Up and Down 17th Street: Scoring with minor-league sports investing

Published January 4, 2006 at midnight

Text size

More Business Columns & Blogs

Sophisticated investors depend on hedge funds, real estate and other alternatives to stocks and bonds - even timber - in an effort to maximize their returns.

Increasingly they're intrigued by another investment option: minor-league sports teams.

National Sports Services of Greenwood Village sees opportunity in minor-league baseball and aims to use an estimated $7 million in private-equity funds to build two teams, and hopefully others, along the Front Range.

The franchises in Aurora and Arvada are set to begin in 2007, and the company eyes expansion in Oklahoma, northwest Arkansas, Ohio and Indianapolis, too.

It's not the first time private-equity investors have directed money to the minor leagues. In 2002, Seaport Capital, a firm in New York, invested $20 million in Mandalay Sports Entertainment, an owner of several baseball teams.

Large institutions often use private equity, or stakes in companies that aren't listed on a public exchange, to fuel their gains. While a modest amount of their money today sits in minor-league franchises, the move toward that sector should accelerate.

"I believe more private-equity firms are looking into minor-league sports and would expect more money to be invested in the coming years," Steve McCall, a Seaport partner, said in an e-mail to the Rocky Mountain News. "Since our investment, I've had a number of firms contact me to discuss minor-league baseball in particular and sports in general."

Mandalay owns minor-league teams that are affiliated with Major League Baseball. National Sports Services, on the other hand, has targeted independent teams.

The main appeal to institutional investors is the potential cash flow generated by minor-league baseball teams, McCall said.

Tyler Tysdal, the president of National Sports Services who also serves as managing partner of TIVIS Ventures, a private-equity firm based in Denver, echoed that point.

The franchises' rising values haven't hurt either. With 18 minor-league baseball teams that National Sports Services has been involved with over the years, a team typically has sold for 4.5 times the purchase price about five years later. Not a single one has lost money, he said.

Not a bad investment.

Minor-league hockey teams have fetched 3.5 times the original purchase price when sold 3 1/2 years later, he added.

Seaport believes minor-league baseball is the best opportunity because of predictable costs and "proven" revenue, McCall said.

While attending a minor-league baseball meeting recently, Tysdal was approached by an institutional investor interested in baseball.

"That's unique," he said. "When it comes to analyzing this industry, I don't think there was much interest in the past."

The roughly $7 million required for the Colorado baseball teams will come from the company's top executives and an outside investor group that includes Donald Karras, who will serve as one of the principal owners of the Aurora and Arvada teams. The remainder of the cost is being financed through debt.

Tysdal and associates Bill Davidson, Allen Fears and Matt Perry are not the only ones excited by minor-league sports in Colorado.

Tim Wiens and John Frew are bringing a Central Hockey League franchise and a Continental Basketball Association club to Broomfield. And Eric Lacroix, son of Colorado Avalanche President Pierre Lacroix, bought a CHL team in Arizona and has the rights to introduce a team in Grand Junction as well.

James Paton and David Milstead take turns writing Up and Down 17th Street. Contact Paton at patonj@RockyMountainNews.com or 303-892-2544.

Subscribe to the Rocky Mountain News