Going Public While Many Entities

¶ … Going Public

While many entities elect to remain private in an attempt to avoid the public scrutiny as well as expenses associated with going public, the decision to go public could benefit an entity immensely. It is however important to note that the relevance of matching the various benefits of going public against the costs of such a move cannot be overstated. In addition to addressing what "taking the team public" means from a business perspective, this text will highlight the various advantages and disadvantages of going public. Further, I will discuss the process you as the owner of Cleveland Cavaliers should expect to go through as you seek to offer stock to the public. I will conclude with a commentary on whether the entire undertaking can be considered rational from a business perspective.

Going Public: What it Means from a Business Perspective

Going public in the words of Brigham and Ehrhardt (2010), "means selling some of a company's stock to outside investors in an initial public offering (IPO) and then letting the stock trade in public markets." An IPO in basic terms is the very first sale of the securities of an entity to the general public. On offering its shares to the public, an entity ceases to be privately held. As you might already know, entities choose to go public for a variety of reasons. In the next section, I will discuss both the advantages and disadvantages of taking Cleveland Cavaliers public.

Taking Cleveland Cavaliers Public: Advantages and Disadvantages

In the past, a number of other professional sports teams have offered their stocks to the public. These teams according to Wong (2010) include the Orlando Predators, Boston Celtics and the Cleveland Indians. As the author points out, "with the cost of running a professional sports team increasing, a number of owners have contemplated going public" (Wong, 2010). Whatever your motivation for taking Cleveland Cavaliers public, there are a number of benefits associated with such a move.

To begin with, going public according to Brigham and Ehrhardt (2010) increases the liquidity of an entity and offers founders an opportunity to harvest their wealth. In the opinion of the authors, far as long as an entity is private, its stock remains illiquid. This as the authors further point out means that the owners of such an entity would find it challenging to not only find a buyer but to also ascertain the value of their holding appropriately. In that regard, taking Cleveland Cavaliers public will make your shares liquid. Further, the value of your shares will also be easy to calculate. Indeed, you could use this as an exit strategy especially given that the overall value of your holding is likely to increase after the IPO.

Taking Cleveland Cavaliers public will also give you a chance to diversify. As Brigham and Ehrhardt (2010) point out, an initial public offering allows founders of entities to sell some of their stock and hence a chance to diversify their holdings. This in the opinion of the authors, offering shares to the general public brings down the riskiness of the founders' personal portfolios. In that regard, you could dispose off a percentage of your holding at Cleveland Cavaliers and use the funds realized to buy into another professional sports team.

Next, going public enables entities to raise funds for various purposes. Indeed, access to funds has been cited as one of the main reasons entities choose to go public. In regard to Cleveland Cavaliers, the additional cash could be used in a way that would be of greatest benefit to the team.

In the opinion of Weaver and Weston (2007), listing comes with a certain level of publicity and thus free advertising. The disclosure an entity makes to the securities commission or the stock exchange is one of the factors that contributes to the enhanced visibility of an entity in this particular case. According to Wong (2010), a team that goes public could in addition to enhancing its visibility also "foster fan loyalty through ownership in the team."

It is however important to note that although going public does have several advantages, the move also has a number of downsides. To begin with, publicly owned entities according to Brigham and Ehrhardt (2010) are required to submit to SEC their annual as well as quarterly reports. As the authors' note, these reports could end up becoming a costly burden. You should therefore take into consideration reporting costs before taking Cleveland Cavaliers public. Yet another factor you should consider is the IPO cost. In the opinion of Weaver and Weston (2007), costs in this case could include accountant fees, legal fees, underwriter expenses, etc.

Secondly, Weaver and Weston (2007) point out that once an entity is taken public, the original owners have to share ownership. This according to the authors occasions some considerable loss of control. Indeed, you need to be aware that on taking Cleveland Cavaliers public, only decisions supported by a majority of shareholders will sail through irrespective of whether you (as the founder) are in favor of such decisions or not.

Disclosure is yet another issue you will have to contend with on taking Cleveland Cavaliers public. According to Brigham and Ehrhardt (2010), once an entity is taken public, it becomes relatively easy for anyone to determine the net worth of owners. All an individual has to do to determine an insider's net worth is to multiply the price per share by the number of shares held. Therefore, should you have reservations regarding public disclosure of your net worth, this is a factor you should seriously consider.

Next, according to Wong (2010), once an entity goes public, it "must make a full disclosure concerning its profits and losses." This effectively means that in the case of Cleveland Cavaliers, the team's losses as well as profits will be subject to public scrutiny. Losses could be a source of negative publicity for the team.

The Stock Offering Process