Private Equity Chases Marathons

As the number of participants and advertisers grows, private equity firms explore investments in the country's top marathon-organizing companies

by Joseph Weber

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Marathons, half-marathons, and other running events are attracting hundreds of thousands of people from around the country every year, and private equity firms are beginning to take notice. Executives at Elite Racing and Devine Sports, the nation's two leading for-profit race organizations, have been talking to investment outfits interested in cashing in on the sport's gains.

But experts in the field also warn that building a serious business on what traditionally has been a volunteer-oriented and nonprofit enterprise can be treacherous. Organizers can easily lose millions as they reach out to smaller cities—or diversify into smaller races—in bids to replicate the successes of such mega events as the marathons in New York, Chicago, and Boston.

Still, private equity groups including Falconhead Capital and Seaport Capital are studying the economics of the business, industry sources say. Such firms have already taken stakes in sports or other event-oriented businesses and regard running events as in the same league, says one private equity official who asked to remain unnamed. Seaport, for instance, owns Mandalay Baseball Properties, an operator of minor-league baseball teams. And Falconhead has invested in gym and golf operations.

"The dynamics of the marathon business are pretty compelling," says one insider. "People are concerned about fitness."

Rising Numbers

It's a solid growth business. The number of people finishing marathons has nearly tripled from 143,000 in 1980 to 410,000 last year, estimates the Road Running Information Center. Organizers reap handsome revenues from runners who pay up to $100 a pop—in some cases more—to enter races.

Additionally, the managers pocket hefty sponsorship fees and marketing dollars from advertisers keen to reach the affluent demographic runners represent. "You have an average household income of $160,000, every one of them has a computer, 98% use it daily," David Moross, chief executive of Falconhead, told SportsBusiness Journal. "It is an affluent group that spends and from a marketer's perspective it is a very attractive demographic."

Advertisers such as car companies and banks have flocked to runs to reach potential consumers. It's no accident that ING (ING) and LaSalle (now Bank of America (BAC)) are heavily involved with the runs in New York and Chicago. More expected sponsors include Nike (NKE), Adidas (ADDYY), and Gatorade (PBG).

The backing of such groups has thrust hefty amounts of money into the sport. Indeed, SportsBusiness Journal reported that the ING New York City Marathon, slated for Nov. 4, will draw about $27 million in revenue, even as its economic spin-off effects for hotels, restaurants, and other outfits toss still more money into play. Although it is a run by a nonprofit group, the New York Road Runners, the journal reported the outfit is likely to reap a $6 million gain.

"Strong Business"

Such races all over the country have been overwhelmed by the number of applicants, even as many have hiked the number of slots available for runners. New York will play host to about 38,000 runners and has had more than twice that seek slots. Chicago's race, in October, drew a like number and registration for it closed months before, last April. A combined marathon and half-marathon in Houston, slated for January, sold out 17,000 spots by early October and has been battling scalpers who are selling entries for as much as $500.