Head Start

Buying and Selling Races

November 29, 2021 Tony Sapp, Porter Bratten Episode 19
Head Start
Buying and Selling Races
Show Notes Transcript

If you have built a business putting on races, chances are you would have thought of maybe selling some or all of those races at some point in the future. You may also have toyed with the idea of buying races from others as a way to grow your event portfolio.

Buying and selling races still remains a big mystery for most race directors - even very experienced ones. How do you go about it? How do you find events to buy, if you’re a buyer, and where do you turn to sell your event, if you’re a seller? What is an event even worth on the market? And how does a typical purchase and sale transaction go down?

Well, we’re going to be going into all that and more today, in a super-exciting episode with the help of my two guests, Tony Sapp and Porter Bratten. As you’ll hear in a minute, Tony and Porter have a lot of experience in buying and selling events, and they have tons of great tips to help you get a good feel for where you stand as a buyer or seller of races in this market, and how you can make the most of the opportunities available to you in this very peculiar post-pandemic environment we find ourselves in. 

In this episode:

  • Finding suitable buying opportunities: matching type of event, time of year and race location
  • What a good buying opportunity looks like
  • Reaching out to race directors with an offer to buy
  • Selling through a business broker: what business brokers bring to the table, picking the right broker, preparing your business prospectus
  • The importance of instructing and consulting with a contract lawyer
  • Buying event assets vs buying the events company 
  • What assets go into an event sale: physical, digital, intellectual property, sponsorship and other third party contracts
  • Purchase price allocation and tax implications of your event purchase
  • Preparing for an event sale: organizing documents, keeping track of your business data, anticipating buyer questions
  • The purchase and sale agreement: asset lists, exclusions, non-competes, indemnities, transaction timelines and transition periods, price adjustment clauses
  • Additional provisions/considerations when selling a race mid-season
  • Transitioning key contacts and making introductions with vendors, sponsors, volunteers
  • How to calculate the value of your event as a multiple of your revenue and net profit
  • Price negotiations and agreeing on a price
  • Is this a good time to buy or sell a race?

Thanks to GiveSignup|RunSignup for supporting quality content for race directors by sponsoring this episode. More than 22,000 in-person, virtual, and hybrid events use GiveSignup|RunSignup's free and integrated solution to save time, grow their events, and raise more. If you'd like to learn more about GiveSignup|RunSignup's all-in-one technology solution for endurance and fundraising events visit runsignup.com.

You can find more resources on anything and everything related to race directing on our website RaceDirectorsHQ.com.

You can also share your questions about buying and selling races or anything else in our Facebook group, Race Directors Hub.

Panos:

Hi! Welcome to Head Start, the podcast for race directors and the business of putting on races. If you have built a business putting on races, chances are you would have thought of maybe selling some or all of those races at some point in the future. You may also have toyed with the idea of buying races from others as a way to grow your event portfolio. Buying and selling races still remains a big mystery for most race directors - even very experienced ones. How do you go about it? How do you find events to buy, if you're a buyer, and where do you turn to sell your event, if you're a seller? What is an event even worth on the market? And how does a typical purchase and sale transaction go down? Well, we're going to be going into all that and more today, in our super-exciting episode with the help of my two guests, Tony Sapp and Porter Bratten. As you'll hear in a minute, Tony and Porter have a lot of experience in buying and selling events, and they have tons of great tips to help you get a good feel for where you stand as a buyer or seller of races in this market, and how you can make the most of the opportunities available to you in this very peculiar post-pandemic environment we find ourselves in. Before we go into all that though, I need to give a quick shout-out to our podcast sponsor, GiveSignup|RunSignup. Normally at this point I'd tell you how GiveSignup|RunSignup's free and integrated technology supports more than 22,000 in-person, virtual and hybrid events, helping them save time, grow, and raise more - which is all absolutely true, of course. But on this particular episode today as we're going into stuff that just wouldn't have seen the light of day if it weren't for the support of our friends at GiveSignup|RunSignup, I feel really grateful for what they've done for Head Start and for all of you tuning in every other week to listen to these podcasts. So thank you guys at GiveSignup|RunSignup. And you, dear listener, if you're not a GiveSignup|RunSignup customer already, go to runsignup.com and just check out all the many great things you could achieve for your event for free with the help of this amazing platform. Okay, it's time! Let's get into buying and selling races! Tony, Porter, welcome to the podcast!

Tony:

Thanks for having us!

Porter:

Hi!

Panos:

Well, thanks a lot for coming on. We found a few Gremlins while getting you here. So let's hope everything holds for the rest of the podcast. So, we'll have a very exciting episode today with the both of you on buying and selling races - awesomely interesting topic - that lots of people would want to know more about. But before we get into all that, let's go over some introductions, shall we? So please introduce yourselves - where are you based, your company, the races you put on and, basically, what do you do within the industry.

Porter:

Yeah. I guess I'll go first. My name is Porter Bratten and I live in the beautiful Anacortes, Washington. My races are in and around the greater Seattle area in Washington State. I'm one of the owners of a company that we have a couple of different facets of. We've got a road running brand called Orca Running. We've got a trail running brand called Evergreen Trail Runs. And, we also have a new guided trail running adventure trip brand called Evergreen Excursions. And that's what we do - we put on a lot of different races, about 26 or 27 races - in the Washington State. We have a great time doing it.

Panos:

Super! Tony?

Tony:

Yeah. So my name is Tony Sapp. I'm the owner of Negative Split Productions which is based in Houston, Texas. At this point, we offer race consulting and timing services in the Greater Houston area, earned awards nationwide. But previously, I owned and operated some of the largest running events in the Houston area with about 25,000 participants a year as well as the-- I still own and operate the world's largest kids triathlon that is based out of Katy, Texas at one of the new water parks over there.

Panos:

Awesome. And I think part of those 25,000 are the races that you've sold which we'll get into later in the episode - right?

Tony:

Correct.

Panos:

Okay, great. So as I said, today, we'll talk about buying and selling races. It's a topic that I think most race directors - at least, the commercial for-profit companies - have thought about. They must have thought about some kind of exit for the business or a way to expand their business by buying more races. So I think that will be a really interesting topic for them. And I chose the two of you because you've both sold and bought races. I think Porter told me that he had a lot of experience buying some races - how he reached out to the right people and, like, that whole process. And then, Tony, of course, you sold your series of races. You went through the business brokers, all that stuff, which is also going to be very interesting for people. So in brief - maybe Tony can start first - tell our listeners a little bit about your background in buying and selling events.

Tony:

Yeah. So back in 2015, we started the Run Houston! Race Series and the Bayou City Half Series here in the Greater Houston area. Run Houston! consisted of 5K and 10K events. And the Bayou City Half Series was a half marathon and 5K. Around 2018 or so, my business partner and I decided that we wanted to make some changes and made the decision to place those races for sale so that we could focus on some other events within the same industry. So, as we went through the process - we'll talk a little bit more about that later - basically, I learned a lot about what it was, what we actually owned, and what we were putting out there. It wasn't actually the business itself - it was more of the assets of the business.

