Thursday, June 18, 2009

More on Professional Sports

I just wrote two weeks ago that I am bearish on pro-sports (and lamented the few options available to take advantage of the apparent overpricing).

Our bubblevision friends at CNBC just reported that the Chicago Cubs sale is being re-negotiated. For the uninformed, this a part of the Chicago Tribute bankruptcy proceedings. Sam Zell sold out his office empire at the top, and proceeded to lever up the Trib, which subsequently drove it into Chapter 11, one of several recent newsprint bks. Anyway, for some time Mark Cuban, another well-known "sold out at the top" guy, was in the running. It is not very clear what happened there but it did not go through. Cuban has a very insightful write-up on his blog which I highly recommend. He basically walked based on the changed circumstances in the financial markets and the wider economy.

There were also rumours that Cuban's personality might have gotten in the way. I think the world would be better off if there were more Cubans and less Bud Seligs, but that is another topic. Anyway, in the end, this other wealthy white family, the Ricketts, won. Incidentally, the patriarch, Joe, was featured recently on this blog as a big time insider seller.

CNBC writes: "CNBC reported Wednesday that the deal between Ricketts and and Tribune Company hit a snag, with Ricketts looking to move the purchase price down by tens of millions of dollars."

I do not know where their comps came from, and I do not know any specifics, but my hunch is that there is no reason why an entertainment business with poor overall fundamentals, substantial crowding and huge fixed costs, coming off a ginormous talent cost bubble, is worth $1 bn. Now "several sources said that Tribune is now able to negotiate with other buyers."

Well, good luck with that. After NYC condo prices, pro sports might be the last place where the new reality has not yet fully settled in. It certainly has not at Real Madrid. I'd like to buy a CDS on them based solely on this guy.

Update (6/21/09): Bloomberg reported on Friday that 80% of the Montreal Canadiens will go for "more than $550 mm." Unclear, to me, whether CAD or USD. The buyers are the Canadian scions of this well-known branded company. Turns out that the seller, who also owns Liverpool F.C. in part, is having to come up with cash for a short-term loan taken out to buy the team. I am simply shocked that they cannot fund this through operations or roll the loan over. One caveat with the numbers thrown around is the value of the arenas that might or might not go with the team. Some places are truly multifunctional while others, not so much.

Update (6/23/2009): Now Reuters is reporting that the Phoenix Coyotes auction is scheduled for August. Here is something from the article that supports my views on the (non) business of sports: "The Coyotes, which filed for bankruptcy in May, have never made a profit since moving to Arizona in 1996." 13 years of losses and still in business? And I am sure they were not paying the full cost of having the ice box in the middle of the desert.
The NHL is meddling in the process and wants 1st round bidders that would keep the team in AZ. Only if "the August auction fails to attract a suitable offer, a second auction -- open to other bidders, including Balsillie, who could move the team -- would be held on Sept. 10, Salerno said." Balsillie, of RIMM fame, would move the team to Canada. His offer is for $212 mm. If I were him, if it comes to 2nd round, I would just bid $1.

Update (7/1/2009): "The National Hockey League is backing a bid by sports team mogul Jerry Reinsdorf to buy the bankrupt Phoenix Coyotes for up to $148 million rather than the $212.5 million offer from Canadian billionaire Jim Balsillie." Some tools, huh? To hell with the creditors.

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