Stars on the Field Must Own Up to Failure Off It

So, if I told you to give your money to Tiger Woods, John Elway or Mario Lemieux and let them invest it in a pro franchise, would you do it?

It’s a question worth asking -- but before you answer it, as with any business decision, you should perform due diligence, and read up on the history of superstar athletes turned businessmen. You might decide that it’s less risky to throw your money into junk bonds, or down a vacuum cleaner hose. Or you might decide that athletes are the new tycoons.

To answer the question, you have to ask yourself another one, which is, do superstar athletes have traits that naturally translate to financial success, and if so, what are they? Or do we confer qualities on them that they don’t possess, because we confuse talent with intellect? It’s a particularly intriguing topic this week, given reports that Tiger Woods and Michael Jordan may form a group of high-powered super investors to purchase the Milwaukee Bucks, at $50 million a throw.

The sports industry is a tantalizing one; the Sports Business Journal estimates that it’s worth about $213 billion, counting franchise values, athlete endorsements, and licensing and TV rights. That’s more than twice the size of the auto industry, and about seven times the size of the film business. No wonder so many athletes want in on the bigger action -- and want to make the transition from employee to employer. It used to be that pro athletes had to sell insurance in the off-season to get by. Then they started making the same money as top lawyers. Now they earn more than shipping magnates.

Given their outsized salaries and commercial income, it seems inevitable that they will become potential owners. But will they be any better or worse ones than the current captains of industry who run franchises?

It’s tempting to think that athletes naturally make good entrepreneurs, but in reality their record is mixed. Attorney Lon Babby of Williams and Connolly, who represents Grant Hill and Tim Duncan, would like to see his clients become a new class of mogul. According to Babby, a pro career that ends at 40 could be the perfect springboard to a boardroom.

“First of all, they’re given a tremendous platform, and if they use it, they can meet people in all walks of life, so they have an opportunity to deal with people at the highest levels,” he says. “They have access lots of people don’t have.”

The problem with too many of them is that they don’t avail themselves of the opportunity, and do the dull work of due diligence. Instead, they go into ill-fated businesses (often in the recording industry) with so-called friends. “You don’t make a business decision based on who you want to hang around with,” Babby says.

Another significant problem is that too many of them don’t understand the value of money because they get so much of it. “Some of them probably have a sense of invincibility, and also have a sense it’s never going to end,” Babby says. “But everybody has to have a second career, no matter who they are.”

Bill King, senior writer for the Sports Business Journal, notes that too many athletes assume knowledge they don’t possess, because they’ve rarely failed. “They expect to be able to go in and make decisions and assume it will work, because it always worked on the field,” he says.

A good bad example is Elway. Forty-seven times over his 16-year career he led the Denver Broncos to comeback wins. That, plus his golden boy looks and back-to-back Super Bowl wins led everyone to assume Elway was the perfect corporate pitchman. But he’s been a flop in the boardroom.

He swapped his eight Denver auto dealerships to Wayne Huizenga for stock, and then the stock dropped from $40 a share to $6.25. The hapless venture MVP.com, a sporting goods Internet business he launched with Jordan and Wayne Gretzky, also failed. With three of the greatest athletes of all time, how could the venture miss? Somehow, it did, and the value was written down from $100 million to $5 million.

But there are some athletes who’ve learned to handle their own fortunes smartly, and therefore might be trusted with other people’s money, too. Those are the ones who understand that they are commodities, and instead of complaining about it, learned how to capitalize on it. Magic Johnson is probably the best example of someone who has successfully made the transition from an employee to an employer, and he has a social vision, too.

Franchise ownership is high risk. If you evaluate pro franchises on the basis of whether they make or lose money in the short term, they look like sinkholes. In plain terms of financial gain, there’s really no justifying it. The only reason to own one is for the pleasure it provides to you and the city in which the team resides. “Generally the people who buy them do so because they want a psychic toy,” King says.

Most owners don’t even make good owners. The people who buy teams usually are successful in some other business, they know how to sell ships, or Internet mail, but that doesn’t mean they know how to build and manage a team. From that standpoint, an athlete is perhaps more qualified to be an owner, than, say, an oil and gas speculator who got lucky-rich. It will be interesting to see if Lemieux is a good example. We don’t yet know what sort of owner he’ll be -- the Penguins failed to make the playoffs and they’re losing some money, and basically, he owns the team because the team couldn’t afford to pay him. But if in the long term the franchise is in better position than when he got in, he will be counted a success.

It remains to be seen if superstar athletes have a taste for the more mundane, headachy work of owning a team. An owner has to negotiate city council politics, worry about zoning issues and public accommodations law and union troubles, hire and fire the right people, keep an eye on the payroll, and humble himself when necessary before public officials.

If athletes decide to truly interest themselves in these matters, they will be good entrepreneurs.

It would seem high time that athletes, especially minority ones, assume ownership of their sports. It’s time for them to make the transition from being the product to managing the product.