Austin Marathon sold - For how much? What's standard evaluation model for a race?

Now, maybe they'll have a decent course again with change in ownership.

http://texasrunningpost.com/news/high-five-events-buys-conley-sports-austin-marathon/

OP, It's a good question. I imagine there is a standard industry evaluation for races.

Probably even one for a local running store. But I have no idea what that is.

Does anyone know?

I'm changing the title of the thread to try to get more people to respond.

The initial title was "Austin Marathon and Half Marathon SOLD!"

It was announced today that the Austin Marathon and Half Marathon was sold:

http://texasrunningpost.com/news/high-five-events-buys-conley-sports-austin-marathon/

.

The sale was from one local production company (Conley Sports) to another (High Five Events), so hopefully the new company keeps it a true runner's race like it historically has been (as opposed to if CGI or another chain had bought it). Still, though, this feels like major news, even if I don't know what it means.

Has an American Marathon of this size ever been sold before? What does a race like this sell for? And is this sale the vanguard of a trend in the community, as long-time founding race directors of for-profit races from the last 20-30 years look to retire and cash in on what they've built?

You don't like traffic or steep housing prices? Try not living in a desirable location. Those 150 people a day are creating more traffic. They're also creating what is probably the greatest economy in the US.

Some math to illustrate (all numbers made up):

1,000 current participants

10% growth in participation

**Next five years total participants ~6100**

$100 average fee

5% escalation each year

**Next five years total participants ~$680,000**

1 title sponsor @$10,000

5 sub sponsors @$2,000

10 small sponsors @$500

10% escalation each year (matches participation)

**Next five years total sponsor money ~$150,000**

Now you need to come up with a "margin." My guess is that it's not that high since the market is so saturated with races, so call it 10%. So on the $830,000 total revenue you're looking at $83,000 net. Discount that back at maybe 2% and you're looking at $70,000 or so of cash flow in today's dollars over the next five years.

Ultimately though, the value of something is what someone else will pay for it. Just trying to illustrate one approach to valuing a race (though I've not personally bought a race before). I do think it is an industry that will consolidate in the hands of a few players as participation levels off and more standard market valuations begin to become apparent.

A marathon is a fairly straight forward business venture. Any accountant who does business valuation could put a number on the value of a marathon by looking at the financials.

The tricky part would be dealing with investors who want to see cap rates and forward looking statements. I think the folks buying the Austin Marathon are probably using their own money and do not have to worry about projecting profit growth for a marathon to a NY hedge fund. But it would be interesting to see the analysis RnR does when they present an opportunity to purchase a race to investors. They have taken small events like the San Antonio Marathon and turned them into 20k plus participant blowouts. But they have also purchased established events (Philly Distance Run, Lisbon, etc.) and have not done much better than the prior event managers.

Convexity - So once an evaluation is made as to how much yearly profit there is in a race, is the purchase price equal to roughly 5 years of those profits?

Using last year's registration numbers:

Roughly 12,000 participants

Registration fee average about $120 across all races

So that's $1.4M in registrations.

As far as sponsorships go, they may pick up an extra $100K between title, presenting, and supporting sponsors.

I don't know what a healthy margin is on a race. If you go with 10%, then you're looking at $150,000 yearly. If they are having to cough up 5-year's worth, that's $750,000.

I would guess somewhere between $400-600K for a race this size.

The race went for a little less than that. If they had a legitimate long term title sponsor (that was paying competitively), then it would have fetched a lot more.

The two principals involved (John Conley and Jack Murray) have known each other for 20 years...both pretty involved in the local running community in Austin. Both well respected guys. Jack was living in a trailer 10 years ago and is now a multi-millionaire successful businessman. Here is a shot of his house that was in the paper recently:

http://www.austinmonthly.com/AM/October-2015/Moving-On-Up

John had turned down 7 figure offers from Competitor Group over the years when they had piles of cash cash and were acquiring races left and right. For TCG, it made a lot of sense because they were ultimately buying customer data. Plus, they were private equity, so it was a play to get more revenue.

