Want to Own a Professional Sports Team? You Can!

I'll start this off by disclosing that I have had Clippers season tickets for the last few years, and have been going to their games since 1999.

On April 29, NBA Commissioner Adam Silver punished Los Angeles Clippers owner Donald Sterling with a lifetime ban and a $2.5 million fine in response to leaked audio of racially insensitive comments he made to a companion. The other owners, acting on Silver's request and following the NBA constitution and bylaws, have initiated steps to force Sterling to sell the team.

In January, Forbes valued the Clippers at $575 million. Due to interest in buying the team, many are speculating that the final sale price for the Clippers will be around $1 billion. That would hardly be a "punishment," as Sterling bought the team for just under $13 million in 1981.

Many of us dream of buying our own sports teams, but are the Clippers a good investment? Which other professional sports teams are worth your investments?

Who's getting on board?
While many think Sterling and his wife Shelly will fight the sale, potential bidders are not deterred. Oprah Winfrey, Larry Ellison, David Geffen, and Magic Johnson (who would be backed by Guggenheim Partners, a privately held financial services firm) have put their names in the ring. The fevered interest and the recent sale of the Milwaukee Bucks indicate that Forbes' valuation of $575 million is too low for the Clippers. The Bucks, the team valued the lowest by Forbes at $405 million, sold for $550 million in March 2014 -- a 35% premium. A similar premium for the Clippers would push the price up to $780 million, a likely starting point for the bidding.

Is it worth it?
Part of the Bucks' low valuation stemmed from an aging arena, a small local viewing audience, and a small share of suite, merchandise and concession revenue. The Clippers, however, are located in the second-largest city in the U.S.; have sold out games since February 2011; and will be negotiating a new television deal for the 2014-2015 season, which may be worth $75 million per season.  Also in play are the NBA's future prosperity, which impacts all 30 teams and includes up to $2 billion a year for national broadcast rights; growth in international markets such as China and India; and a lower percentage of revenue sharing for the players.

With Forbes reporting the Clippers' operating revenue at $15 million a year as EBITDA (earnings before interest, taxes, and depreciation), and taking the projected asking price of $780 million as the enterprise value, the Clippers' enterprise value to EBITDA ratio is 52, a crude estimate for P/E value. That's a high premium for a historically bad team. If the final selling price for the Clippers comes to $1 billion, the ratio rises to 67. How does that compare to other sports teams as investments? Furthermore, can your average investor invest in sports teams?

There's no "I" in "team"! (But there is in "investment")
The Clippers can command a high P/E due to scarcity and demand. Of the 30 NBA teams, two have been up for sale in the past 18 months. The Sacramento Kings was sold in March 2013 for $534 million. 

The good news is that there are other options. Madison Square Garden Company , the parent company of the New York Rangers and the New York Knicks, is trading at around $50 a share with a P/E of 28.3. This is a premium price, considering that the industry-average P/E is 18.30. Madison Square Garden has a media division that broadcasts not only its teams' games, but also those of other metro New York sports teams. The company has an entertainment division that features headliners such as the Eagles and Billy Joel at its venues.

If baseball is more your style, consider shares in Liberty Media Corp. , owner of the Atlanta Braves, or Rogers Communications, Inc., owner of the Toronto Blue Jays. Liberty is trading at around $130 a share with a P/E of 19.10, a premium price considering that its industry average P/E is 7.20. Liberty also owns shares in various companies, which includes majority ownership in MacNeil/Lehrer Productions and Sirius XM. Rogers, a diversified Canadian telecommunications company, is trading at around $40 a share with a P/E of 14.20. Considering that its industry average P/E is 20.40, Rogers may be the more attractively priced option for investors who are baseball enthusiasts. The company even has a dividend yield of 4.2%.

For football fanatics, there is the publicly owned, but not publicly traded, Green Bay Packers. The Packers only sell shares when the team needs financing. Due to stock restrictions, the franchise is not an attractive investment. For the other "football" fanatics, take a look at Manchester United. It is trading at around $18 a share with a P/E of 13.80, also an attractive price considering that its industry P/E is 24.00.

It looks like there are ways to buy into a professional sports team, even if you don't have a billion to spare.

The article Want to Own a Professional Sports Team? You Can! originally appeared on Fool.com.

Johnny Chen has no position in any stocks mentioned. The Motley Fool recommends Rogers Communications (USA). The Motley Fool owns shares of Liberty Media, Madison Square Garden, and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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