Indians IPO a sinker?
Indians to go public, but investors may want to wait for a better pitch
NEW YORK (CNNfn) - The Cleveland Indians take to the mound Thursday with an initial public offering, but unless you're a fan of the Tribe, you may want to wait for a better pitch.
The IPO, the first ever for a Major League Baseball team, will have the Cleveland Indians Baseball Co. offering 4 million Class A common shares under the ticker symbol (CLEV). It also has an additional 600,000 shares waiting if demand persists.
The Indians' owner, Richard Jacobs, is counting on the team's on-field success to result in strong opening demand. Late Wednesday, the IPO was priced at $15 a share, within the expected range of $14 to $16 per share. At that rate, the offering would bring in about $60 million before fees.
Currently, the team is sitting atop the American League Central division. Additionally, the team went to the World Series in 1995 and 1997, although it lost both attempts.
Other sports teams taken public include the NBA's Boston Celtics (BOS) and the NHL's Florida Panthers (PAW). However, stock in both teams has seen a rocky ride after an initial flurry of interest.
Only investors in the NFL's Green Bay Packers can count on their shares not declining. Packers stock can't be legally sold for more than its face value and does not pay a return, making it more of a souvenir stock.
Potential Indians investors may want to hold off in buying the stock, say analysts. Stocks of both the Celtics and the Panthers scored well during just after their IPOs, then dropped off later on.
However, the owners of these teams see the IPOs as a financial ringer.
"I think the Cleveland Indians are looking at the IPO market and see that it is very hot right now," said Tom Taulli, analyst for the Taulli Report.
Many companies go public in an effort to increase the money available to help the business grow, but Taulli said the Indians IPO differs in that respect.
"It's an opportunity to maybe cash out," said Taulli.
Instead of utilizing the money to better the company, Jacobs will use the money to buy out the general partnership interests and, possibly, buy the new Cleveland Browns football team. None of the money will be used to grow the overall business.
Analysts say fans should probably approach buying a team's stock in the same way they buy an Indians baseball cap or poster -- as a souvenir.
"Most sports stocks are not financial superstars," said Bill Smith, portfolio manager at Renaissance Capital Corp. in Greenwich, Conn.
While the Celtics roster might sport 7-footers and the Panthers may put hard-as-ice goalies on the rink, their stocks are as flabby as a game-watching couch potato.
You can see a correlation, said Smith, between how a team is performing and how its stock is doing. If a team reaches the playoffs, its stock tends to rise. Unfortunately for investors, the reverse is also true.
In the case of the Celtics, the team finished its 1997-98 season with 36 wins and 46 losses. A chart of the team's stock (below) shows Celtics shares followed the team downward.
Even a team that is playing well, such as the Indians, faces a difficult reality.
"Teams are limited by many factors," said Smith. "They are limited by the number of seats they can sell. It's not like it is with a manufacturer where they can make more widgets."
The Indians also face another frustrating factor. As a constant Series contender for the past few years, they have nowhere to go but down. If history is any indicator, Indians stock would suffer the same fate.
To that end, the Indians have been attempting to offer up a few words of warning.
In a filing with the U.S. Securities and Exchange Commission, the Indians explained their financial performance was dependent on certain factors beyond their control including:
- The teams' competitive success
- The presence (or absence) of talented players
- The risk of player injuries
In addition, post-season play has a tremendous effect on the bottom line. In 1997, the Indians played in 18 out of 19 potential post-season games, contributing a $5.7 million the team's operating income. This represented 79 percent of the money the team made all year.
Winning isn't everything
Investors can't even assume winning the World Series will result in a championship financial return.
The Florida Marlins are baseball's champs, but Marlins' owner, H. Wayne Huizenga, said the team is bleeding money.
He has announced he is selling the franchise to a group of investors led by club president Don Smiley. Together, the two have slashed the team payroll by $20 million.
And while most companies try to put a positive spin on their financial results, baseball teams often try to reduce their tax burden by using a financial sleight of hand technique, claiming certain salary factors have resulted in losses even though the team may appear to be profitable.
A company that is constantly pointing to losses can probably not expect Wall Street to flock to its shares.
No matter what the team's finances look like, you won't have much say on where the Indians' money is going anyway. You'll get one vote for your share. Team owner Jacobs will get shares with 10,000 times the voting rights of yours since MLB rules require the owner to keep controlling interest.
Despite all the drawbacks, if any fans will support what might be a losing cause, Cleveland Indians fans will.
"There's definitely quite a few Cleveland Indians fans out there who have been loyal for a very long time, even though the Indians weren't doing very well," said Taulli. "I think that will help the offering."
-- by staff writer Randall J. Schultz