Porter:

I've been putting on races since about 2010. And in about 2014-2015 - similar timeframe to Tony - we wanted to expand our races beyond what we had. And we did start several races, but we also bought several races - for me, we've mostly bought races. And that has been primarily a way to grow the business and to fill in holes, geographically, races that were in a spot where we wanted to have a race in the calendar - not year-round, but wanted to cover a decent amount of the calendar year - and it's been a great process. And we've kind of slowed down and haven't bought a race in a little while because we're kind of full at this point which is a good place to be.

Panos:

So Porter, you said that you decided at some point that it made sense to expand the business and you thought that, maybe, purchasing an event would be a good way of doing that. So at that point, how do you look for a race to buy? Like, what's the first step you would take? Yeah, I mean, each buying experience has been quite different. Some of the times, it's been a race that I bought from somebody that I know very well - and I'm friends with and have a very close relationship with - which is, in many ways, easier. But it can also be a little more fraught when you mix business with relationships or friendships. Other times, it's been with a relative stranger who I was aware of in the same industry, in the same general area, but I didn't really have a relationship with. And so, yeah, each relationship or each purchase has been a lot different. And so, it required a different approach in each case. In the cases where I don't-- I mean, I don't know if I should get into detail about each of them right now but I think you have to evaluate each race that you want to buy and come up with a strategy for how you want to proceed and how you want to start that transaction, and understand that not every attempt will be successful because, sometimes, people won't want to sell or the price may be too high or something may happen. So you would even reach out to people, like, just cold? You'll just find a race that works and just email them or pick up the phone?

Porter:

Yeah, I've done that one time, I guess, where there was no relationship whatsoever. I reached out and it took a little while to, kind of, get a response and whatnot. But I'm fairly persistent. I have no shame about emailing people more than once. And so, the squeaky wheel gets the grease and you get a response and that's how you, kind of, start the dialogue. But I don't necessarily recommend it - I think it's not easy. When you approach somebody as a motivated buyer then they have the advantage, essentially, of being able to dictate whatever price they feel like. But if they know that you approach them out of the blue, unless they have a distressed race that is doing very poorly, then maybe they'll see you as a great opportunity. If they're doing well, they can put a higher price on their race and you'll probably pay it because you want it.

Panos:

Yeah, I think that's a point that, actually, you made to me the other day when we were chatting about this. You said that, basically, this market is so thin, liquidity-wise. Basically, the party that makes the first move is, sort of, at a little bit of a disadvantage. If you reach out to someone and say, "I want to buy your race," obviously, that guy does not necessarily think of selling their race - so they, kind of, have the upper hand and vice versa. When you start looking out for opportunities, you say, "Okay, I have a hole in my calendar in October, that kind of general region or area would make sense for me to look into when purchasing an event." So that's, kind of, like, time of year and location that comes into it when you're looking to buy a race. What are the factors that you look at? How do you sort the opportunities available to you? What does a good purchase opportunity look like?

Tony:

Well, I think the race that is doing really well - where the numbers are going up every year, or they're high, and they're staying high - is going to be difficult because, presumably, if that race is doing well, why would they want to sell it? So maybe, you need to look for, perhaps, some race owners who are older and are looking to perhaps retire or get out of it. Maybe they feel that they've had a great run. They've been on this race for 10 years, or 15 years, or whatever, and are ready to hand it off to somebody younger and more experienced. That can be a good opportunity. In that case, a prior relationship would be very helpful, I think, because that person probably views that race with a lot of affection and memories and nostalgia. Other times, I think a good opportunity can be a race that is not doing well. And maybe, the race director or the race owner feels, like, this race used to do well but it's, kind of, floundering, or "We've tried to get it off the ground for a couple of years but just haven't quite figured out how to do the marketing well." And so, in that case, if you have a race, if that race can fit well into your calendar year but it's not doing so well, you can make a strong case to that potential seller that, "Hey, I can take this race and give it the success that you feel it deserves and it merits by plugging it into my calendar of races and my existing runners and they're already running it - some of them are already running it. But now, many more of them will run it and it will flourish under my ownership." That's kind of the approach you can take.

Panos:

Right. And I guess - maybe, Tony wants to confirm that, being on the other side of the transaction because you sold a large bunch of races - it is slightly trickier, right? Like, in Porter's case, he wants to buy a race, he knows who the potential sellers maybe - the race director. So he would go out and find someone. I guess, if you try to sell a race, does that still work - like, trying to find local race directors and knocking on their door and say, "Are you interested to buy my races?"

Tony:

Yeah, so we talked about that a little bit. The issue was the relationship between some of the other race directors in the area and we didn't feel comfortable in advertising that, "Hey, we're looking at getting out of the space in the Houston area." And just the sheer size of our events-- I mean, like I mentioned, we were pulling almost 20,000 people a year for the events that we were looking to offload. When we made the decision to sell, it wasn't a requirement that we sell the races because we're still doing good. They were pulling in numbers. The margins were hanging right around where they should be for an event and they were bringing positive cash flow to the business. We didn't have to sell. When we did so, it wasn't something where we go out and advertise with a big "For Sale" sign or put up a billboard in the city or anything. I think that, kind of, drove how we ended up listing through a broker versus us trying to sell it ourselves. It kind of separated us from the-- like what Porter mentioned, "This is our baby. We grew it from the ground up and we built it to what it is. So it's worth millions upon millions of dollars because of all the hard work we put in to do that." It's just not the case whenever we try to look at what the actual worth of an event is and how you calculate the kind of return you get on the buying and selling side. My buying experience is more towards buying a percentage of ownership of events versus full events - so not quite as extensive as Porter. I just wanted to try and separate that emotional attachment that we have in the process and how we come up with the numbers and everything.

Panos:

Right. And you reached out to a broker which is really interesting, actually, I think, at least, in terms of this being a resource-light approach to go about selling a race. I guess, like, the broker would take care of most things for you - right? So tell us a little bit about that. So how did you pick the right broker? How did you vet them? How did you get to find someone you trust?

Tony:

So we reached out to three different brokers that have a pretty diversified portfolio of selling different kinds of businesses. There are brokers out there that specialize in construction and things of that nature. Because we knew that there's not a lot of races going up for sale, we wanted somebody that had, kind of, a diverse portfolio of different businesses that they sold - so that was kind of our first criteria. Once we got beyond that, obviously, we needed communication - I wanted to make sure they got back to me. So if I reached out to somebody and they didn't email me back for a week, that was an immediate red flag because this is going to be a process and we knew it was going to be. And then, of course, the fees. At the end of the day, it all comes down to how much money you put in your pocket when you try to sell an event. So it was kind of a balancing act. And the one we ended up settling on wasn't the cheapest, but it was the one we felt most comfortable with at the time and they were great. Basically, the process was they provide a worksheet - it was about 10 pages long - with questions. Some were really simple questions. Some were a little more complicated where we had to do a little more digging. And that was the first step. And they built our, basically, public-facing prospectus out of that worksheet. And it was just a listing on their website that they had and they have their own other marketing tools for potential buyers. And then, after that, it was just paperwork, lots of different requests - books, financial reports, any outstanding bills, balances, things like that - and just keeping that information up there. We were on the market for a good nine months before we got the person that ultimately ended up buying the races. So, it was definitely a process of keeping things updated so that all these information are available whenever somebody did approach them.

Panos:

Right. And that person - in the end, if I'm not mistaken - didn't have a background as a race director - right?

