- The Washington Times - Monday, July 2, 2001

On Wall Street and in Washington, the talk is of bear markets and recession. In the sports world, the good times still roll.
The value of sports franchises continues to surge, even as the U.S. economy struggles. Financial executives consider teams virtually recession-proof because there are many more eager, would-be owners than there are franchises in the United States' four major pro sports leagues.
Earlier this year, Barry Ackerley sold the National Basketball Association's Seattle SuperSonics to Starbucks executive Howard Schultz for $250 million, more than 11 times what he paid for the team in 1983.
District entrepreneur Jonathan Ledecky last month sold his 24 percent stake in the Washington Capitals, making an estimated 40 percent profit in just two years.
Wayne Huizenga recently sold the National Hockey League's Florida Panthers for $101 million, a sum viewed as a disappointment because he had to cut his asking price. Still, the billionaire magnate doubled his money in less than eight years.
The record-breaking, eye-popping deals of recent years, topped by Dan Snyder's $800 million purchase of the Washington Redskins and FedEx Field, have ebbed. That is so in part because the National Football League's spurt of sales including the Redskins, the New York Jets and the Cleveland and Houston expansion franchises has ended. But there still is no shortage of owners-in-waiting or of records waiting to be broken.
In Boston, eight well-heeled bidders are vying to purchase controlling interest in Major League Baseball's Red Sox. The storied franchise is expected to sell for at least $400 million, even though there are no certain plans to update or replace aging Fenway Park. A sale at that price would smash the record for a baseball franchise.
"There's still a lot of money chasing an asset that is in limited supply," said Jeff Phillips, senior vice president of Houlihan, Lokey, Howard & Zukin, a Chicago investment bank that values sports teams. "It almost is like a piece of art. A team doesn't necessarily throw off a lot of cash for the investor, but when one becomes available you immediately have a lot of wealthy people clamoring to get their hands on it."
Even teams that haven't traded hands recently are gaining value. Forbes Magazine estimates that the average value of a franchise has increased 15 percent in the NBA in the last year, 12 percent in Major League Baseball, 10 percent in the NHL and 9 percent in the NFL.
The dichotomy between franchise values and economic indicators illustrates just how much of a role vanity and ego play in team sales. In each of the major leagues, television ratings either have flat -lined or declined sharply. Attendance and sponsorship sales have been choppy for several teams, and numerous stadium projects either have been killed by voters at the polls or stalled in the face of an unsuccessful search for a site.
And many teams particularly in the television-revenue poor NHL don't even make a profit. The Capitals, who lose nearly $20 million a year, are a perfect case in point.
Lincoln Holdings, the ownership group led by Ted Leonsis, has little access to critical MCI Center revenues like parking, concessions and luxury seat leases. But the group will get full control when Abe Pollin, the majority owner of the Wizards and the arena, decides to retire. It also already has Michael Jordan as a partner and the fastest revenue growth in the NHL.
Thus, the half-dozen serious bidders for Ledecky's Lincoln Holdings equity were betting on the promise of a bright future. Seeking a complication-free sale and the freedom to pursue his own team, Ledecky sold the shares back to Leonsis, who already has been approved as an owner by the NBA and NHL.
"Sports still represent a very attractive opportunity for a lot of people," Ledecky said. "This is still a healthy industry. Ted, obviously, stepped up and increased his stake in the team. But there was no shortage of interest in my equity."
The value of some teams has eroded because of the economic downturn, but many of those teams are based in Canada. The Canadian dollar, the currency of team revenues, remains far weaker than the American dollar, the currency of salaries and most other expenses.
That fiscal weakness led to a distress sale earlier this year of the Montreal Canadiens, in which the money-losing but relatively new Molson Centre was essentially given away. And in Forbes' list of NHL franchise values, Canadian teams claim four of the bottom seven slots.
Still, even the weakest franchises attract plenty of interest.
"In the right market, these teams hold very significant value," said William Collins, head of Virginia Baseball.
Collins' group has pursued the Montreal Expos arguably the most beleaguered franchise in all of pro sports in an effort to bring a major league team to Northern Virginia.
The long-term future of franchise values depends almost squarely on TV rights fees. With the current, massive wave of stadium and arena construction approaching its inevitable lull and ticket prices near a painful maximum, leagues will need to keep television fees growing to show any significant revenue growth.
Baseball last year landed a 44 percent increase for its network package a disappointment because it originally sought to triple the value of its previous package.
"The two main economic drivers are and will be TV revenues and new stadiums, and once the new stadium is built, that leaves TV," Phillips said. "Without growth there, that's when the rise in [franchise] values could take a big hit."

Sign up for Daily Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide