Showbiz Heavyweights Take Shots at the Big Leagues But Not All Score

BIG3 Press Conference at Sheraton Times
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Sitting courtside, cheering your team on, rubbing shoulders with elite athletes and, hopefully, one day lifting that championship trophy high as the team bathes you in a champagne shower — it’s the kind of thrill you can’t get reciting lines in front of a green screen.

So it’s no surprise to find that an increasing number of celebrities are investing in major league teams, including the NBA’s Memphis Grizzlies (Justin Timberlake), Philadelphia 76ers (Will & Jada Pinkett Smith) and the NFL’s Miami Dolphins (Jennifer Lopez, Gloria & Emilio Estefan, Serena & Venus Williams and Fergie). Rapper-actor Ice Cube has taken it a step further, teaming with manager Jeff Kwatinetz to launch their own three-on-three basketball league, Big3, featuring former NBA stars including Allen Iverson.

But veteran Hollywood producer Peter Guber has a word of caution for anyone considering an investment in a sports franchise.

“The top of that business is all that noise and beauty and fun and joy, that little thing that sticks out of the water,” says Guber, who just won his second NBA championship as co-owner of the Golden State Warriors, and also co-owns the Los Angeles Dodgers, the e-sports franchise Team Liquid and the Los Angeles Football Club, an MLS team due to launch in 2018. “The other 90% is under the water and that’ll kill you unless you know what you’re doing.”

In many ways, it’s never been a better time to invest in a professional sports franchise. While player salaries are forever on the rise, they are being outpaced by growing revenues driven by ever-larger TV licensing deals. According to Forbes, the average value of MLB and NFL teams were both up 19% year-over-year in its most recent surveys, rising to $1.54 billion and $2.34 billion, respectively, while the average value of an NBA franchise increased 3.5 fold over the past five years.

But those skyrocketing values mean that the only people who can afford a majority ownership stake in a major league franchise are multi-billionaires including former Microsoft CEO Steve Ballmer (estimated wealth: $31.9 billion), who paid $2 billion to become the sole owner the NBA’s L.A. Clippers in 2014. So celebrities typically buy-in as limited partners.

It’s not known how much Bill Maher, host of HBO’s “Real Time With Bill Maher,” paid for a minority share in MLB’s New York Mets in 2012, but earlier that year hedge fund manager Steve Cohen reportedly shelled out $20 million for a 4% stake in the team.

Naturally, the wisdom of such an investment depends on the celebrity’s net worth.

“If you’ve got $100 million and you need to put in $10 million to be a minority partner, that’s borderline wise,” says business manager Peter Mainstain of Tanner Mainstain Glynn & Johnson. “If you’ve got $500 million, and this is really your passion … I would say go for it.”

As limited partners in a sports franchise, celebrities also have limited say in how the team is run due to league rules that require control of the team be given to a single managing or general partner (GP).

“Certain GPs look forward to hearing from their partners and having very good dialogue and if you’re going into these deals, you need to make sure that’s the type of person you’re going in with,” cautions Robert Stanley, co-founder and managing partner of Evolution Media, which has helped facilitate sales of teams including the 76ers, the Grizzlies and the San Diego Padres.

And once they put the money in, they shouldn’t expect to see a return on the investment any time soon. “It’s not liquid, and there’s probably not a whole lot of cash-flow distributions,” says Bernie Gudvi, a partner in GSO Business Management. “The money’s being reinvested in the team. It’s strictly a long-term play where you’re building value in the assets and the money comes when that asset is sold or you sell your interest.”

But before a celebrity can sell, they have to find a franchise to buy into, and that can be a challenge.

Mainstain once had a client who had an opportunity to buy an LP interest in the then-L.A. Raiders, or so he thought. When the owner of the LP notified team management of the pending sale, the club exercised its right of first refusal, pushing his client out of the transaction.

Major league team ownership “is a club for very wealthy people, and connections go a long way in that club,” says Mainstain.

Guber learned that lesson the hard way in 2001 when he and Save Mart Supermarkets owner Bob Piccinini, who died in 2015, finalized a deal to buy the Oakland A’s, subject to MLB approval, only to have then-league commissioner Bud Selig block the sale, citing a contraction plan that called for the elimination of the A’s and the Minnesota Twins franchises.

“Bud Selig said it was contraction … but it was really more like concoction,” says Guber, who also had a deal to buy the NBA’s Miami Heat fall apart in the final minutes back in the ‘90s. Both franchises stayed in business, and the A’s were subsequently sold to an investor group that included Lewis Wolff, a college fraternity brother of Selig’s.

It’s much easier to find investment opportunities outside the major professional leagues in ventures such as the forever-struggling Arena Football League (AFL), which has attracted numerous celebrities including Jon Bon Jovi, a former co-owner of the Philadelphia Soul, and Tim McGraw, a minority investor in the now-defunct Nashville Kats.

The AFL’s most high-profile investors are Gene Simmons and Paul Stanley of the veteran rock group Kiss, who not only purchased a co-ownership stake in the L.A. Kiss with their manager Doc McGhee in 2013, but they also lent it their name and their band logo.

Still Simmons’ highly touted promotional prowess could not save the team from folding last year. It was arguably more frustrating for Motley Crue singer Vince Neil, who saw the AFL team he invested in, the Las Vegas Outlaws, get shut down after it earned a spot in the league playoffs in 2015.
But even when you win it all in the big leagues, the thrill of victory can be fleeting.

“It’s like a hit movie, a hit television show, a hit sports event,” Guber says. “What lasts is the capital that you receive from it — financial, intellectual and experiential.”

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