The Indianapolis Indians are rewarding stockholders in the franchise following a season in which revenue and profit grew,
thanks to significant increases in ticket, concession and merchandise sales.
The higher profit fueled a 75-percent dividend increase this year and an increase of more than $6,500 in the franchise's standing offer to repurchase shares.
Profit grew from $810,000 in 2006 to $1.27 million in 2007. This year marked the first time in three seasons that profit surpassed $1 million.
Fueled by an aggressive marketing campaign, attendance hit its highest mark in six seasons. Ticket sales increased 15 percent, merchandise sales rose 10 percent, and concession sales were up 33 percent.
Walk-up ticket sales were so brisk, Indians General Manager Cal Burleson said the team intends to spend $250,000 during the off-season to add three ticket windows to the six existing.
"At times this year, the lines backed into West Street," Burleson said.
Operating expenses rose 5.8 percent last season. The team's frugal management and long-term profitability have grown the franchise's cash reserve to $6.7 million.
The Indians franchise, a AAA minor-league affiliate of the Pittsburgh Pirates, is aided by the fact that its major-league parent club pays players' salaries. The Indians' deal with the Pirates runs through next season, but Indians officials are pleased with the agreement, and it appears likely it could be extended.
"In the three years we've been with them, they've allowed us to field highly competitive teams, and we think that's important," said Indians Chairman Max Schumacher.
A competitive team wasn't the only thing working in the franchise's favor.
"We had a year of weather that was exceptional, but we also had a very good marketing and advertising plan led by in-house staff and our ad agency, Hirons & Co.," Schumacher said.
Burleson credited an aggressive game-day promotions plan and the growth of the Coors Light Corner picnic area, which drove group ticket sales, as other factors in the financial success. Team officials think revenue from the Coors Light Corner, which didn't open until June this season, could more than double in 2008.
Revenue comes from Coors' sponsorship of the area and group rental fees, which include a charge to have the picnic catered. The area next season will be set up to handle two groups per game, one pre-game and one during the game.
A generous mood
This year was so good for the Indians, the franchise's board decided to grant stockholders a $350 dividend, up from $200 last year.
Indians board members also agreed to significantly up their offer in an ongoing stock buyback effort, from $15,329 to $21,832 per share.
That news immediately caused a reaction in the Pink Sheets--NASDAQ's division that tracks thinly traded stocks--where a market maker increased its offer price from $19,000 to $23,000 on Nov. 20.
As recently as July, 16 shares traded for $22,500 per share, according to sources close to the team.
"$21,832 is a more realistic offer [than previous buyback offers]," said Indians stockholder D.N. Diedrich. "Nevertheless, the current shares are ultimately worth more than $30,000 a share."
Since shares that are bought back by the Indians are retired, that means the remaining shareholders will own a larger piece of the franchise, and that would put upward pressure on the stock, said Robert Briles, vice president of David A. Noyes & Co., a local investment firm that has brokered Indians stock.
Indians officials said they calculated the buyback price using a formula that considered earnings before interest and taxes, cash reserves and the number of shareholders.
The current buyback offer puts a $17.2 million value on the franchise, which is still a low estimate, according to sports business experts.
"That may be an appropriate appraisal based on revenue and profits," said Larry DeGaris, director of academic sports marketing programs at the University of Indianapolis. "But it doesn't account for demand. There are a limited number of professional sports franchises, and the Indians are a blue chip property."
There are just 789 outstanding shares of Indians stock remaining, held by 210 stockholders, according to franchise records.
As the buyback pushes the number of shareholders lower, the likelihood of the team's being taken private increases, sports business experts said.
"The fewer sellers there are to coordinate, the easier that would be," Briles said.
If the number of shares outstanding dips below 620, that would mean Schumacher--who currently owns 310 shares--would assume majority control of the team.
"If you have a majority shareholder, that certainly streamlines the decision making," DeGaris said.
DeGaris, who recently completed a study on minor-league and Major League Baseball commissioned by Charlotte, N.C.-based Bank of America, said the team's venue, long run of profitability, and solid management puts the Indians' value higher than most minor-league teams.
The overall health of baseball is another factor pushing up the value of franchises, said Jim Ferguson, Minor League Baseball spokesman.
"Baseball has been on a steady rise for several years," Ferguson said. "The teams that are doing the best are the ones that are offering the total entertainment package, and the Indians seem to be one of those teams."
Indians officials are confident they will continue their financial success in 2008, and think 600,000-plus attendance is within reach.
"The 2008 schedule provides us with the framework for an excellent season," Burleson said. "We're going to continue to market and promote this team aggressively to keep fans coming through those turnstiles. We feel like now we're really building momentum."
The Indians' good fortunes bode well for the city, according to a study commissioned by the team and recently completed by locally based Strategic Marketing & Research Inc.
The study concluded the team had a $28.5 million annual economic impact on Indianapolis, with $11 million spent directly at the ballpark, and the rest affecting businesses outside Victory Field.
"This study shows the far-reaching impact this team has on this community," Burleson said. "In addition to the financial upside, we think the team really ads to the image of the community."