Tony:

No, they do not. They were runners and they just were interested in trying something new - similar to the situation I was in when I jumped into this business from an office job. I just wanted to get out of the office and start doing something a little different. So, I think they were in the similar position I was in when I first started. The only difference is they have the resources to be able to do something like buying into a business versus trying to do the painstaking effort of trying to build something from, mostly, the ground up.

Panos:

Did you find that working with someone through the broker - of course, who possibly tried to help and pull their weight in some respects-- but did you find that working with someone, on the other end, who doesn't have the race directing background a little bit harder, maybe, in some ways - like, just getting them to understand the business and lots of stuff that might have been new to them - as they work through the transaction?

Tony:

Actually, it made the selling process easier at the end of the day because now I had to-- I wasn't talking to another race director when we were selling. We were talking to another runner - somebody who had never been in the race production business. So the questions that the broker asked were questions that somebody who's not in the business would ask. So it was able to get, kind of, the wheels turning and get us thinking about what kind of questions will a potential buyer ask? Whenever they ask, "How many volunteers do you have at your race?" you have to answer, "Well, sometimes, zero." Then, you have to, kind of, explain yourself on why and how. When you talk to other race directors, they are like, "Oh, yeah? We have 10,000 volunteers or thousands of volunteers. They'll come out to just volunteer at our race." Just kind of explain the costs associated with putting on a race - equipment, buying equipment, upkeep, labor cost, storage. Where do you keep 1,500 of 26-inch reflective cones? How do you store them? How do you get them out to the race site? Those are the kind of the stuff that we, as race directors, kind of, take for granted because that's what we do. How do you do all that? So, you kind of have to dive a little deeper than what's, kind of, on top of your head.

Panos:

Right. And I guess, with a seasoned race director-- like, if you try to sell to Porter or something, he would, I guess, on the other end, might be a little bit more aggressive with price and stuff. For someone who comes into this with a completely clean slate, they may be willing to up their goodwill a little bit and, maybe, pay a little bit more - is that right?

Tony:

At the end of the day, it's a business. There's money in and money out. So at the end, it's got to be profitable and it's got to make sense on both ends. With that said, we weren't really in the place where we needed to sell immediately, where we didn't even have to sell at all. Had we not had the father and son that bought the events come around, we may not have sold them - we'd still own them today - and it might still be rocking and rolling. It'd be a little different now, obviously, post-COVID but we'd still be doing what we do and what we love. I don't think it's one of those things where somebody coming in and has a grander idea of what it is, because when you start digging into the books, all businesses are the same. It's the cost of goods sold and the cost of operating a business with the revenue that comes in - can you make it all balance out?

Panos:

Yeah. That's a good point to keep in mind, particularly, when we get to the valuation part of the discussion and stuff about multiples and all of that. It's a good thing to keep in mind that, again, as you say, businesses are all the same and people tend to approach valuing businesses in a kind of standard way. So before we wrap up the whole business-broker thing, which I think is really interesting, what kind of commission did the brokers end up taking in the end?

Tony:

Honestly, I don't have the agreement here in front of me but I think it was somewhere between 7% and 10% of the purchase price.

Panos:

Okay. Good amount. Moving on to the actual transaction.

Tony:

Can I add one thing?

Panos:

Yep.

Porter:

I was just gonna say that we never used a broker but we have used a lawyer. And I think the lawyer is a helpful thing when you're not buying a complete business or a very large business, but they are very helpful when writing the contracts, the purchase and sale agreements, whatever documentation and, also, forcing you to think, more or less, emotionally and rationally about what you take on, and prompts you to ask questions to the buyer or seller that you might not think of yourself - basically, think in terms of the worst-case scenario, not expecting the worst-case scenario, but being prepared for it. And I think that's been very useful.

Panos:

That's interesting.

Tony:

On the broker side, the broker did provide those kinds of services. So basically, they are our representatives since we hired them - that's how the agreement works with them. So they basically represent us in the sale until we need to get involved on the details and when we start with the discovery, and things like that. So they go through the contracts, the asset acquisition agreement, the final Bill of Sale, and all of that. So that is part of the service that's provided by the broker especially if you go to them as the seller. You'll pay them once the sale is made. When working with a broker besides the one we did, they have lawyers, they have creatives, they have the people that put together the full prospectus and all that stuff.

Panos:

And to your point, Porter, about employing a lawyer, I guess, they worked for, like, just a fixed fee - right? Like, not a performance or a commission-based fee? Yes. You just decide how much you want to do and they'll just bill you for the hourly rate. And they have not served me as a go-between. They've simply helped to advise me, help answer questions, come up with questions, and review things. And what kind of lawyer would you turn to for this kind of transaction?

Porter:

I feel, like, a contract lawyer would be good. I think, honestly, one who is familiar, at least, with a running event and how it works - that would also be helpful. And that's how I found mine - he was a fellow runner friend who's also a lawyer.

Panos:

Okay, yeah. That always helps. Runners will do anything for free. Yeah, it's an interesting point and it's quite helpful because I wanted to transition a little bit into the transaction side of things. You mentioned that lawyer helped out with mapping out what would go into the transaction and the documents and, like, carving out things. I guess you're not actually buying a company, like, neither of you actually bought or sold companies during those transactions - right?

Porter:

Well, I've done both. I've bought races as - not a company - just an asset or a set of assets. And I've also sold companies or, rather, portions of companies as well. But it's a very important distinction for when you're evaluating things and writing the contract of what you're doing.

Panos:

In the case when you do not actually buy a company, when you specifically reach out and buy those events, what exactly do you buy? So what goes into the transaction?

Porter:

Not a whole lot when it boils down to it, to be honest, which is always a point of surprise for people when I talk to them about this. But in my experience, it's been a database of runners and volunteers. It's been a URL, a website, social media assets. It should include documentation of past races, permits, layouts, contact information. It should include introductions to sponsors and permitting agencies, pictures from past races, perhaps a marketing account on Facebook or Google ads - and that's kind of it. It's not a ton when it boils down to it. I mean, you might buy equipment as well, perhaps, some signage. There's not a lot of brick-and-mortar assets there.

Panos:

And I guess you also include all the intellectual property - like, trademarks, logos, all of that stuff - right?

Tony:

Yes. If there are any trademarks or anything like that, then that would be transferred, which is not-- I've done that before with the Patent and Trademark Office. It's not as hard as it sounds like it is, but it's not super easy to do.

Panos:

Was that also the case for you, Tony, when you sold your series - basically, like, the bunch of stuff you transition over to the buyer?

Tony:

Yeah. It was an asset sale. It was not a company sale. So we sold the race assets but we kept a couple of the race assets that we had developed. So these were just the specific races themselves. Yeah, 90% of the purchase agreement are just pages and pages of assets, whether they're digital, whether they're IP, whether they're URLs, physical equipment - we had lots and lots of physical equipment, even the cones to put on the races and everything - the inflatables, banners, all this stuff. So part of the process at the very beginning was to inventory everything that we had, whether it was physical, whether it was digital, Facebook pages, Twitter accounts, Instagram accounts, websites - we had a Squarespace page as the series page, and we used RunSignup for the actual event pages - all the URLs. So it was a lot of transfer of ownership. And as Porter mentioned, the documentation was huge too. I had put together a manual because we hired a race director for about a year and a half before we sold it. So I worked on a manual on, basically, event operations - how do you put on this specific race, how much fencing do you need, how many porta-potties, who do you call, who's your permitting agencies - just all of the information that you need for each individual race. So all that documentation was all handed over, and made the actual selling of the assets much more simple and straightforward than if I do not have all that stuff.

