I don’t know that I’ve ever bought into that. Yes, a small number of teams certainly have traditionally been a license to print money, and, yes, the sale prices of pro sports franchises have grown tremendously over the past couple of decades.
But, with a few exceptions, I’ve usually seen pro franchises as rich men’s toys. Owning one is a sign that you have a metric crapload of money (almost always made elsewhere), not that you’re owning a pro team in order to make a new metric crapload of money. I’ve suspected that, in at least a few cases, the team is a tax shelter for the owner. (And, I think that the best way to make money with a pro sports franchise is to sell it to the next guy…)
I basically don’t disagree with your analysis but I think the story sited takes it to a new level. It used to be that you could lose money operating the franchise, have fun and then sell out at a profit. Then you could do the same and maybe sell out at a loss and book your loss. To have somebody pay out of their pocket to take his share off his hands is something I haven’t heard of before. That may not be true but it’s new to me.
The article notes that the team is heavily in debt, and as part owner, chambers is on the hook for 47% of the 180 million, should they go under. 25 million is a lot cheaper than that.
I hadn’t been able to get the link to the article to work earlier, but I agree, that seems to make this case a bit of an outlier:
That said, part of the NBA owners’ argument in the current lockout is that a number of their teams are losing money under the current contract structure. And, undoubtedly, things which looked good before the financial meltdown in 2008 still don’t look so good today.
The NHL expanded too quickly and allowed the creation of franchises by ownership groups and in markets and situations where the circumstances were, shall we say, dubious. They’ve alreasdy had to move one of those franchises to Canada to save it, and more are in trouble; the Islanders, Devils, and Coyotes are all in immediate trouble, and the Panthers, at least, do not look like a good long term bet.
There is NO similarity at all to the Dodgers. The Dodgers franchise is a money machine; Frank McCourt is a disaster but the L.A. Dodgers are a dream franchise. If they wanna sell the Dodgers you wouldn’t have to pay me to take them.
McCourt bought the Dodgers in 2004 for $430 million; as of last year, they were valued at $727 million. Outstanding appreciation of the asset, especially in the face of a recession. But, McCourt largely financed the purchase through debt; that, and his messy divorce from his wife are what fatally injured his ownership of the team. A man with half a brain would have agreed to sell the team by now, but McCourt is stubbornly continuing to try to hang onto it.
The Cubs situation was also very different. They were (and are) a profitable team, but the sale of the Cubs took forever because their old owner (the Tribune company) was slowly working its way through bankruptcy.
Yes, each of these situations are very different. The fact that there is financial distress is the common element. How could a franchise like the Dodgers have their control usurped by MLB? The Cubs just printed money for the Wrigley’s and the Tribune. The Devils won Stanley Cups and are part of the largest market in America.
What I’m saying is that 10 or so years ago these situations would have been unimaginable. Just like the mortgage market, the sports franchise market, for whatever reason, has burst. Instead of paying a premium to buy in, the owners are willing to pay to get out. That’s my point.
I disagree. Neither the Dodgers situation, nor the Cubs situation, have anything to do with some putative weakening of the value of sports franchises (did you not note what I had posted, about the value of the Dodgers increasing by 69% during (despite?) McCourt’s ownership?).
The Dodgers situation has to do with a foolish owner, who managed to hoodwink MLB into allowing him to purchase a team when he really didn’t have the financial wherewithal to afford it. The Cubs situation has to do with a corporate owner going through bankruptcy due to the weakening of its core business (media), and not the sports franchise in the slightest.
Whether I’m proven to be right or wrong, I stand by my statement. This kind of situation wouldn’t have happened 10 years ago. Pro sports franchises, even money losing pro sports franchises, were seen to be a great investment. Lose money, book it, then sell out at a profit.