Jack puts on a lot of local races. But nothing of this magnitude. He can't do much with that kind of customer database, or the economies of scale that someone like TCG could have done. But he's a smart guy.

I think John got stressed with the 'business' side of things. He is a great race director, but dealing with all the other crap of running a full time P&L for a company with FT employees, etc. is stressful.

John was able to get a little bit of dough and some job security for a while.

I was just showing some of the mechanics you could use to arrive at a valuation.

Another approach is using a multiple of earnings, so in the example I gave you'd be paying between 7 and 7.5 times expected cash earnings this year. That is probably high for a smaller entity like the one I used in the example.

If projecting you need to discount, so you really used a 5x multiple in your example. That implies a 20% return on capital which could be a little low given the risk involved in road races. I think your 400k to 600k might be about right.

There could also be other metrics that are standard such a a dollar amount per participant. You see this in some industries. Using the 400-600 range you gave, that's $33-$50 per registrant.

Really goes to illustrate that you can justify any valuation if you really want to.

This market (i.e. buying and selling races) is still a nascent one. I do have to say it is very interesting since there is a finite level of resources that races compete for (weekends and cities), but a variable number of revenue units (runners). Some weekends and cities will likely command more money than others, so the races with those locked up already would sell for more that a similar race on a not-in-demand weekend or in a no-name city. Then you get into things like segmenting who participates in the race, income demographics, etc. Lots of tun.

Just imagine the Austin Marathon owners on Shark Tank...would be fun to watch how they arrive at offer prices.

I'd listen to Sick Sponsorship Guy since he seems to actually have experience unlike my theoretical approach.

Convexity's posts are excellent.

As easy as it is to figure revenues, expenses are tough and can turn a medium-sized event into a money loser quickly. If the local government doesn't support the race, the street closure, traffic control, event permits, federation sanction, and so many other things will cripple the event. We haven't even gotten to events where there are media rights yet.

There's actually a bunch of mergers and sales at the promoter's level. The really big races now attract venture capital and publicly held companies like 24 hour fitness.

My guess is if venture capital is involved, the profits are very good for events where local government subsidizes the race as a tourism expense.

Smaller races are probably much more difficult to make profitable, hence the sale from one local promoter to another.

Convexity wrote:

I'd listen to Sick Sponsorship Guy since he seems to actually have experience unlike my theoretical approach.

Yeah, no offense to you, nothing you posted was wrong, per se. It just wasn't very specific to valuing. Different markets and different industries use different valuation metrics. So even a race without any earnings would have quite a bit of value as a property with thsi number of participants and revenue.

Does anybody know what metrics are most looked at in the road race industry?

Races are really changing right now. A few years ago it was a land grab. There was the Bubble Run, the Electric Run, the Color Run, etc. There was a lot of money being spent, being raised, etc.

It's slowed down. And lots of these guys are going out of business.

I think that getting 7 X Profit is more a unicorn or maybe an internet business (or if it is a strategic buy) Something like a marathon is a grind. There isn't a huge upside (i.e. if I take it over its not going to double next year because of decisions i make). Usually in the service business you get 3 times earnings. And maybe 4-5 times earnings if its 'sexy' --- which you could argue that a race is (esp. to a rich guy who just wants to make a vanity move).

Ultimately, the lack of a serious long term high paying title sponsor hurt the ability for Austin to get a great deal. With events like this, you want all your sponsorship money to drop straight to the bottom line (=gravy). Austin gets very little cash from its sponsor portfolio. It used to be the LIVESTRONG Marathon not long ago.

High Five Events buying the marathon is not a strategic buy, per se. It's a guy expanding his portfolio and growing his business -- cashing in some chips to play at a bigger table.

Would be valued like any other business, probably w/ a discounted cash flow analysis

This may be a bit off topic, but thought I would bring it up. I registered for this race today.

http://www.3mhalfmarathon.com

The first sentence once you click "Register Here" says:

"Should this event be cancelled (not postponed) for weather, natural catastrophe or terrorism, imATHLETE will provide a full refund of your registration fee."

Is it necessary to include the chance of terrorism in races now?