Panos:

Okay, you're on a pretty large operation and we've emailed both of you through your own domain and business emails and stuff. Sometimes, particularly when people build races from scratch or smaller events, they tend to tangle up their personal email with their business email, sometimes, particularly, at the beginning. Does that ever, sort of, like, catch up with you in terms of actually transferring domains and Twitter accounts? And does that ever become, like, a serious hurdle in these transactions?

Porter:

I haven't found it to be. I do get, every once in a while, random emails from GoDaddy.com for URLs that I have not owned in years. But I've not found that to be an issue. I think, the attention to detail that a buyer or seller shows and their communication - like Tony was saying, there's just pages and pages of assets - the more detail that you see there, I think, is always a positive indicator of how earnest and positive of an experience the transaction will be. The thing I wanted to add is that when you are buying and selling a race, it's not a company. I'm not a CPA so this is something that I can't speak to completely, but an important consideration is that the IRS will consider this to be a goodwill transaction, which has implications for your taxes in the United States. So if you're buying or selling a race, make sure that you talk to somebody who knows what they're talking about goodwill and how does that affect your taxes because the IRS will not see a race the same way that you might see a race in terms of how it affects your taxes.

Panos:

Do you have any information to elaborate on that a little bit?

Porter:

Yeah. So basically, as I understand it, if you are a buyer of a race and you pay somebody, say, $100,000, for this race, you will need to specify - in the purchase and sale agreement - how much of that corresponds to physical assets. Like, this race comes with 100,000 cones, so it's worth $100,000 because each cone is worth $1. And the IRS would say, "Okay, yeah. You spend $100,000 on cones. That qualifies as a business expense. You can write it off from your taxes." But if it includes 10 cones, a whole bunch of social media accounts and participant lists, and things that are much more intangible and don't really have a corresponding and easy way to ascertain dollar value, they'll look at that and say, "Oh, you spent $1,000 on cones but you spent $99,000 on goodwill, essentially." And they will not, as I understand it, allow you to treat that - or you can try - $100,000 as a business expense. They will let you write off the $1,000. But for the $99,000 that you spent, you cannot write that off, which is really, obviously, disappointing for the buyer.

Panos:

Right.

Tony:

Yeah, it's an asset purchase allocation - that's what it's called. There are different classes of assets whenever a business is formed. And in our purchase agreement, we actually have a table listing of the allocation. Like, Class 1 is cash and cash equivalents that you have on hand. Class 2 is any trade and investments. Accounts receivable is Class 3. Consumables is Class 4. So we had some of those because that was Gatorade and cups and things like that. Tangible fix - that would be the equipment. Noncompetition agreements - you do apply a value to noncompete that you implement whenever you're buying and selling. And then, any intangible assets - that'd be all your URLs and your social media. And, then, class seven, the final one is goodwill. And basically, usually, at least, what happened in our case was we worked with the buyer and divided out the purchase price, and said, "How much are the consumables worth?" "Well, it's this much." And we, kind of, broke it out that way. And then, everything else is goodwill.

Panos:

Is there any, like, conflict between a buyer and a seller there? I mean, I can see why the seller or maybe the buyer, like, one of the two parties may have an interest in, maybe, shifting value between intangibles and goodwill and other stuff. Is there a conflict there between the two parties where they might, like, pull in different directions? Or is it just the one party that cares about it and, then, the other side just pays the price and that doesn't make a difference to them?

Tony:

Yeah, on the buyer's side, it makes more of a difference than on the seller's side - as Porter mentioned on the tax side - what's able to be written off versus what's not. On the seller's side, it's all selling of an asset whether it's goodwill or not. So it's taxed differently on the seller side.

Panos:

So you mentioned earlier, Tony - and Porter mentioned as well - that you have this purchase and sale agreement, right? So it's a pretty key document in the whole transaction. It lists all the things that are being bought and sold. What else goes into that document? Does it mention, like, timing - when are things going to move? When are things going to happen? Like, how will they move all of that stuff? Does it go into that, kind of, level of detail?

Tony:

It really depends. Ours are fairly straightforward for the most part because there's a listed purchase price and, then, we had an incentive bonus for an additional portion of the race because I was actually staying on with them for a transition period of about six months to get everything transferred over. So ours wasn't too much in-depth but there are, obviously, indemnifications and noncompetes. Like I said, the list of assets is the biggest part of this whole thing - most of the pages are that. It's a contract. It's standard. If you've ever bought a house, if you've ever done anything like that, then, you've kind of seen the format and it's very similar across the board. There weren't really any surprise things in here - it's all very straightforward. Once the price is agreed on, then it's all just kind of details and filling in the gaps.

Panos:

And which party, generally, draft that? Would that be the buyer or the seller who, sort of, initiates drafting of the purchase and sale agreement?

Tony:

For us, it was the buyer. I'm not sure if Porter has the same experience or not.

Porter:

Yeah, I've had it go both ways. In most cases, as the buyer, I provide the contract. And that was largely because, once I've done it one time, I had the purchase and sale agreement drafted and it was easy to just change the dates, names, assets, and retain all the rest of the language. It should be fairly straightforward at that point. There shouldn't be a lot of surprises or curves that arise in the purchase or sale agreement. I do think that you want to have the dates in there of when things will be finalized and when things will be transferred. The noncompete agreement in there should be very specific in terms of the geographic area that it's covering and the time that it's covering and, maybe, even the modality of the race. If somebody puts on triathlon and running events, maybe it should only cover one or the other depending upon what's being sold. It should also cover what's not purchased because the race may have outstanding debts or things that are owed to vendors or timers or other parties, and you want to be very clear that you don't buy those things or, maybe, you do buy those things and you want to sell those things out. And then, also, if you buy a race where, perhaps, the race is in October but you bought it in May or you signed the agreement in May but you do not take ownership until after the race has occurred, you may need to put in some clauses about the race's performance that year to protect yourself from the person themselves, like, "Well, I don't know why I even bother this year." And so, you want to make sure that the quality is still there. And also, if you buy a race where, maybe, the race numbers have been declining, you want to put some sort of clause in there that will affect the final price based upon how the race does. So there can be a bonus for the race that does well in that last year or a penalty if the race does poorly - where every 10 registrations less, it affects the purchase price this much. And that way, you kind of protect yourself from any future effects of the race that year.

Panos:

Right. But those effects, I mean, from the point of view of, let's say, Tony, who was selling his race, he might have those clauses in there that either reward him or punish him after the actual transaction, but he wouldn't have any say on how the race is managed, right? So it's a little bit of, like, a roll of the dice. I mean, you're just waiting to see how the race might do and you have no control over it. And maybe, new management doesn't pay enough attention. And in the end, you're on the hook, you own risk for something that you have no control over - right?

