Seeking Advice on Potential Sports Complex Acquisition

Hi everyone, hope you're having a great week!

Since this summer, I’ve been working with two friends to diligence the idea of opening up a racket sports facility around our hometown. All 3 of us played competitive tennis growing up including through college, and recently have fallen in love with a new sport: padel. Padel is a hybrid of tennis and squash that has been exploding around the world (it’s now the 2nd biggest sport in Spain, behind soccer and ahead of tennis). We’ve been inspired by some recent new clubs (notably, Padel Haus in Brooklyn which just opened up a second location in Dumbo; PADELphia in Philadelphia; and The Sports Haus in Norwalk, CT just opened up today), and would like to focus on padel and pickleball for our own facility.

Our work has revolved around testing the financial viability of such a services-oriented business, gauging long-term demand and growth of padel in the US, as well as searching for supply of compatible real estate in our target market (mainly industrial buildings and existing indoor tennis clubs; we need ceiling height of at least 30’ which isn’t common). Through this process, we discovered a ~37,000 sqft sports complex that is actively looking to sell. My team has been looking into this as a more indirect, potentially less risky way to pursue our original vision of launching our padel and pickleball business.

The sports complex has two floors as detailed below:

• Floor 1: space for fitness classes, five batting cages, one full-sized, 80’x100’ turf field, lobby area, and restrooms (no locker rooms)

• Floor 2: an additional two full-sized turf fields; can be combined as one 160’x100’ sized field

We’ve been corresponding with the sales agent, who has liaison’ed between us and management and sent us their historical income statements since opening in 2017; according to this, they generated $600K in revenues in 2022 with a healthy net income margin (listed as 60% but I’m a bit skeptical it’s actually that high). As the team member with most experience in finance and accounting, I want to be very careful and rigorous with evaluating their non-GAAP financials (e.g., their income statement doesn’t include depreciation expenses, owner compensation/salary, or income taxes paid on overall business). We also don’t have any historical bank statements to prove the authenticity of their cash flows.

We have our first call scheduled with the business owner himself (as opposed to the listing agent) next Monday October 23rd, which I view as a crucial opportunity to properly evaluate their asking price of ~$5,6M and decide whether to formalize an LOI (and at what valuation). I understand this community has extensive experience in this space more broadly, so I wanted to reach out and ask if anyone has any advice on what kinds of information we should be requesting on the call, and what kind of timeline we should try to work towards. We are still in the Preliminary Diligence phase of our search. Thanks in advance!

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Photos of padel and pickleball for reference below!

Padel:

Pickle: