Investing in sports operations is difficult

When wrestling superstar Brock Lesnar returned to town last week to unleash his latest brand of legalized human pummeling, his "Ultimate Fighting" event set a new Target Center box office record with a one-night take of more than $2 million. Lesnar has been a fan favorite in Minnesota since he won a national wrestling championship for the Gophers. He also spent a few years with World Wrestling Entertainment and an exhibition season with the Minnesota Vikings before joining the Ultimate Fighting circuit.

But unlike World Wrestling bouts, the blood, bruises and broken bones that characterize Ultimate Fighting apparently are very real. Good thing it's men battling it out in the ring and not animals -- otherwise the promoters might be sharing a cell with Michael Vick.

Staged violence may be a felony for household pets and farm animals, but if it's man-on-man, the caged carnage is apparently just good business. How good?

Zuffa, the parent company of Ultimate Fighting Championships, is a privately held company, so it is not required to report earnings. But at its website, the Las Vegas-based company claims annual revenue of about $1.1 billion.

Although you can't invest in Zuffa, you can buy a piece of Lesnar's former employer, World Wrestling Entertainment, which trades under the symbol WWE on the New York Stock Exchange.

WWE was founded by wrestling promoter Vince McMahon, who continues to serve as chairman of the board. The company stumbled through a slow year in 2006, when gross profit dropped about 60 percent, but it bounced back to record profits in 2007. The Stamford, Conn.-based company appears to be on track to increase profits again in 2008, although its second-quarter earnings (through June 29) were the same as its earnings in the second quarter of 2007. WWE had total revenue last year of $485.7 million.

WWE pays a burly 9.2 percent dividend yield. The stock was recently trading at about $16, down about 21 percent from its 52-week high of $19.86. It has a price-earnings ratio of about 21.

Investing in sports

Investing in sports operations is generally reserved for billionaires such as Twins owner Carl Pohlad and Timberwolves owner Glen Taylor, who can afford to buy an entire franchise. For small investors who want to add a sports-related stock to their portfolios, the pickings are slim.

The Green Bay Packers are a shareholder-owned company, but the shares don't trade on any of the traditional stock exchanges. The shares do, however, carry voting rights, a big perk for Packers fans. On the downside, however, the shares cannot appreciate in value, they pay no dividends and their redemption price is minimal. In other words, unless you're a true Packers fan, this is probably not the type of stock you would want in your portfolio. Even for Packers fans, the benefits are negligible -- share ownership doesn't bring special consideration for scoring Packers tickets.

So why own Packers stock? Only the 112,000 Packers fans who hold the 4.75 million shares of stock can answer that. But the local ownership has made it possible to keep the Packers in Green Bay. Stock sales in 1923, 1935, 1950 and 1997 helped bail the franchise out of financial difficulty and kept the team in town. To protect against an outsider taking control, the articles of incorporation prohibit anyone from owning more than 200,000 shares.

Local plays

If you're looking for a locally based sports-entertainment stock to buy, you could roll the dice on a couple of gambling-related stocks.

Those stocks are Canterbury Park Holdings (ECP), which operates the Canterbury Park horse-race track, and Lakes Entertainment Inc. (LACO), a Minnetonka-based operation founded by Lyle Berman that owns majority interest in the World Poker Tour. LACO also develops, finances and manages Indian-owned casino properties.

For the most-recent quarter, ended June 29, Lakes Entertainment reported a loss of $5.2 million -- 21 cents per share -- hurt by a decline in domestic television license fees from the World Poker Tour. It reported a 97-cent loss for the previous four quarters.

Lakes Entertainment manages the Cimarron Casino for the Iowa Tribe in Perkins, Okla., and the Four Winds Casino Resort for the Pokagon Band in New Buffalo Township, Mich. It also has contracts to develop and manage several other casinos in California and Oklahoma.

The stock was recently trading for about $6 a share, down about 50 percent from its 52-week high of $11.99, but still up significantly from its 52-week low of $3.86.

Canterbury Park Holdings, in Shakopee, was recently trading at about $9, down 44 percent from its 52-week high of $13. The company has seen a decline in earnings over the past year because of the slowing economy. The stock pays no dividend and has a price-earnings ratio of about 18.

If you really want to turn a buck in the hometown sports business, your best bet may be to just keeping putting your money on Brock Lesnar.

Gene Walden is the author of more than 20 books about business and investing. He lives in the Twin Cities. Send questions or comments to: gwalden100@comcast.net, or visit Allstarstocks.com.