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Athletes and Agents Investing in Automobile Dealerships


 

“In any endeavor you are involved in it’s important to surround yourself with value creators, opinionated people and those skilled in their area of expertise. You want to make sure you don’t make the common mistake of building a team full of “Yes Men”, people with the same skill sets as you, or those who bring the team down with their negativity.” – John Wooden

Ward's Dealer Business

Numerous celebrities have invested in car dealerships: Paul Newman, Rick Hendrick, Roger Penske, John Elway, Arnold Palmer, Evander Holyfield, Michael Jordan and Alex Rodriguez to name a few. The glamour of the car business is not unlike the Sires calling to Odysseus as he sailed by their island. It has drawn many to destruction.

(Note: In Greek mythology Homer, in the Iliad and the Odyssey tells of the Sirens who lived on an island and with the irresistible charm of their song, lured mariners to their destruction on the rocks surrounding their island. When Odysseus' ship passed the Sirens, Odysseus had his sailors stuff their ears with wax and had himself tied to the mast for so that he would not be drawn to destruction.)

Several stars, such as Johnny Lujack, Heisman Trophy winner and Chicago Bear Pro-Bower, and John Elway, NFL Hall of Famer and Superbowl MVP, have made millions, but so have many lost millions. Mel Farr and Deuce McAllister are amongst the recent victims.

In 2010, a single new car dealership averaged over $31 million in retail sales and there were 18,460 new car dealerships in the United States. For the year, total dealership dollar sales exceeded $564 Billion. Source: NADA Industry Analysis Division

Dealerships are complicated animals. They are comprised of several businesses under one roof. Aside from selling new vehicles, dealerships run used car lots, parts stores, aftermarket stores, finance companies, mechanic shops, body shops, quick lube centers, insurance companies and more.

Agents and managers should not get lulled into a false sense of security. Buying and selling dealerships is not a simple or easy task and, if anyone suggests otherwise, then run away from them because they do not know what they are talking about.

In the car business, there is so much "cash flow" that mistakes generally do not reveal themselves until months or years after they are made.

When a dealership goes broke, it has usually been doing things wrong for two to five years before its condition becomes apparent to the unsophisticated.

On April 1, 2002 Automotive News reported: Four years ago, [a superstar’s] string of new-car dealerships generated $568 million in revenue. Now most of it is gone. The article went on to state that a lawsuit against the former star alleges he defaulted on $50 million in debts owed to Ford Credit and defaulted on a portion of a $36.5 million bond issue. Those are big numbers by anyone’s standards.

Every successful person knows that a winning team requires more than intelligence. It requires more than preparation and execution. It requires a coach that has the knowledge and experience to bring it all together. A winner has to earn the medal or the trophy. Investors who do not understand that fail. It might take a year or it might take five or six years, but, eventually, the store will go under.

Will Prappas

Will Prappas, President of The Prappas Company, an entertainment and sports management firm whose clientele includes entertainers Bob Barker, Mel Torme, and Roger Williams; professional race car drivers Jimmy Vasser Alex Tagliani and Michel Jourdain; and a variety of business and professional clients from the Los Angeles area, worked with Automotive Advisors’ Vice President John Pico in establishing Mr. Vasser as a new car dealer with Jimmy’s initial purchase of Jimmy Vasser Chevrolet and Jimmy Vasser Toyota.

Mr. Pico was impressed by the fact that, although an extremely talented and influential agent, Mr. Prappas (who graduated Magna Cum Laude from UCLA, with a major in economics and, according to cart.com news, “ranks among the most influential people in the paddock not wearing a drivers suite, a team uniform or a Bridgestone Presents the Champ World Series Powered by Ford shirt.”) is the type of advisor that analyses what the experts tell him before advising his client, rather advising his client and then asking the experts to justify his advice.

In his own words, Mr. Prappas states: “I’m not a hard ass kind of guy. My philosophy is we’re all trying to achieve the same end, so it’s better to work together.

So, forget how good an athlete, celebrity, sports manager or sports agent may be their respective fields or professions, the retail automobile business is a different animal than any other business. Vasser with Championship Trophy

To be successful in the car business, outside investors should consult with a neutral party, knowledgeable in the retail side of the industry for advice when buying and selling a dealership.

---- Factory People and Lenders Don't Count, because: (1) they are on the wholesale, versus retail, side of the business; and, (2) no matter how congenial and helpful they may appear to be, they have their own agenda that may not necessarily coincide with an investor's.

It is the factory/distributor employee's job to keep a “point” open in order to sell their products to dealers while protecting their own company and its shareholders. In almost all instances, factory people are officers or employees of public companies and, as such, they have a duty to their shareholders to do what is best for the shareholders, not what is best for the dealer, or the dealership's investors.

For factory and credit company people to place a dealer's interests above those of its own company and its own shareholders could be misfeasance. It is up to the investor's advisors [the Sports Manager, Sports Agent, Attorney and Accountant] to recommend a conflict-free, knowledgeable and experienced expert that will protect their client's interests.

---- Employees at the Dealership Don't Count because, like the factory and credit company people, employees have their own agenda. Remember, "general managers buy and sell vehicles for a living; not dealerships." The average dealer buys or sells less than 10 dealerships in a lifetime. Our people have completed over 1,000 automotive transactions. Consequently, if the dealer and our people each learned just one thing on each transaction, Advising Automobile Dealers would have acquired over 990 more bits of information than the average 50 year dealer that bought and/or sold ten stores. When looking for advice, your best bet is to go with the experience.

---- THE FACTORY OFFERED YOU NEW POINT --- FREE!

Rendering of New Dealership

Athletes and celebrities often think they are getting a deal when the factory offers them a "new point". Opening a New Point is not all it is cracked-up to be. Generally, regardless of the fact that the factory (or distributor) “gives” the celebrity an open-point, be prepared to pay blue sky in the form of early losses and non-equity investment costs.

When buying a dealership that is operating, the day one takes possession there are vehicles lined-up in front of the service department, the parts department has a strong retail and wholesale business, the technicians are busy, the store’s phone number is in the yellow pages and, in general, the public knows the store is there and the investor begins with a core of customers.

When opening a new point, the investor must fully capitalize the store for both sales and service volumes that will not exist for at least nine to twelve months. A new point might get some "new car" traffic the first few weeks, but trust me, there will not be a line in front of its parts and service departments.

Autographed photo of NY Yankee great Lefty Gomez

People are creatures of habit and, although the demographics may warrant a new point, and even though you may be a "superstar" athlete or celebrity, wooing other dealer's existing customers to his or her store will prove a long-term challenge.

In many instances it is the second owner of a "new point" that makes the money because the first owner went broke building and developing it. On the other hand, the factory/distributor won because it got someone to build the building and develop a new outlet to market its shareholders' goods, while at the same time, having it is the celebrity who assumes 100% of the risk involved in the financing of the project.

What if the athlete or celebrity already has experienced people advising him or her?

If the automotive advisor is "independent" of the dealership, is "knowledgeable" in the "retail" end of the business and has been "successful in structuring at least twenty-five new car dealership purchases and sales" (the more, the better), then he or she is on the right path. If your advisors are lacking any or all of one those qualities, then it would be a good idea to get someone on the acquisition and advisory team that has the credentials. Someone like us.

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