The value of anything isn’t in what some evaluator puts it at, it is what someone is willing to pay. I tend to think that neither the Dodgers or the Cubs (or the Devils) can begin to unload their franchise at the value that they (or Forbes) think they may be worth. The one’s that are showing a profit, yes, they command a premium. The number of those franchises is sinking. In the near future, at least, there will be no expansion of the leagues which is what (with entry fees) kept some franchises afloat. The NBA will probably have to contract. The NHL, I wouldn’t be surprised. MLB will probably not contract but will have to reevaluate its revenue stream. They can’t expand. The NFL, they are in better shape since they survived the latest work stoppage but they have to be careful. I doubt that the salable value of their franchises are tremendously increasing to any business person that is applying sound profitability metrics.
Just FYI, only because you seem to be lumping the Cubs in with two teams who look to be changing ownership in the near future: the Ricketts family (which made their money by founding Ameritrade) bought the Cubs from the Tribune Company in 2009 (in a process that took nearly two years). So, that particular changing-of-hands has already happened.
Those, I’ll grant you. Both leagues seem to be over-expanded, and the NHL’s “Southern Strategy” looks to have largely been a failure. I’ve just been illustrating that two specific examples which you brought up – the Dodgers and the Cubs – really aren’t good examples of your hypothesis.
I’m not convinced the NHL’s failure was in moving south - after all, San Jose is a model franchise, and many northern teams have flopped.
The problem is that they got addicted to expansion money and were handing out franchises, or transferring existing franchises, to people who quite simply did not have the wherewithal to own and operate a professional sports franchise. The Ottawa Senators were, for the first ten years of their existence, owned by people who - I am not kidding - quite literally didn’t have any money. The ownership and operation of the Ottawa Senators was an ongoing work of leveraging debt swaps, loans, real estate shenanigans, tax credits and cash calls to keep the organization afloat for another year; it was like someone advancing money from their Visa to pay the minimum on their Masterard and then doing the reverse, n the hopes that at some point in the future some money will come along to stop the inevitable collapse.
There isn’t any particular reason a team in Atlanta, to use that example, COULDN’T have worked. But the NHL, instead of allowing the owners to come to them with a solid business plan, embarked on the decision to expand to 30 teams and just took whatever big market owners they could find, as a result getting ambitious but overleveraged boobs who soon couldn’t keep advancing enough off the Visa to make payroll. So the Thrashers failed and moved to Winnipeg, but that’s really not a reflection on Atlanta so much as it is the fact that you can’t just give a sports franchise to the first guy who comes into your office with a name and a jersey design. Had Ottawa not found a hockey fan billionaire to bail them out the Senators would have failed too.
If the NHL had waited longer and allowed expansion to happen more naturally, as good ownership groups came along, they wouldn’t have half a dozen franchises in mortal peril.
What situation are you talking about? The Dodgers made 16.5 million last year, and continue to appreciate in value. The Cubs sold for 845 million dollars.
The situation in your OP seems unique. The team is leveraged to all hell, and the owner’s are on the hook for cash infusions if necessary. I’d imagine if the Devils weren’t carrying $180 million in debt their books would look a lot better.
Just FYI, while the Mets have a number of serious issues, a good chunk of the Mets’ owners’ financial problems are directly or indirectly because they (the Wilpons) were among the people who lost a fortune to Bernie Madoff’s Ponzi scheme.
The Dodgers aren’t in financial straits. As I mentioned in my previous post, they’re profitable and appreciating in value.
Here’s Forbes take on the Cubs franchise. They had an operating income of 25 million and appreciated 4% in 2010.
The Mets operating income was 25.5 million according to Forbes, although the value of the Frnachise was down 6%.
The very serious storm clouds aren’t for “some reason”. The reason is that owners now pile on a bunch of debt to franchises. This depresses reported profit and is the cause of most of these supposed financial crises. Most of this debt is just personal and used to finance the purchase of the team. It’s no shock that you can’t take out a bunch of loans, buy a business, and then expect to make a profit every year.