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The New Way To Make Deals: Blank Checks

"Investing in a SPAC IPO seems to have a very attractive risk-reward scenario," said Brian Waldman, director of Thomson Financial Capital Markets Intelligence. "But for non-IPO investors the jury is still out on how well these investment vehicles will fare long-term."

The average annual return of the 152 SPACs that have gone public since 2003 was around 12 percent last November, but has dropped to only 1.9 percent after being hit by the current pullback in equities, according to SPAC Analytics.

Arthur Levitt, former chairman of the Securities and Exchange Commission, said blank-check companies are risky investments because they lack transparency.

"I have never found any blank-check investment vehicle attractive," Levitt said. "No matter what the reputation or what the sponsor might be. . . . They are the ultimate in terms of lack of transparency."

Supporters like McMillen said regulations have improved to protect investors, citing the requirement that 70 percent of investors approve an acquisition and the fact that investors' money is returned if no acquisition is made.

Hedge funds and other speculative investors are big buyers of IPO shares of blank-check companies and have helped fuel their expansion. That has added an element of volatility, McMillen said. Shares of one of his SPACs, Fortress International Group, a maker of data centers, have slipped below their IPO price even as the company's business grows.

"The pluses of SPACs are that you get to bank with a management team on finding a good business deal with very little risk," said McMillen. "The downside is that you have a lot of hedge funds getting into it. There's a lot of game-playing."

The average blank-check IPO has grown from around $24 million in 2003 to $332 million so far this year, according to SPAC Analytics.

"There was a view that SPACs are a financial gimmick and that they are very difficult to make an acquisition work," said Neil Danics, who founded and operates SPAC Analytics. "My research tells you that overall . . . they do work and like in any asset class, it's up to a professional or someone working full time to identify the opportunities and how to invest in them properly."

At Sports Properties, Vice Chairman Andrew Murstein said the inspiration for the company came as he, Aaron and Cuomo were kicking around investment ideas at a board meeting last year of Medallion Financial, a company founded by his family. Medallion makes loans to finance taxicab medallions and various commercial businesses, and Aaron and Cuomo are on its board.

Murstein reached out last summer to Kemp -- a former professional football quarterback, Republican congressman and vice presidential nominee -- bringing him on as chairman of Sports Properties.

"I knew he would be a great door opener and someone who understood not only sports, but public financing of sports facilities," said Murstein.

Sports Properties then tapped Tavares as chief executive, hoping to draw on his experience running other sports franchises, including the Nationals, the California Angels and the NHL's Mighty Ducks. A partner at Kemp's firm, James R. Taylor, is an adviser to the SPAC; Aaron and Cuomo are directors.

For now, Sports Properties is a shell in search of a real company. Last month, its managers went on a nationwide tour to find investors, raising $215 million. The units began trading on the American Stock Exchange two weeks ago, and closed at $9.84 on Friday, 1.6 percent below the IPO price of $10 per unit.

Now that it has investors, the firm is on the hunt for an acquisition, maybe something involving a professional sports team or a new stadium. Kemp said he is interested in exploring the construction of an arena in Las Vegas for a future National Basketball Association franchise.

"We are looking to buy something for a lot more than the $215 million," Murstein said. "We can raise more equity, apply leverage, or have the seller take back stock. We could buy something for over $1 billion for example."

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