Sports Business

Indians stock sale pushes price to record high: 16-percent increase comes on heels of strong financial year for AAA franchise

January 3, 2005

The Indianapolis Indians' stock value is going up like a long ball off the cleanup hitter's bat.

On the heels of a year that saw strengthening profits for the AAA minor-league affiliate, six shares of Indians stock sold in December for $15,200 each as reported in pink sheet filings. That represents a 16-percent increase from the last sale 18 months ago.

"This is significant because these shares don't trade that much, and six shares comprises close to 1 percent of all the shares outstanding," said Andrew Berger, a stock analyst and editor of Walker's Manual, which publishes studies on top unlisted public companies and those traded in the pink sheets. "It's also significant because the price it traded at is considerably higher than the last trade. The stock price is starting to show an upward trend, and that in itself is significant."

There is no record of who bought the shares.

Shareholders' dividends also are on the rise. The Indians' board of directors recently voted to pay a $200 per-share dividend this year, up from $150 a year ago. But analysts suggested dividends should be even higher.

The most recent stock sale puts a $12.2 million price tag on the franchise, which has only 801 outstanding shares. That's considerably more than the $8.3 million value the franchise's last stock buy-back, initiated in July 2002, put on the team.

"I'm totally impressed," said Robert Briles, vice president of David A. Noyes & Co., a local investment firm that helped broker an Indians stock sale in 2003. "I think this shows the stock has been trading at an undervalued level. This stock price more properly reflects the earning power of this franchise."

"That's a very high number," said Indians Chairman Max Schumacher, of the recent stock sale price. "I guess it indicates in the buyer's mind we have a very good future."

Schumacher, who owns 310 shares-or about 39 percent of the franchise-said he has no intention of selling stock or retiring anytime soon.

"I didn't get into baseball to make a lot of money," said Schumacher, 72. "I got into it because I love the game. The Indians have always been my passion and my avocation. I think I can still make a contribution to the team, and as long as I can do that, I'll stay with the team."

A primary reason for the increased interest in the company's stock is its listing in the pink sheets less than two years ago under the symbol INDN.

"Before the pink-sheet listing, there was really no way to buy and sell these shares," Berger said. "I think you could begin to see even more interest in this stock."

The last recorded trade of Indians stock before December was 28 shares for $13,000 each and 28 shares for $13,100 each in June 2003. Analysts said it's difficult to value such an illiquid stock. Indians Inc. initiated a stock buy-back for $9,200 per share in August 2002.

"I think these stock sales are more indicative of the team's value than recent tender offers," Berger said. "All you have to do is look at this organization's profitability."

"A value of the team reflecting 12 times earnings isn't unreasonable," Briles said.

The Indians' profit rose 23 percent this year to $1 million. But Indians management still has concerns with perceived instability in the market. While the team has been consistently profitable for 30 years, profit declined 31 percent in 2002 and another 9.4 percent in 2003, before the rebound in 2004.

Attendance, which had declined for five straight seasons until 2004, was one big factor in reversing the trend. Attendance increased from 550,319 to 576,067 for 71 home dates. The 8,114 average attendance was the team's highest since 2001. A $1 ticket-price increase in 2004 also helped bring in more cash.

"We had better weather and a favorable schedule with a lot of good weekend dates," Schumacher said. "It's also fair to say our marketing team did a good job."

Though there aren't as many weekend dates in 2005, Schumacher said his staff will continue to market aggressively in hopes of pushing attendance back past 600,000. Schumacher thinks the team's new affiliation with the Pittsburgh Pirates will help field a more competitive team and attract more fans. Last season was the last of five years affiliated with the Milwaukee Brewers.

"The history of the Indianapolis Indians has been one of a very successful team on the field with a lot of championships," Schumacher said. "The last four seasons we've been below .500, and that's below our standards. We're committed to fielding a competitive team and we think the Pittsburgh Pirates are, too."

Though pleased with the franchise's financial performance in 2004, Schumacher said many uncertainties require a cautious approach. In addition to the weather, changing schedules and affiliation moves, Major League Baseball is negotiating a contract with Minor League Baseball, which will likely see affiliates paying more in ticket revenue to their parent organizations.

Still, Berger calls the team's most recent dividend stingy.

"They made more than $1 million in profits and they paid out $160,200 to their shareholders," Berger said. "Paying a higher dividend rate would enhance shareholder value and make the shares more prized and sought-after. You have to ask, is management hording cash?"

The Indians have a history of putting money back into the franchise and its home, Victory Field, including $1.1 million into a video board last year. And though there are no major capital projects planned for 2005, Schumacher said, "We must carry some reserves to handle any kind of maintenance situation that would confront us."

Milton Thompson, a veteran sports marketer and Indians board member for 10 years, thinks the franchise would be foolish to diminish its reserve.

"There are so many uncertain factors in this business, you have to be prepared," said Thompson, president of Grand Slam Cos., a locally based sports marketing consultancy. "If Major League Baseball sneezes, Minor League Baseball gets a cold, and you also have to consider how any new ticket tax might affect business."

Mayor Bart Peterson has suggested a ticket tax on all local professional sports teams to help pay for a new stadium for the Indianapolis Colts.

"We're trying to maximize shareholder value just as any [board] would," Thompson added.

Berger thinks the Indians' bolstered cash reserve indicates the team is considering another buy-back offer.

Though the Indians say they have no tender offers planned, Thompson, who tendered his own shares for $9,200 each, still believes it's a good strategy to pare the number of shareholders and simplify the team's ownership structure. When the franchise buys back shares, those shares are retired, reducing the number of shareholders and thus lifting remaining shares' value.

"The Indians need to review their valuing mechanism if they are going to do another tender offer," Briles said. "Clearly, a new standard for the value of this stock has been set."
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