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Indians stock price belted into upper deck: AAA baseball franchise hits $21,000 per share

September 26, 2005

Despite the meteoric rise of the Indianapolis Indians' stock price, some industry analysts think the minor-league baseball franchise is still undervalued. In August, three shares of the thinly traded public company sold for $21,000 each and another share sold for $19,500.

The $21,000 share price-with 800 shares outstanding-puts a $16.8 million value on the AAA team. That's leagues ahead of the $8.3 million it was valued at during a stock buyback initiated by the franchise in 2002.

"A value for this franchise near or even above $17 million doesn't surprise me," said Andrew Zimbalist, a professor at Smith College in Northampton, Mass., and a noted sports economist.

"I've seen AAA teams selling for $20 million and AA teams selling for more than $8 million. I think a franchise of the quality of the Indians is going to continue to rise in value."

Larry H. Miller, who owns the NBA's Utah Jazz, bought the AAA Salt Lake Stingers-of the Pacific Coast League-before the 2004 season for $20 million.

One factor pushing Indians stock price increases, Zimbalist said, is its recent listing in NASDAQ's Pink Sheets, an overthe-counter system for thinly traded stocks.

"The Pink Sheets listing gives the stock much greater visibility and allows a real market value to be established," Zimbalist said. "The Indians can also continue to ride the rising popularity of Major League Baseball, which is stable and growing."

While Zimbalist said the Indians stock price is just now catching up with the rest of the industry, Robert Briles, vice president of David A. Noyes & Co., a local investment firm that helped broker an Indians stock sale in 2003, is surprised at how fast the correction is being made.

"The most recent transaction takes this to a new level," Briles said. "It's a significant sale because there are so few shares. I think for years we felt the shares were undervalued, but to have all this catch-up activity is amazing."

In 1997, Indians Inc. was offering to buy back shares for $5,000 each. Those shares tendered in the offer were retired and the remaining shares made more valuable. In 2002, Indians Inc. issued another buyback offer for $9,200 per share. In 2003, in a private stock sale, 28 shares sold for $13,000 each and 28 more shares sold for $13,100 each.

"That sale, I think, really opened a lot of people's eyes," Briles said.

Those interested in buying Indians stock as an investment must watch earnings, Briles said.

"A lot of people own it as a trophy stock," Briles said. "There's a psychological value to owning a part of a professional sports franchise."

The Indians have been profitable every year since 1973. Last year, the franchise posted profit of just more than $1 million, or $1,250 per share. Based on the $21,000 stock price, the shares have a price-to-earnings ratio of 16.8.

"A 17-to-1 P/E ratio isn't out of line in the U.S.," said Richard Sheehan, a University of Notre Dame economist and author of "Keeping Score: The Economics of Big-Time Sports." "Major League Baseball's Washington Nationals are for sale for more than $400 million. I'd say the Indians stock price makes more sense than that. If anything, given the track record of this team, a 17 P/E ratio is somewhat low." In addition to the earnings, teams are a scarce commodity, which also drives value up.

Driving the value of the Indians is a combination of factors including its market, the desirability of Victory Field, and franchise management, Sheehan said.

Total attendance declined slightly, from 576,071 in 2005 to 558,901 this year. Three games this year were canceled due to inclement weather. Per-game attendance dropped from 8,114 in 2004 to 8,100 this year. But Indians Chairman Max Schumacher expects 2005 profits to be near 2004 levels. The Indians' fiscal year ends Sept. 30.

The Indians benefited this year-its first as a farm team for the Pittsburgh Pirates-from a deep post-season run and a ticket-revenue-sharing formula that earned the franchise significant revenue from big playoff crowds on the road.

"I'm flattered by the stock price," said Schumacher, who owns 310 shares, or 39 percent of the franchise. "But I think we need to put out the admonition to people, the market may not always be as robust as it is now."
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