Tony:

Yeah. Well, I guess it's all about controlling that risk and deciding how much you can accept. I guess, in this particular example, I was thinking that if you buy a race, if you sign the agreement in the spring for a race that takes place in the fall but the seller is still putting it on in the fall, that's the situation where you want to have some clauses in place that reward or punish the seller for their performance to control your risk as much as you can. So we were selling in June but I stayed on until the end of December. They call it contingent consideration - depending on the outcome of the remaining races of that calendar year-- and since I stayed on in my same capacity and operated the business, I was able to keep at it. Obviously, I wasn't keeping the books anymore but I was able to see and make sure the races are still happening the way they were for continuity for the remainder of that year.

Panos:

You know, of the many things that you'll need to worry about when selling your race, keeping a clean record of your event's data, being able to share that data with buyers and, when it comes to pulling the trigger, being able to transfer that data on to the next race director is right there at the top of the list. And I can tell you there's no better platform to do all that on than GiveSignup|RunSignup. With GiveSignup|RunSignup, it's easy to shift backend race access from one race director to another, providing third parties of your choosing with instant insights into historical participant data and communications. In fact, every single historical action a participant may have taken on your race, from using a coupon code to making a donation, is stored right there on your race director dashboard. What does that mean? Well, it means that you can boast to the buyer being able to transfer over not just a list of emails, but a full CRM system that your event's buyer can then use to extract more value from your race - meaning, an easier and more profitable transaction for you, the seller. On top of that, you can make use of GiveSignup|RunSignup's extensive reporting functionality to quickly furnish potential buyers with all kinds of valuable insights from historical registration patterns to repeat participant data - both super important metrics that can demonstrate the quality of your annual registration revenue. And, of course, these are all tools you can benefit from for many years before you decide to sell your events. Keeping your data in good order is just something you'd want to do. And when the time comes to transition your events, it will make your life a whole lot easier. So, to learn more about GiveSignup|RunSignup's amazing technology platform, head over to run sign up.com That's runsignup.com. And while you're there - because there's so many great features to go over - my advice would be to just hit the "Schedule a demo" button and let one of the team walk you through how everything comes together. You will not regret it. In the meantime, we still have plenty of these very interesting episode ahead of us, including valuing your event and negotiating the sale. So, let's get back to buying and selling races with Tony Sapp and Porter Bratten. Speaking of staff and people staying on, is that something that's quite common in these transactions that, maybe, the buyer would mandate - that the race director or part of the previous management team would have to stay on with the event?

Porter:

I think that depends a lot on the race. I think regardless of what race you're buying or selling, there should be some continuity. You never want a situation where the seller sells it and then drops off the planet - the face of the Earth - where they're just gone because you will have questions. No matter how experienced of a race director you are or how well you know the race, there will be questions. In my experience, there are some races where there is a personality attached to the race and I found that to be more true in the trail running world where it is a lot more community-driven and is driven by the charisma or personality of the race director which people are attracted to and want to be a part of. And so, in a situation like that, it would be essential that there would be some very public continuity where the runners understand that, "Yes, the race is being sold and there'll be new management. But it's being done not under duress but with goodwill and mutual benefit or positive feelings about everything" so that you don't have that fall of runners who see the new management and view that as a negative or a threat to that community. I think, in other cases, maybe, the road running world where it's a little bit more impersonal - that's not quite as important but that may still be a big consideration - I think it's important to draw the distinction between the race's key personality and supporting staff and you need to figure out which is more important. In my experience, I found that the supporting staff-- I mean, we have a full set of staff so we've never needed to have any staff stay on afterward. But generally, there is some more well-known public personality that even if they're not still working, there need to be some public communications from that person to make the runners and the participants feel warmly towards you as the new management.

Panos:

You're basically saying that if Lazarus Lake decided to sell Barkley Marathons or something, there's gonna be a significant discount, I guess. Yeah. Extreme example. Yes. Okay.

Porter:

Maybe, you can change your name to Lazarus Lake if you do that.

Panos:

Yeah. Maybe grow a beard and start chain-smoking.

Porter:

Yes.

Panos:

But I can definitely see that actually. And, sometimes, this thing is, like, cutting both ways because having that personality, I guess, as part of a race - and I know exactly the type of race you're thinking of, trail running is a good example - where people have a connection with a race director, and that's a great bonus when you're actually the person developing and growing the race, and people know you and they associate you with a race. But then, part of the equity and the value in that event ends up being attached to you personally which, I guess, is not a great place to be when you try to sell a race - right? Because when the time comes to get out of the event fully, it can get a little bit tricky in these cases.

Tony:

Part of what we did is we actually went in-- this business is different for everybody. For me, it's a business and something I love doing, I enjoy it. But at the end of the day, it's a business. So when we developed the series of events, we actually brought in a race director and we paid the race director to produce the events but separate the ownership from, like, the face of the race - the race director himself. And actually, the buyers were more intent on this than we were. They wanted to make sure that the race director stayed on. So basically, his agreement that we had would just transfer over to them at that point. So they're large enough that it's not really a face of the race but it's that continuity of the staff, the people that helped, all the volunteers, the same person they're talking to and seeing really helped out in this particular situation. So maybe, that's something for anybody that's thinking of selling.

Panos:

And for you, you said that it was a conscious decision, Tony, to actually bring in that race director, sort of, as a transition plan to eventually sell the race. Is that the case?

Tony:

It was either that or-- because we weren't intent on necessarily selling, it was to separate ourselves from the events so he could manage, operate, produce the races, and we could go do our own side things.

Panos:

Cool. So now let's move on to, probably, one of the most interesting and contentious areas of all this - the real black box in buying and selling - which is how do you calculate the value for an event? So okay, you're ready to sell. I guess that's probably a little bit more emotional for people who are selling rather than buying. So if you want to sell your event or you think of having a valuation at the back of your head of what it might be worth, how should you go about it? How should you think about it? What is the value of your event?

Tony:

Got to be 10 times revenue or it's nothing. No, that was part of--

Porter:

The race could go on to be the biggest race in the Washington State. So obviously, it's worth a million dollars.

Tony:

It's just waiting to happen. All it needs is the right person to be able to put in full-time.

Porter:

So much potential.

Tony:

So for us, I had my thoughts on what I thought the business was worth and what the races themselves are worth because I kept the books - I did all the books myself for all the events. But that was where another area where the broker really came in. They were able to take a really outside look at it - this is a business - and say, "Well, here's your books. Here's what your books say. And here's what we're able to find out about your business, about the value, or how your industry and how the evaluations are normally done." And Porter probably knows more about it on the seller side or on the buyer side. But for me as a seller, what I hope for is either one times revenue or three times profit on the individual events - so those were the two I was looking at. And the broker came back with the exact same valuation, so it worked out. It's really just taking a realistic look at your books and saying, "What would somebody actually be willing to pay for this?" Just like Porter mentioned earlier, we went to several race directors around the Houston area about potentially purchasing some of their events and they would come back with these ridiculous evaluations just because they didn't want to sell at that point. That's fine - I'm fine with that. But I don't know if that was to just, kind of, brush us off or if they truly think that their event is worth that amount of money. This is where it really comes down to. This is a business. This is positive cash flow. And having a leg to stand on and being able to say you've supported families with your events makes a big difference in the valuation rather than just saying, "Well, I'm pretty sure it's worth this much."

