By Sara Mackey

Many people have dreamed about owning their own sports team, but few have managed to make that dream a reality. With the recent economic uncertainty, sports teams have suffered as a result. Recently, the NFL announced a plan to start an estimated thirty two million dollar venture capitalist fund in order to invest in entertainment businesses, technology and media that relate to their sport. This is a great opportunity for venture capitalists interested in the sporting industry to make a great investment, yield potentially high returns and fund a worthy venture.

Joe Torre also made the headlines recently when he resigned from the Dodgers Organization. Torre was the MLB‘s executive vice president for baseball operations. He was a manager to the Dodgers from 2008-2010, upon retiring he joined Commissioner Bud Selig‘s side as a top aide. Joe Torre’s next move was to join a venture capitalist group that intends on buying the Dodgers. The venture capitalist group is headed by Rick Caruso, a real estate developer.

In order to purchase a professional sports franchise, your net worth must be around two hundred million or higher depending on which team you wish to acquire. Few people have the funds available to meet the financial demands on their own and are instead joining with venture capitalist firms, as Torre did. The NFL prohibits publicly traded companies and large ownership groups from buying a team, but there are many other sports franchises available to the venture capitalist.

Venture capitalism is a primarily small world and not every venture capitalist team will have the money needed up front to buy a sports franchise. In 2006, five NFL teams, two soccer teams and the New York Yankees were valued at over a billion dollars. Venture capitalists do have one advantage over the rest of the field, most are credit-worthy for large sums of money. They also have the option of asset based lending. Sports franchises come complete with stadiums, equipment, inventory, accounts receivable and merchandise that can be used as collateral in order to secure the funds necessary.

Anybody buying a sports franchise must provide financial documents that prove they are reasonably able to afford the purchase and management of the team. Most venture capitalists do not have the liquidity needed to buy a sports franchise without debt financing. Debt financing is often used by venture capitalists as short-term loans in order to purchase the venture and repaid quickly as the cash flow becomes positive.

Owning a sports team can be a very profitable move for a venture capitalist and it can yield high returns on the investment. Institutional investors and venture capitalist also put financial deals together for ownership groups in smaller markets such as expansion teams or minor league teams as well.

In the Picture: LA Dodgers Dugout
Picture by: OctopusHat - Flickr