AVP Merger Positions Tour for Major Growth

The Assn. of Volleyball Professionals positioned itself for unprecedented growth last week when it completed a groundbreaking merger agreement that would make it a publicly traded company.

The merger with Othnet Inc., originally signed in June and completed on Feb. 28, makes the AVP the first professional sports league in the United States to go public and is the latest in a series of moves by AVP Commissioner Leonard Armato to resuscitate a tour that filed for bankruptcy in 1999.

The deal gives the AVP access to capital that Armato said would be used for tour expansion, widespread marketing and possible acquisitions.

“I want to see beach volleyball become a major sport,” Armato said. “This deal gives us a chance to have access to capital for growing a sport that is obviously underdeveloped as it relates to any of the other major sports.”

Othnet, a company that had no current business and was actively seeking a merger partner, paid about $5 million in cash and converted about $3 million in AVP debt in exchange for 40% of the stock in the new company. Othnet also relinquished control to AVP executives.

The AVP, with an estimated value of between $15 million and $30 million, has operated in the red since the late 1990s, experts said, but the new business structure should help make the tour profitable.

“They are certainly going to have the ability to scale this thing the way they want to,” said David Carter, of the Sports Business Group, a Los Angeles-based sports marketing consulting firm. “The AVP has come a long way and this might help them get to the next level.”

Armato was a founding father of the AVP in 1983 and ran a successful tour until 1989. After his departure, the tour continued to thrive until a series of questionable business decisions nearly ran the tour into the ground.

Armato re-entered the picture in 2001 and implemented a business strategy that included joining men’s and women’s beach volleyball tours, expanding into non-traditional markets and having players sign contracts to compete on the AVP.

This latest move gives Armato leverage in business deals because the cash-strapped tour can now offer shares of stock in an effort to close transactions.

Armato could not specify expansion plans, but recently announced a deal with Chinese television to broadcast AVP events there and is working on deals for tournaments in China and Japan.

He said his vision would be to market the AVP and the California beach lifestyle so that it would become an internationally recognizable entity much the way that the NBA has become globally synonymous with basketball.

“It’s a very good business model for a sport like beach volleyball,” said Sam Lagana, adjunct professor of sports marketing at Pepperdine University and a former AVP employee. “For years, the tour has grown in popularity, but struggled as an organization. This gives it a sense of stability that it needs to grow.”

The AVP has all but one of its top 64 players under contract through 2008, which makes the tour more attractive to sponsors and television executives because top American players such as Olympic gold medalists Kerri Walsh and Misty May and men’s stalwarts Karch Kiraly, Mike Lambert and Eric Fonoimoana will play AVP events for the next three years.

The players also stand to benefit from the merger because their contracts include provisions for stock options.

“It’s neat to be a part of something that’s growing so fast,” said Stein Metzger, a men’s Olympian last year. “This is a great opportunity for us as players to get involved and help support our sport.”

Tom Fox, senior vice president of sports marketing for Gatorade, a major AVP sponsor, said the AVP business model could become a trendsetter.

“Emerging sports are going to have to take a look at what they are doing,” Fox said. “The one thing that’s always held them back is money and now they have cash in their pocket.”

There are inherent risks with taking the tour public. It could flop on the open market, for one. Shares of Othnet are now trading at $0.30. Armato said the stock price, at least in the short term, is not a chief concern.

“I’m more concerned about growing the AVP,” he said. “If we continue to grow and execute our plan, all that corporate nonsense is going to take care of itself.”

Skeptics say that Armato may just be looking for a quick profit. Some have suggested that he may wait for the stock price to rise, then dump it all.

“I’m not so sure Leonard is involved for the benefit of the AVP as much as he is for himself,” said Keith Foreman, host of the nationally syndicated “Sports Business Radio” show and an AVP employee in the early 1990s.

Carter, of the Sports Business Group, doesn’t necessarily see a problem with Armato getting out with a profit.

“That would not be inconsistent with his background,” he said. “But if he does, he wouldn’t be leaving the cupboards bare. The AVP will be better off than it was when he took over.”

Armato said he had no intention of leaving a tour he has worked so hard to turn around.

“I’m in it for the long haul,” he said.