Porter:

Yeah. I started out - when I first wanted to buy a race - actually, talking to a friend who was a runner but not a race director, but worked in the finance world. And he suggested to me that a rule of thumb of three times net profit is a good starting point. And that's what I've used in all of my transactions - it's roughly three. And that's gone up or down considerably based upon a lot of factors - the buyer, the seller, and how motivated people are. But I think the biggest thing is, as Tony alluded to, to look at the books and be as dispassionate and rational as possible about what your event is actually worth because, at the end of the day, how much money it produces is what determines what it's worth, not how much it made in the past, or what you hope it will make, I guess. I think the more years of data that you have access to are very helpful. If you had an anomalous year, perhaps, where there was a road construction going on, your costs may be considerably higher and that affected your net profit. If that's more of a blip as opposed to a trend, that's gonna be a lot easier to demonstrate if you have six years of data versus two years of data. As I said earlier, I guess, if you're the buyer, you likely have to put a higher valuation. If you're approaching somebody out of the blue, you need to put a higher number on that because the market, in that case, is one person - the seller - and so, they'll be able to kind of dictate a higher number. Yeah. And then, I mean, obviously, how much physical assets come with the race is a factor and, kind of, your relationship as well with the potential buyer. If you know them, if you don't know them - that's gonna play into it as well.

Panos:

So to your point about physical assets, just for a moment here, how does that factor into it? Because if you pay a multiple on profits then, I guess, you pay, sort of, the market value for all of the other like hard stuff - the physical goods, the trusses, the cones and stuff that you bring in - right?

Tony:

Right. I mean, it's easy to put a number to a generator or a cone. So that is, essentially, a separate calculation, I suppose, from the net revenue calculation because you're buying the generator one time so you're gonna pay a price for it whereas the net profit-- you're also buying it, I guess, one time but it is a separate calculation. Yeah. Yeah. Obviously, they took the books, they took all the information I gave them for past events, then, they took a list of equipment and said, "Okay, this is about what we think these equipment are worth and I had the valuation for everything and knew exactly what it was." It all comes down to the final number but that three times is really kind of the standard to start.

Porter:

Yeah, one more important consideration is if the race is making $100,000 and the race seller is paying themselves a $20,000 salary, that can be a very different calculation - they're actually paying themselves a $6,000 salary. So I need to make sure that, in the books, that's being called out and specified so that you're looking at an accurate net profit, not one that's being distorted by a whole bunch of salaries being paid out or something else.

Panos:

Yeah. Which means that, I guess, at the end of the day, we're talking, sort of, abstractly of what a race might be worth. But of course, different buyers - depending on their circumstances and whether they have staff, for instance, that they can better utilize - can end up extracting different levels of value out of the same event at the end of the day - right?

Porter:

Yes.

Panos:

So help me out with something here because there's this TV show that I used to watch online called "Shark Tank." There's one we had in the UK as well. It's called "Dragons' Den" and I think they have it in Australia and a few other places. And the kinds of multiples that get thrown around there, they're not three times. They're not in that kind of ballpark. So what is different? Why do you see in those shows which, perhaps, also, influence some people in thinking around what they should expect from their event to sell for? You see, in those shows, people are throwing around multiples of 10 times but we're talking about just a mere three times profit here. So what's the difference?

Tony:

I think it's mostly because of the different industry and the status of the business. A lot of the Shark Tank businesses - they're either software or they're startups and things like that. So they don't really have a history of revenue to go off of. What I think a lot of the sharks or dragons are buying in those shows are the potential, the future, what they could grow it to, or use it as part of their business portfolio. I mean, you may be able to extract something more. If you went to a high-level capital investor or something like that, I mean, we see some pretty big multiples get thrown around with the Eventbrite IPO and things like that. None of us are Iron Man. We're not huge organizations with lots of people or with hundreds of employees around the world. The people that are listening to this podcast are like Porter and I - we're 1-4 person businesses. Maybe, there are a few part-timers on top of that. It's not a corporation that's offing assets. It's a small local company for the most part. Yeah. And it's not on TV - that's probably the biggest thing. It's not very sexy to be, like, "Oh, well, this race has been very stable." I mean, when was the last time you heard of a half marathon that, like, had any sort of exponential growth? I think, maybe 10 years ago, with a mud run or a color on, that could be the case. But if you buy an 8K down the road or whatnot, if you grow 5% or 10% next year, in my experience, you're doing just fine. Anything beyond that is amazing. So, yeah. It's all about, I guess, the opportunity for scale. And the scales of race growing is in the single and maybe double digits but not the exponentials that Shark Tank is pitching.

Panos:

Right. Okay, that makes sense. So, let's circle back a little bit to the transaction and the negotiation itself. So we, sort of, discussed the purchase and sale agreement. You mentioned that, besides the assets that are part of the transaction, other things to touch on and elaborate a little bit on are things like indemnities, things like noncompetes, I think Porter, sort of, like, wrapped that up quite well with all the specifics that need to go into the noncompete. So besides the assets, what else would you expect? What are the warranties, like, commitments, indemnities, any kind of other stuff that might be spelled out as part of the transaction itself?

Tony:

Yeah. Well, I wish I reviewed my purchase and sale agreement for this call. I would have all those things at hand. But I think you want to spell out the commitment from the seller of how much assistance they're going to give you - if they're going to be available for a time period of six months, or a year, or two years, or whatnot for your questions, and if they're going to commit to dedicating and giving you up to 40 hours a year or some specific amount so that if there is a more complicated question that does come up, you're not in the position of them saying, "Well, I've already given you. You've asked me too many questions. I'm done. I've moved into my lakefront house and whatever. I've used with all the money you gave me so I don't want to talk to you anymore." As far as indemnities, I think that is probably a fairly more boilerplate issue where you just want to spell out very clearly, essentially, much like a race waiver, that you're being held harmless for any laundry list of things that could happen that probably won't happen so that, hopefully, you'll not be sued in case anything goes awry with the race or the purchase. Yeah. Indemnity is, basically, boilerplate across the board, I think. It's just a small section in our asset agreement or asset purchase agreement that, basically, spells out the list of things that we can't be held accountable for - past bills, things like that. If there's an invoice that comes in three months from a vendor that just forgot about it, for a race that happened a year ago, the buyer is not responsible for it. The seller is responsible for making that payment. So just stuff like that. And having those time frames laid out, I think, for a transition period is really important. We had a 90 day transition period built-in on top of the interim service agreement where I was going to maintain the same, basically, operational control over the races for the six month period following the sale. So after that six-month period, then the 90 day transition period starts where, basically, I'm available anytime and all the time for the buyer with any questions they have about the operations of the business or any questions they have about what the race director was doing, and things like that.

Porter:

I think, also, from a customer service perspective, you want to make sure there are no gaps where if you have people who differ from the previous race, you want to make sure that you get them all in as part of the race. You want to make sure you just don't leave any other runners behind where they, kind of, get lost in the gap in between the purchase and the sale. I've had that happen where the seller forgot to send me the list of deferrals and, then, you get emails from these people, like, "Hey, I'm supposed to be in this race but I'm not signed up. What's the deal?" And then, you got to give a free race entry or whatever because you want to keep them happy, but you really wish the seller had told you about all those people.

