The Boston Celtics basketball team set a precedent when it became the first sports franchise to go public in the form of a limited partnership.
On December 3, 1986, business and sports history was made when, for the first time, a sports franchise went public in the form of a limited partnership. The Boston Celtics basketball team sold 40 percent ownership of the franchise as limited partnership shares to the general public. The team owners, Don F. Gaston, Paul R. Dupee, Jr., and Alan N. Cohen, retained and controlled 59 percent ownership in the franchise as general partners, and the remaining 1 percent share was retained by the remaining general partners.
Gaston, Dupee, and Cohen originally purchased the Celtics in 1983 from Harry Mangurian
The history of the Boston Celtics began with Walter Brown,
After the 1965-1966 season, Russell took over as head coach of the Celtics, and the team won two additional titles in 1968 and 1969. Auerbach became the team’s general manager; he later became the president and chief executive officer of the Boston Celtics Limited Partnership as well as one of the general partners.
During the 1970’s, the Celtics put together another strong team featuring stars John Havlicek,
In 1978, the team’s fortunes turned around again when the franchise signed Indiana State University star Larry Bird.
In 1983, Mangurian sold control of the team to Gaston, Dupee, and Cohen. Also in 1983, onetime Celtics guard K. C. Jones
By going public, the Celtics owners benefited in several ways. In just three years, the limited partnership made a profit of $29 million. Additionally, the three owners continued to retain more than 51 percent ownership, which they needed for decision-making authority. The stock sale also enabled the owners to raise the necessary capital to fund the team’s day-to-day operations while at the same time allowing fans to participate in ownership of the franchise. The additional capital established a value for the franchise that was well above the original investment. Moreover, the public offering increased liquidity of the franchise by allowing the owners to sell shares as needed when they required additional capital.
Most financial analysts criticized the Celtics’ public offering from the start. Many believed the initial offering was overpriced and was aimed at financially unsophisticated basketball fanatics. In retrospect, it became clear that the owners decided to sell the limited partnership shares at exactly the right time. With tickets to Celtics home games sold out for years in advance and with long-term television contracts already negotiated, revenues and profits were, by and large, at their peak and predictable. The only variables—additional capital generated from participation in playoff games, levels of player salaries, and outside investments—had extremely predictable and unfavorable futures. The team’s players had, for the most part, reached their athletic peaks around the time of the initial offering, and it would soon be time to recruit new, fresh talent; this would cost the Celtics organization time and money. A rebuilding period would also limit playoff success. Finally, NBA player salaries were increasing at an accelerated pace.
In the wake of the stock sale, the Celtics organization’s revenues rose as a result of new NBA television contracts and higher ticket prices, but soaring player salaries dragged down profits. In 1990, the partnership bought a Boston radio and television station to broadcast Celtics games. That investment proved unwise, as cash outflows consistently exceeded cash inflows.
Before 1990, the Celtics stock price did not reach $20; in 1987, it almost dropped below $10 per share. In 1992, the stock price reached almost $24 on speculation that investors would buy the franchise for an asking price of $200 million. As a result of a broadcast-industry estimate that put the total value of the Celtics’ radio and television stations at less than the original investment of $16.4 million, the balance of a $200 million offering would value the franchise at more than $183 million, a figure more than double the previous record paid for an NBA team, the $90 million paid for the Orlando Magic. Takeover speculation subsided, however, and investor confidence slipped, lowering the stock value to less than $17 per share by the end of 1992.
Over the ensuing years, the value of the team’s stock varied with the vagaries of the larger market until 2002, when all shares were bought back by the team’s new owner, the Boston Basketball Partnership.
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Araton, Harvey, and Filip Bondy. The Selling of the Green: The Financial Rise and Moral Decline of the Boston Celtics. New York: HarperCollins, 1992. Presents a discussion of the financial aspects of the Boston Celtics enterprise up to the early 1990’s. -
Downward, Paul, and Alistair Dawson. The Economics of Professional Team Sports. New York: Routledge, 2000. In-depth analysis of a variety of elements that contribute to the economics of team sports in general, such as demand for sports teams on the part of communities and the players’ labor market. Includes figures, tables, bibliography, and index. -
McLaughlin, Mark. “Cashing in on the Celtics: How Good an Investment Is Stock in a Sports Franchise?” New England Economic Review, January 5, 1987, 40-41. Discusses the Celtics’ stock offering and the many issues that surrounded the event. -
_______. “Win or Lose, Celtics’ Performance Has Little Effect on Price of Stock.” New England Economic Review, June 20, 1988, 48-49. Examines the situation of the Celtics eighteen months after the initial public offering. Notes that even though the team’s performance had deteriorated, there was little or no evidence of the price of the stock declining. -
Rescigno, Richard. “Not Quite a Layup: For Investors, Celtics May Be a Long Shot.” Barron’s 66 (November 17, 1986): 22-26. Discusses the stock offering and the price of the stock as well as the revenues and expenses of the team. -
Smith, Geoffrey. “$183 Million for the Celts? Now That’s a Stretch.” BusinessWeek, February 24, 1992, 86-87. Examines the financial situation of the Celtics and the possible sale of the team, along with some recently purchased radio stations, for $200 million. Contains a graph depicting the revenues and net income of the Celtics from 1988 to 1992.
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