- The Washington Times - Saturday, July 28, 2001

Most of pro sports' key economic indicators ticket prices, TV contracts, franchise values and attendance are decidedly up. But on Wall Street, sports takes a beating.
The stock market has been bearish over the past year, led by a 17 percent drop in the influential S&P; 500 stock index, and sports companies of all sizes and sorts helped lead the way.
Stock in the Boston Celtics, the first pro sports franchise to hit Wall Street, is down 2 percent this year and has stayed virtually flat for more than four years making it more a vanity stock than a serious investment. Championship Auto Racing Teams (CART), which scored a much-ballyhooed $75 million initial public offering three years ago, has lost more than a third of its stock value in the past year.
Rawlings Sporting Goods, the leading manufacturer of gloves used in major league baseball, is down 30 percent in the last year. And the stock of SportsLine.com, which earlier this month landed the production rights to the NFL's highly popular Web site, is trading near its historic low of less than $2 a share.
The collective results of the industry's poor performance include layoffs, canceled expansion plans, a near-total shutdown of new sports stock issues and growing talk among many companies of remaining privately held or exiting the stock market. Several publicly traded sports companies, such as the Florida Panthers, already have returned to private ownership after a disastrous run on Wall Street.
"I don't think sports are particularly well suited [for the stock markets]," said Game Plan LLC chairman Robert Caporale, a financial adviser for sports teams and companies. "It generally works only in special circumstances because so many of these operations, particularly on the team side, are based on asset appreciation, not necessarily regular revenue growth."
During the go-go days of the late 1990s, massive fan appeal, widespread brand recognition and deep consumer loyalty fueled a spurt of new sports stocks and seemingly boundless optimism.
Media and entertainment conglomerates like Cablevision and AOL Time Warner increased their investments in sports. Dozens of new sports companies and related mutual funds including ones dedicated solely to auto racing and golf hit the market.
But when most of the sports companies failed to show consistent growth in revenues one of the key mantras of Wall Street their stocks began to fall, a ride accelerated by the marked downturn in the U.S. economy.
"Based on what we've seen, I don't think we'll see many more [initial public offerings] of this type hitting the market anytime soon," Caporale said.
For many sports companies, Wall Street was both a critical means to fund future growth and a marketing tool. Going public was recognized as a mark of importance, a sign of ascension to big-time status.
But the added prominence also brought more scrutiny and responsibility. Being a publicly traded company, of course, requires opening the books and disclosing financial results each quarter. And that disclosure often yields a loss of cherished control in shaping a company's public image.
CART, for example, has seen steady growth in revenues and increased attendance in three of the past four years. It also has multiyear contracts with most of its key corporate sponsors. But profit-wary investors have focused heavily on CART's wavering net income, numerous leadership changes and large share sales by several senior executives a sign that the company's leadership might have lost faith in CART's long-term prospects.
The result is the 36 percent drop in the stock over the past year and a somewhat uncertain future.
Tom Carter, CART's chief financial officer, said investor pessimism is overstated but acknowledged CART was unprepared for the fish bowl life of a public company.
"You get something of an idea of what it's about by talking to and researching other companies. But you really can't get a true idea of what it's about until you do it yourself," Carter said. "There is no doubt a lot more administrative burden and pressure. It comes with the territory."
Beside the overall weakness of the economy, several economic fundamentals work strongly against sports companies. Unlike most other industries, the natural seasonality of sports makes it difficult to show regular revenue and net income growth on a quarter-to-quarter basis, both of which investors covet.
Also, many key revenue streams, such as broadcasting and advertising contracts, are multiyear pacts that call for fairly level receipts of money each year within those contracts. Thus, the growth pattern of many sports companies is an erratic series of leaps and plateaus rather than an investor-friendly stair-step progression.
"There is a place for sports in the public markets, though perhaps not a large one. It really depends on how well the company in question is managed," said David Moross, managing partner for New York-based Sports Capital Partners.
Moross' company buys and invests in sports companies.
"Some of these companies have phenomenal brands. It's why they often get floated in the first place," he said. "But this can be a very tough business, and brands do come and go."
If that weren't enough, the advertising market that many sports companies rely heavily upon is suffering through its toughest days in a decade. Advertising buys across all media are flat or down, and even TV spots for last winter's NFL playoffs sold out much closer to scheduled air dates than in previous years.
"A downturn in the traditional advertising marketplace is causing many of our strongest off-line competitors to pull back on their Internet initiatives," said Michael Levy, chairman and founder of SportsLine.com. Levy's company pushed back its own projected break-even date by a year to late 2002 because of the soft ad market.
Despite the tough times for publicly traded sports companies, there are several unabashed success stories. Reebok Corp., once left for dead in the wake of footwear, apparel and equipment giant Nike Corp., has made a remarkable recovery over the last two years and has seen its stock more than quintuple since January 2000.
The company last year boosted net income nearly eight-fold to $80.9 million, landed a key merchandising pact with the NFL, signed on Venus Williams as a spokeswoman and finished 2000 as the top-peforming stock on the S&P; 500 Index.
"We are beginning to experience a resurgence for the Reebok brand, and I am extremely excited about our future growth possibilities," chairman Paul Fireman said.

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