Panos:

Yeah. And I guess that's a good example, particularly, now with a pandemic - right? I mean, deferrals are never a, particularly, significant portion of participants. But with races rolling year over year, and with all the cancellations and deferrals, in principle, deferrals might also be a bit of a liability for someone who is buying a race right now because someone paid two years ago to enter the race but that revenue is gone. And now you're buying a race with, like, 50% free places in it or something - right?

Porter:

Yeah. We bought a race that ended up canceled in 2020. And so, we had to deal with that where there was a significant number of deferrals that represent a significant chunk of our potential revenue for the race that will happen this year. And that's a case where, like, it wasn't spelled out in the purchase and sale agreement. And so, it really depends upon the relationship you have with the seller. If you have a good relationship, hopefully, you can work something out where they're not-- I wouldn't expect them to pay me a full price but, maybe, pay me 40% or 50% of what that revenue was so that I don't just eat those 100 registrations or deferrals.

Panos:

So in terms of other things like your relationships with sponsors, sponsorship contracts which may struggle multiple years, are those also written quite explicitly into the transaction? What happens with those?

Tony:

Yeah. There was a lot of back and forth about making sure that they have the correct contacts for each of the individual events, whether it was permitting, traffic control, or who was responsible for laying the cones out on the road. Definitely, having a list of contacts-- and I think we'll touch on this in a little bit on the preparing to sell side of things, having a list of contacts, having all the emails and phone numbers, not just the individual people, but the department they're in as well. We had a situation where one of the people that we have worked with for four years just suddenly left in between the time when the race was supposed to happen again and they didn't know who to contact. Well, I had to go, at that point, and find who the new contact was in that office because they didn't know who to contact for the permit. So having all of that information and having the vendor as well, not just sponsors and permitting. Where do you get porta-potties? I want to get porta-potties at the same price you did. Can I order from the same person? Well, we got to negotiate and make sure that vendor understand, "Same event, new owner, new person to invoice, but they should get the same deal we were getting to keep the valuation still accurate."

Porter:

Yeah. With the vendors, hopefully, it's a little more straightforward because you are paying them. And so, they have a vested interest in you as the new buyer and maintain that relationship since they're making money off of it. I think with the case of both sponsors and volunteers, there is much more of a personal aspect to it. With the volunteers, people are working for free, essentially. And so, if there is a close relationship between the seller and the volunteers, what the seller says to those sponsors and volunteers goes a long way towards bridging that gap from the seller to the buyer. And the same thing goes for the sponsor. And if there isn't a multi-year contract in place - where it is, kind of, more of a year-to-year thing - or, maybe, even handshake agreements, the onus is on the seller to do a good introduction. But you also should understand that the seller can't control what the volunteer or sponsor chooses to do. They can't force them to continue to be a volunteer or continue to be a sponsor. And so, there may be a fallout or you may lose some volunteers or you may lose a sponsor, depending upon the relationship prior between the seller, the volunteer, and the sponsor.

Panos:

Yeah. I mean, it sounds like all of this - which is fairly obvious - is like any other transaction that you can only write down so much and rely on the legalities of the contract. You'll not drag people to court for, like, little details in the contract that go wrong. So, hopefully, you have a relationship there that you can trust that works. And hopefully, you deal with a fairly sober minded-individual who is able to help you out when things go wrong and when things don't go according to the absolute letter of the contract - right?

Porter:

Yes. I think it's also worth going into it with the worst-case scenario in mind - hope for the best, plan for the worst - because things can go poorly. Most of my transactions have been very smooth. Everybody feels good afterwards. But there have been some where, afterwards, poor feelings arose and I've received some very light threats, I guess, in the past. It's nothing that I took too seriously but it still is unsettling, I guess. And so, it's important for you, I think, mentally, to map out, like, what's the worst-case scenario? Like, if I receive a cease and desist letter or a letter threatening to sue, like, "How am I gonna feel about that?" I don't expect it to happen but, again, just preparing for it and making sure that if it does happen, it's not gonna ruin your life.

Tony:

And also, get ready for that inevitable phone call once you take over the race, it becomes super successful and the owner wants it back all of the sudden because you're able to, kind of, rebuild it. So, yeah. Those happen as well. Just, kind of, prepare yourself. Sometimes, feelings get hurt. The agreement was made and we have to stick by that.

Panos:

Sure, yeah. And I can definitely see that. So you spoke earlier, Tony, you mentioned about getting ready for the sale. The onus of putting together documents in a transaction like this falls with the seller, right? So the buyer is just there, basically, to ask for things and they just receive it. So from your point of view, for your transaction, how long did that preparation take? Basically, I guess, with the advice of your broker, how long did it take to just pull everything together?

Tony:

So I like to think that I'm extremely diligent when it comes to books and things like that - accounting, money, cash flow, and everything like that - and documenting things as well, like, "How much fencing did I buy or rent at this race this year? How much did I do the next year? Why did I have a 20% increase?" Things like that. So really, the best way to prepare is to start from the very beginning of you producing your event. Keep a spreadsheet of all the expenses and all the money coming in and going out - what you used it for. Document stuff as you do it. Be like, "Hey, I contacted you" in just a note app. You contacted this person on this day and what you've accomplished on that contact, having that information and having it readily available and organized will make the selling process a million times easier. I was able to get through the 10-page initial questionnaire in about an hour or hour and a half because I had all that stuff readily available and it was easy for me to go reference other material to find the answer to a question. Whenever we did get an offer and the potential buyer had questions, they would email the question to the broker, the broker would forward it to me, I'd answer right back because I had done the work upfront to have all the stuff in front of me readily and easily available. So I could reference it and go back. "Hey, what was this expense for? And why did you guys spend $1,000 on this person? It says it was for labor." I'll have notes and I go back to my notes and say, "Well, this person did this for us this year. That's why we paid him that much." So really, the best way is to start at the very beginning. But if you haven't been as diligent on it up to this point, you'll have to spend a lot of time getting things organized. Buyers will have a lot of questions. Porter, maybe, has less than somebody that's not in the business. But there'll be a lot of questions that come up because people run events differently. People call things differently. It's not all straightforward or there's not a piece of accounting software built for race directors - that may be an idea for later. But there's not a piece of accounting software built for race directors. So you, kind of, have to work with the tools that you have, but keep it all organized, and keep it all consistent across the board.

Panos:

And then, when it comes to the actual price negotiation itself, in both your cases, did that take long to, basically, settle on a price that was agreeable to both parties?

Porter:

Surprisingly, no, I guess, in my case. And maybe, that was a sign of just that everybody was a sober-minded individual and understood what is what. But, no. There was not a lot of negotiation or decurrent about the price which made things pleasant.

Tony:

Because we had the professional valuation done by the broker, we were confident in our valuation. So we did have some offers that came in, like, way low-balling, and we turned them down because we knew it wasn't a serious offer, so it wasn't something that we were interested in. I didn't want to get in a price war or price negotiation or anything like that. When we did end up finally accepting an offer, it was within our asking range. And really, the negotiation came down to what they call the contingent consideration - performance base for the remainder of the year. That's where the negotiation came in, not an actual purchase price itself. So I think, if you do a good job in the previous steps that we've talked about today, you'll be at that point where the price is, kind of, locked in for the most part. There might be some back and forth. There may be some, "Well, we'll give you this much if the races do this." There's a little bit of back and forth there but it'll be way less if you're really honest with yourself right upfront when you're doing your valuation and putting your documents together.

