Private Equity Chases Marathons

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Still, making sure of a payoff, particularly when getting races going, can be risky for promoters. Chicago-based Devine Sports, believed to be the second-biggest for-profit operator in the business, says it makes money on its Los Angeles marathon, which draws some 26,000 runners and thousands more for an accompanying bicycle ride. But it has lost money on new races in Las Vegas and Salt Lake City, even while drawing thousands of runners, says Chief Executive Chris Devine. "We want to make sure that they become profitable in 2008 and then we'll expand," he adds.

Industry-leading Elite Racing, which operates such entertainment-heavy races as the Rock 'n' Roll marathons in San Diego and San Antonio, and a country-music race in Nashville, lost money on its startups, as well, says Chief Executive Timothy Murphy. But he says the company, which he founded in the 1980s, now turns a nice profit on more than $35 million in annual revenues. "It's a good strong business, but you have to invest," says Murphy.

Paying Top Dollar

The economics of the industry have grown treacherous as races have become entertainment extravaganzas, not just athletic competitions. For his San Diego run, Murphy's company fields some 44 bands using 27 stages with high-quality sound systems, not to mention offering prize money.

Typically, runs have to pay top-name athletes hefty purses along with appearance fees. The ING New York City Marathon this year is offering some $700,000 in prizes, with the winner running off with $130,000. The LaSalle Bank Chicago Marathon on Oct. 7 paid out some $579,000 in prizes even though it wound up canceling the race halfway through, as temperatures soared into the upper 80s.

The New York and Boston marathons, both run by nonprofits, are unlikely to wind up in the hands of private equity investors, running veterans argue. But Chicago's race, which Devine once owned and Murphy once ran, has changed hands a few times. It's unclear whether Bank of America, which took over LaSalle only weeks before the latest race, will keep the Chicago event over time—though it has scheduled the October, 2008, run already. Murphy says one of his partners has been knocking on the bank's door to take the event off its hands.

Top Player in Talks

Murphy adds that he has been approached from time to time by investor groups interested in taking over Elite Racing and he is now talking with one he declines to name. While he says he's not intending to sell at the moment and is instead focusing on growing his business, Devine has been in and out of the field over the last 10 years. He says several private equity firms are out trolling for ways to get into the business.

If there is money to be made on marathons, half-marathons, triathlons, and even smaller events, private equity firms certainly will want to run the numbers on them.

Check out the BusinessWeek.com slide show for a review of the world's best-paying marathons.

Weber is BusinessWeek's chief of correspondents .