analytical skills and financial acumen — decide to put their money in the notoriously mercurial and high-stakes world of professional sports by buying their own teams?
Well, they're fans, for one thing. Wealthy fans, to be sure, but fans just the same.
Research in Motion co-CEO Jim Balsillie is offering to buy the Phoenix Coyotes for $212.5 million US. (Adrian Wyld/Canadian Press)
Take Jim Balsillie, the billionaire co-CEO of the company that makes the wildly popular BlackBerry wireless device. He's an unabashed hockey nut who has even named some of the boardrooms at Research in Motion's corporate headquarters after former hockey greats. Balsillie has dipped his toes into the NHL pool several times — unsuccessfully trying to buy the Pittsburgh Penguins, Nashville Predators and Buffalo Sabres. Now, the billionaire has offered to buy the bankrupt Phoenix Coyotes for $212.5 million US on the condition he can move the team to southern Ontario.
He's not the only one to put his money where his passion is. Bob Young, the former CEO of software company Red Hat (and a former member of the billionaires' club), bought the Hamilton Tiger Cats football team in 2003. Young grew up in Hamilton and went to countless games as a kid. The bio on his new publishing company's website, lulu.com, lists his ownership of the Tiger Cats before his Red Hat pedigree.
There's Eugene Melnyk, the owner of the Ottawa Senators hockey club and a man who made his fortune running the Biovail pharmaceutical company. "For me to get involved in the Ottawa Senators was the fulfilment of a lifelong dream," he said in a 2005 profile in Canadian Business magazine. "I'm a fan first and an owner second."
In the U.S., there are many more examples of wealthy business execs/sports fans sinking their millions into pro teams.
Mark Cuban, the volatile owner of the Dallas Mavericks basketball team, may be the best-known fan/owner. He made his fortune in 1999, when he sold his Broadcast.com company to Yahoo for more than $5-billion US. The next year, he bought the Mavericks for more than $200-million US — more than what some said the team was worth. He then proceeded to provide endless copy for sports writers by charging onto the court during games, or bad-mouthing officials — often doing both simultaneously.
Overseas, Russian oil tycoon Roman Abramovich (Forbes estimates his worth at $18.2-billion US) bought the storied Chelsea Football Club in 2003 and then sank, by some reports, as much as a billion dollars into it. Needless to say, he's a big fan. "It's not about making money," he told the BBC. "I have many much less risky ways of making money than this. I don't want to throw my money away, but it's really about having fun, and that means success and trophies."
Boy toys or solid investments?
But it would be a mistake to assume that individual owners buy their way into the sporting big-time simply for an ego boost — play toys for rich men, as it were.
Sports economists point out that most of these owner/fans have made their fortunes by being fiercely competitive in business — often creating value from something that others may have overlooked.
Tiger Cat owner Bob Young, for example, says he's determined to turn around his team's money-losing ways. "Our goal was to turn this into a profitable business within five years, and we think we're a good two years ahead of that business plan," he told Business Edge last year. Bob Young has never liked cheering for losers.
And even though many teams themselves may lose money on an annual basis — and the financial state of sports teams is something that owners and player unions seldom agree on — most clubs do tend to grow in value over time.
For instance, Forbes magazine now values the New York Yankees at just over $1-billion US, with George Steinbrenner and his family owning 80 per cent of the franchise. Not a bad return on investment when you consider he bought the team for $10-million US in 1973.
Annual operating losses just don't seem as important in those circumstances.
Sometimes, the owners have other business interests that invite tie-ins. The Mavericks' Cuban also founded HDNet, which calls itself the first television network to broadcast exclusively in high definition. It will come as no surprise that it also carries Mavericks games.
And some owners have built sports conglomerates that begin with the team but grow to include the stadium (often subsidized or with some kind of a tax deal), extensive retail operations and broadcast stations that together, build value.
Corporate owners are still common in pro sports, of course. But when you're publicly listed, the shareholders are fans only of the bottom line. The corporations can argue that buying into a team makes financial sense when it owns other media properties (think of Bell Globemedia's minority stake in Maple Leaf Sports and Entertainment — owners of the Toronto Maple Leafs and Toronto Raptors).
But sometimes, the numbers don't seem to add up. Consider Ted Leonsis, the AOL executive who is the majority owner of the Washington Capitals hockey club. He bought the team for $85-million US in 1999 and proceeded to lose more than $75-million US over the next five years.
And then there's John McCaw, whose Orca Bay group paid a franchise fee of $125-million US for the privilege of entering the NBA in 1994. His team, the Vancouver Grizzlies, suffered through many money-losing seasons before being sold and moved to Memphis.
But the new breed of individual sports team owner is accustomed to risk — many made their money in the dot-com world. For them, professional sports team ownership may actually look much more stable by comparison. And potentially a lot more fun.
