RICH PICKINGS: Wooden spoon investments

Despite the increasing popularity of sporting team ownership among rich entrepreneurs, including Nathan Tinkler, many are discovering wealth does not guarantee success.

Billionaires around the world crave many different status symbols. For some it is luxury property or cars. For others, it is fine wine or art.
But in recent years, one status symbol has stood out above all others – the football team.
This was highlighted again this week on two different continents.
In Australia, coal baron Nathan Tinkler pulled one of the coups of the rugby league season when he enticed veteran coach Wayne Bennett to his Newcastle Knights from the Illawarra Dragons.
Tinkler, who seized control of the club last month in a deal worth $10 million, is an unabashed sports investor – he has ploughed an estimated $200 million into his horse racing empire Patinack Farms, and in September 2010 he took control of the Newcastle Jets soccer team, after the previous owner could no longer keep pumping funds into the club.
Bennett made it clear Tinkler’s cash was a key reason for his move.
"Private ownership appeals to me. I like it,” Bennett said last week.
"The Knights have already won two premierships and have been a great club despite struggling with their finances. And that's where Nathan Tinkler comes in."
On the other side of the world, England’s Premier League soccer competition has been abuzz with news that US billionaire Stan Kroenke is launching a takeover bid for Arsenal, having grabbed more than 60 per cent of the club.
Like Tinkler, Kroenke is a noted sports investor. His company, Kroenke Sports Enterprises, already owns the NFL team the St Louis Rams, the NBA basketball franchise the Denver Nuggets, the Colorado Avalanche NHL ice hockey team and Major League Soccer side the Colorado Rapids.
Both Arsenal and Newcastle Knights fans are happy with their new owners, and why not – rich owners with deep pockets should logically mean better players, more wins and more trophies.
However, wealth does not guarantee success and for many wealthy entrepreneurs sporting teams can become money pits.
The A-League
No-one knows this better than a group of entrepreneurs who have had to give up ownership of clubs in Football Federation of Australia’s A-League soccer competition.
When the league launched in 2005-06 under the guidance of billionaire Frank Lowy, there was a stampede from entrepreneurs looking for a slice of the action. But in some cases, the FFA has been forced to step in and prop up clubs when these entrepreneurs stepped out.
Some of the entrepreneurs to lose millions in A-League clubs include:

-- Con Constantine. Newcastle Jets owner Con Constantine, who owns the Parklea Markets, sunk an estimated $15 million into the club before the FFA stepped in to hand the club’s license to Tinkler in a bid to stem growing losses.
-- Don Matheson. North Queensland Fury owner Don Matheson was reported to be spending as much as $50,000 a week keeping the club alive in 2010. He eventually bowed out and the club has now been shut down by the FFA.
-- Nick Bianco. The original owner of Adelaide United, Nick Bianco, handed his club back to the FFA in early 2009 when his business supplies company was hit by the GFC. He described owning a football club like this: "You do that because you love the club, and you do it like a hobby, like a racehorse – you don't get your money back.”
-- Emmanuel Drivas, Emmanuel Kokoris, Claude Baradel and Serge Baradel. The four owners of the Brisbane Roar are all well-known Queensland entrepreneurs, but despite winning the championship this year were struggling to fund the club’s losses. They have now re-committed to supporting the club after clearing debts by selling three players, but as Emmanuel Drivas told Fox Sports, the financial challenges remain. "Running a football club is a real business. We need about $8 million turnover to break even. Out of the 10 clubs, nine are actually losing money.” 

-- Clive Palmer. Palmer is the founding owner of Gold Coast United, but after sinking millions into the club he remains unhappy with the financial performance of the team. So much so that he will only offer players one-year contracts for the 2011-12 season, leaving him the option of folding the club if things don’t improve. ''The owners just don't believe in the current model of the A-League and many of them are not sure that the competition can survive,'' Gold Coast manager Miron Bleiberg said last week.
What makes it so hard to profit from sports?
When asked what was wrong with the A-League model, Brisbane Roar co-owner Emmanuel Drivas said the league has simply been unable to generate the sort of revenue required to give owners a return on their investment.
Sporting clubs have limited revenue sources – attendances and memberships, sponsorship, media rights and small amounts of prize money – which can be variable depending on on-field results, fixturing and the economic climate.
But expenses – particularly players' and coaches' salaries and the costs associated with playing matches in a stadium – are largely fixed thanks to long-term agreements such as salary caps, collective agreements with players and stadium contracts.
The balance between a profit and loss is always tight and in the start-up phase of a competition like the A-League, losses are inevitable.
The Stan Kroenke model

While the finances of Stan Kroenke’s sporting team empire are a little hard to find, it should be remembered that his $2.6 billion empire is built on property, not sports.
As the husband of Ann Walton Kroenke, who inherited chunk of Walmart stock after father James (Bud) Walton died 1995, Kroenke has become one of Walmart’s biggest landlords after developing numerous shopping centre projects for the company.
But his sporting team empire is also based around property – he owns the Pepsi Centre in Denver, which houses Denver Nuggets, the Colorado Avalanche and the Colorado Mammoth, a professional lacrosse team.
Ownership of the stadium (and another where the Colorado Rapids soccer team play) allows Kroenke to supplement his income from the sporting teams with income from other events at the stadium, such as concerts .
The sporting teams become "content” for the stadium, as much as businesses in themselves.
In addition, Kroenke has built a reputation as a sensible owner – that is, he doesn’t go on wild spending sprees to secure the best players and "buy” trophies.
His teams have been moderately successful – the Avalanches won the NHL title in the first year under his ownership – but are hardly contenders year in, year out.
That might not be great for fans, but it does keep the owner afloat.
Tinkler’s solution
Perhaps the best approach to the sports ownership money pit problem has been taken by Nathan Tinker. He’s set up not-for-profit vehicles to own the Newcastle Jets and Knights through, which is an admission that in the end, owning a sporting team is more like another form of charity.

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