TBJ Report: Karmanos Creates Holding Company To Entice Franchise Investors

Friday's issue of the Triangle Business Journal had some updated information about Peter Karmanos and his efforts to partner with local investors.  According to the publication, the Carolina Hurricanes' owner recently created an entity called Hurricanes Holdings, LLC.

The holding company allows Karmanos the opportunity to offer investors the equivalent of a money back guarantee -- within guidelines -- on their stakes in the team.  TBJ spoke with the owner and got the following quote.

"Investors who put their money into an entity called Hurricanes Holdings LLC could get all their money back – with interest – after five years, if they are not happy with the direction of the franchise," says Karmanos.  "This was an enticement to make the investment as risk free as possible. It’s important to me to get local investors," something he says is "difficult enough."

Apparently, an offering like this is unusual in the world of sports.  Also from TBJ:

"Such a deal is out of the ordinary but enticing to potential investors," says Chad McEvoy, an associate professor of sport management at Illinois State University.  “That would provide some nice peace of mind or a good exit strategy,” he says, adding that he is not aware of any other sports franchise deal with such a guarantee.

Karmanos is still hoping to convince 10 to 12 local millionaires to invest $1 million to $5 million each to secure a minority stake in the team.  They collectively could own up to 20% to 25% of the franchise. 

When asked why he was just selling 25% of his club, the owner replied, "Because I enjoy owning it". 

Fans who were hoping that a new influx in cash would help to increase the team's budget, which at this time is barely over the salary cap floor, might be disappointed to learn that Karmanos will be paying down debt with at least some of the investment money. 

The following quote is also from TBJ:

Because the new capital would be used to help pay down debt, Karmanos says the guarantee carries relatively low risk for him as well. Whatever interest he would have to pay investors is money he will have saved by not paying interest to a bank.

Karmanos recently paid off his former partner's share of the team and it appears he borrowed the money to do so.

The article goes on to say that the total value of the club probably runs somewhere between the Forbes estimate of $170 million and what Karmanos is reportedly valuating it at, $225 million.  While the owner's valuation might be too high, minority owners usually don't buy in at a dollar-to-dollar value relative to the ownership percentage because they don't have the same authority over team or business decisions. 

Will this new development help to move the process along?  If you have a cool million or two you don't know what to do with, there is still time to sign up.

 

Check out the entire article (subscription needed) at the following link: Karmanos Forms LLC

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