May 9 (Bloomberg) -- Jon Mugar doesn’t remember exactly what prompted him to text his buddy of 20 years with a simple business proposal.
“I just woke up one Sunday morning and asked, ’What would happen if you held a winner-take-all basketball tournament, open to the public, for a ton of money?’” said Mugar, a 38-year-old television producer from Boston.
Three years later, Mugar and a small group of private investors are unrolling the inaugural version of the idea, a 32-team showdown called The Basketball Tournament that is open to anyone, free to enter and carries a $500,000 prize.
This year’s event will be held without sponsors, advertising or television coverage. It’s a $1.5 million gamble that word of mouth, social media and an on-court product that includes former National Basketball Association players and reunited elite college teammates from Princeton University and elsewhere will give them more leverage with potential sponsors and broadcasters next year.
“It’s a lot different when you have a tangible product and can show how it works,” said Vin Martelli, a Harvard University-educated management consultant and the tournament’s chief operating officer. “We decided to finance it ourselves this year, as opposed to taking whatever money we could get from various revenue sources and making do.”
The first 24 teams gained entry last week by having the most fan support on the contest website; the final eight were selected today by organizers. A total of 152 teams sought to enter. With a bracket similar to the National Collegiate Athletic Association tournament, the single-elimination event will go from 32 teams to two on June 6-8 at Philadelphia University. The finals are three weeks later in a location chosen by the website’s 27,000 registered fans.
The team with the most online support includes ex-New Jersey Nets center Josh Boone and former Duke guard Dahntay Jones, a first-round draft pick who played 10 NBA seasons. Members of the 2009 Villanova team that advanced to the NCAA tournament Final Four are in, as is a group of former players from New Jersey basketball powerhouse St. Anthony High School, who will donate winnings to the school. Former Women’s National Basketball Association guard Nikki Teasley, the only female in the tournament, is part of a team from the Virginia and Pennsylvania areas.
Those storylines and the tournament’s social media components separate it from previous open basketball events, such as the Entertainers Basketball Classic in Harlem’s Rucker Park, or the nationwide three-on-three tournament Hoop It Up, according to former NBA marketing executive Shawn Bryant.
“The revenue model needs to revolve around sponsorship and broadcast rights, and the most important piece to that is having a compelling product,” said Bryant, who oversaw the NBA’s partnership with Hoop It Up in the 1990s.
A Boston native and former Tufts University basketball player, Mugar met with Martelli shortly after the 2011 text message. He drafted a formal business plan, and sought the advice of an advisory board that includes Andy Dolich, who has held operations-management positions in all four major U.S. sports leagues, and television executive Len DeLuca, who worked in college basketball programming at CBS Sports and ESPN for almost 30 years.
DeLuca said the group has been approached by over-the-air and cable networks with interest in broadcasting the event. The same goes for sponsors across a number of different industries, said Mugar, who declined to name specific companies.
The 2014 tournament will be financed solely through its investors, a group of “less than five” Bostonians that Mugar said wished to remain anonymous. In total they raised roughly $1.5 million, which covers the purse, website, event infrastructure, fan prizes and jerseys for each team.
Organizers spent $1,000 total on a Facebook ad and are now “about $1,000 over our advertising budget,” Mugar said.
Martelli, 53, said he originally feared this year’s early rounds might be played in an empty gym. Due to interest from an e-mail address listed on the website the group now expect to sell tickets for $20 a day.
While the event is free to enter for anyone over 18, active NCAA players cannot participate because of eligibility issues. Organizers said they weren’t concerned that one team, loaded with NBA talent, might cruise to claim the $500,000.
Kareem Maddox, a player at Princeton from 2007-11, agrees. Maddox is part of a team of recent Tigers, which includes two of the school’s four 1,500-point scorers.
“The Princeton offense is like riding a bike, you never forget it once you’ve learned it,” said Maddox, a member of the 2011 Tigers team that reached the NCAA tournament. “The better teams might not be the most talented, but the ones that have played together for a while.”
Dan Friel, who was on the receiving end of Mugar’s 2011 text, is taking leave from his job as an assistant U.S. Attorney in Louisiana to help with the event website. A former baseball player at the University of Richmond, the 38-year-old Friel remembers driving up and down the East Coast after graduation trying to catch on with a minor-league club.
“With basketball the supply of really talented players vastly outmatches the demand,” he said. “There’s a limited number of high-stakes outlets for these guys to play, and that’s what makes this tournament so interesting.”
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