Porter:

From the buyers' perspective, I think it behooves you to not do a lowball price, especially if you're not using a broker because if you come in low, not only your chances of buying are lessened, but it can also be a little insulting to the seller. And maybe, even if they do end up accepting it, that's gonna leave, in the end, a bad taste in their mouth or will sour the relationship a little bit which will affect you for a long time simply over some dollars - which may feel like a lot. But hopefully, you have enough confidence in yourself as a race director that will do a good job and make your money back in a few years, and that relationship will be preserved and will ultimately be a better investment.

Panos:

So morally, Porter, are we saying that, basically, in a transaction, it's expected of the buyer to come up with a price? Like, you wouldn't go to someone and say, "I'm just interested in your race generally. And you tell me what you're interested in selling it for?"

Porter:

Yeah, it's gone both ways. I'm no professional negotiator. I'm sure there are opinions of people who do that for a living on what's better to do. But I've had it go both ways where I have proposed a price and-- I think it's hard being the person to go first because there are a lot of things riding on that number. And that's where you need to have a reason, a justification behind that number. So hopefully, at that point, you've got the books, you look at them, you come up with a number, and if the seller questions, "Where do you come up with that number?" you can point to, "Here are your books. Here's how I came up with this number. It's not just pulled out of the air." But in other cases, the sellers come up with a number, and that frequently run into that thing of the seller having an emotional attachment and value it a little bit higher. So I think even though it is a little bit harder or maybe a little more awkward, as a buyer, it's probably good to come up with a number as the buyer, not the seller, because I think it gives you the opportunity to, sort of, establish, set the terms, set the range and, also, allows you to, sort of, not pay a compliment to the seller but show them that you value the race, that you do not try to lowball them. You think it's a good race, it's worthwhile, and that's why you want to buy it.

Tony:

I'm actually a little curious, since you are more on the buying side and have a little more experience in that, whenever we reached out to the few races that we did in the area, we didn't go in with guns blazing with the price, like, "Hey, we'll give you this much money for your race on the initial contact." It is more of a, "Hey, are you interested in--? If you're interested in selling to another local company, we're open to it if you want to discuss it." versus "Hey, I'll give you $100,000 for your event if you make the decision in the next 10 minutes."

Porter:

No. Never come in with guns blazing with a number. It's always been, kind of, like, "Hey, can we have a conversation? Are you open to having a conversation about this? Like, we're interested but want to talk to you first about it."

Panos:

That makes sense. I don't think anyone approaches that way. Once both parties agree on a price, I guess, the purchase and sale agreement spells out the mechanics on what conditions need to be satisfied for the money to be transferred - right? Is it, like, a click of the button and you get a bank transfer and that's it? How does that all work?

Tony:

Yeah. I mean, the way we had it set up was we have a payment schedule based on the purchase price and it really was just a wire transfer from one bank to another. And all of a sudden, your account balance goes up, everybody's happy, and you go out and celebrate. And then, the next morning, you wake up, you're like, "Wait, I have no races anymore." It's really quick, actually. Once all of the stuff is done - it was signed and transferred - then, it was getting right to work, getting domains transferred, getting all the emails transferred. I even recommended that the new owners keep my email address but just make it an alias to his email address. So that way, anybody that was emailing me, it would just go to him. That's another thing to get ready - having your technology ready and separated out. We, kind of, touched on that earlier with using personal email. But having a separate email and everything really made that process a lot easier. But yeah. Everything happens within a couple of hours from signature to money to start to get to work in the transition period.

Porter:

Yeah. My experience has been similar to Tony's. The only difference is that we have used cashier's checks instead of wire transfer to give the money to the buyer or to the seller. But yeah, I agree that you need to know, like, how to transfer URL, how to set up an email forwarding, how to transfer a Facebook account, and all those things, and make sure that you change your passwords for your Instagram accounts, make sure that you change those ahead of time so that you don't give out your personal password and whatnot. There is a little bit of technology knowledge that goes into it.

Panos:

Okay. So this has all been super, super interesting. I think there's tons of really, really helpful information here for both prospective buyers and sellers of races. Last question, I guess we're at a pretty funny time now with the pandemic, like, there's been a lot of commotion in the market and some events are coming out of the pandemic better than others - let's put it that way. Some events, unfortunately, have been struggling a bit. You guys run a lot of races yourself. You time events. You have, sort of, the pulse of the market. Is this a good time or a bad time, in your opinion, either to sell or to buy a race?

Tony:

If I am in the market to get back into races, now would be the time to look at purchasing an event just because you might have race directors that have moved on. They've, maybe, gotten a full-time job outside of race directing or their job has gotten busier. So, maybe, they're not able to put the time and effort into the race as they once did. Selling-wise, I wouldn't sell right now just because there's so much unknown in the future, unless you sell to somebody that really understands the endurance industry and the market that we're in. I don't think they'll understand, "Well, why did your profits drop off 80% last year? And how can you guarantee to me that that'll come back?" If I have a couple of events approach me about, potentially, me buying into their events, I guess, the buying side is the side I want to be on right now - not on the selling side.

Porter:

Yeah, I agree that this would be a good time to buy and not sell because of the uncertainty and because of, presumably, the kind of devaluation that races have gone through the past 18 months and, maybe, some people are also tired of doing virtual races and mailing out things and they're ready to really be done with that.

Panos:

Okay. So last word, then, please, from each of you - from Tony, I suppose with more of a seller hat, and from Porter from the buyers perspective - respectively, to buyers and sellers going into a transaction, what's your advice to them?

Tony:

As the seller, make sure you understand everything about your company because you'll get asked everything about your company and the races that you produce. Make sure you start from the very beginning. Keep good books. Keep good documentation. And from there, it's another day in the office at that point - just answering a lot of questions.

Porter:

Attention to detail. I think the early stages will pay off a lot over the long term. And understand that this is a market. It's not, like, buying a house. There's not a lot of people shopping - it's a market of one person or one company. So, the relationship and the quality of that relationship will matter a lot.

Panos:

Okay, awesome. I know you guys are members of our Race Directors Hub group. So I know people can find you there if they want to reach out to you with any questions or thoughts or, perhaps, a race for you to sell. Do you, perhaps, want to share your emails and your contact details with our listeners as well?

Porter:

Sure. My email is, kind of, annoyingly long. It's porter@blackfishventuresllc.com

Tony:

People can reach out to me at tony@mynegativesplit.com. Or you can just go to mynegativesplit.com and reach me out there too.

Panos:

Okay, great! Guys. Thank you very, very much for your time. Thanks for all your patience before the recording with all the Gremlins we had. Thank you very, very much for all the wise advice.

Tony:

Thank you.

Panos:

And thank you very much to everyone listening in. And we'll see you all on our next podcast. I hope you enjoyed this episode on buying and selling races with my guests, Blackfish Venture's Porter Bratten and Negative Split Productions' Tony Sapp. You can find more resources on anything and everything related to race directing on our website RaceDirectorsHQ.com. You can also share your questions about buying or selling races, or anything else in our Facebook group, Race Directors Hub. If you enjoyed this episode, please don't forget to subscribe or leave a review on your favorite player and, also, check out the podcast back-catalogue for more great content like this. Until our next episode, take care and keep putting on amazing races.