- The Washington Times - Sunday, May 4, 2003

The party is over.The value of professional sports franchises soared the past 15 years, first exploiting, then defying the economy as heated bidding wars drove up the prices of teams for sale.However, a volatile combination of a lagging economy, declining corporate interest in owning teams and the troubled fiscal systems of most of the major leagues has left an unprecedented number of franchises seeking new owners — and finding few takers.Ten of the combined 121 teams in the NFL, NBA, NHL and Major League Baseball officially are up for sale, ranging from the high-profile Los Angeles Dodgers and Atlanta Braves to the lowly Atlanta Thrashers and bankrupt Ottawa Senators. At least another dozen owners are privately seeking bids, according to sports industry executives.The sale of two franchises that did manage to find buyers recently illustrates the glaring absence of a wealthy elite still willing to pay any price for a quick ride into the owner’s box.The Buffalo Sabres were sold to Rochester, N.Y., billionaire Thomas Golisano for $92 million and the World Series champion Anaheim Angels to Phoenix industrialist Arturo Moreno for $180 million — bargain-basement prices that were achieved only after lengthy sales efforts.”It’s definitely a different time now,” said Sal Galatioto, the managing director of Lehman Brothers’ sports advisory and finance group, and an adviser on the sale of many teams. “Anybody who is looking at a franchise these days is looking at it much, much harder than a few years ago. And there’s no question there’s less scarcity now.”Large media corporations such as AOL Time Warner, News Corp. and Walt Disney Co. are leading the charge out of the ownership ranks. Each purchased teams in the 1990s, hoping to seamlessly shift consumers of their other products to the sports teams and save money by owning a team as well as part of its TV distribution.The corporate synergy model, however, quickly broke down as the national economy soured in 2000 and 2001 and the stock market plummeted. Heavy losses posted by the teams became a hot target for angry shareholders demanding stronger balance sheets. “Core assets” became the new buzz phrase on Wall Street, and the move to pare down the non-core assets — i.e., sports teams — now is in full flight.”A lot of people bought in and then didn’t worry so much about cash flow until they sold and cashed back out,” said Roger Grabowski, managing director of Standard & Poor’s Corporate Value Group. “People are now looking hard at cash flow during the holding period.”The NFL does not allow corporate ownership. That, combined with the league’s unrivaled superiority on the sports landscape, gives the NFL by far the most stable ownership situation. Just one NFL team, the Minnesota Vikings, is for sale, and that is largely because of the repeated unwillingness of the state legislature to fund a new stadium.The depressed economics of pro sports — particularly in baseball and hockey, which have no salary caps — also have turned off legions of prospective team owners. Baseball’s owners and executives say they combined to lose more than $800 million last year, including operating losses, interest expenses and depreciation.Most teams in the NHL, where player salaries absorb more than two-thirds of all revenue, also bleed red ink. And the league is headed toward a nasty labor war with the players next spring; both the league and the players union are bracing for a work stoppage expected to last at least a full year.But some of the pain already has arrived for the NHL: The Senators and the Sabres filed for bankruptcy earlier this year. Both are expected to emerge with new owners, but the damage already has been done.In the Sabres’ case, truly viable bidders were few. Golisano’s $92 million price for the Sabres — the sale also included the operating rights to HSBC Arena and the Buffalo Bandits, an indoor lacrosse team — beat the NHL’s 1999 base price for an expansion franchise by just $12 million.In Ottawa, the Senators and Corel Centre likely will sell for less than $150 million, leaving some of the club’s many creditors with pennies on the dollar.Attendance and TV ratings also have been a problem in every league but the NFL. Attendance for baseball, the NBA and NHL all declined in their most recent regular seasons. Baseball last year also completed a double play of worst-ever ratings for the All-Star Game and World Series.TV rights fees, a major driver of the growth of franchise values, similarly have plateaued for nearly every major sport.”There’s been too much emphasis on purchase price, I think,” said Chuck Greenburg, president of PlayMaker Sports Advisors LLC, a sports finance advisory firm. “Purchase price is only the beginning of the story. There are lot of factors to take into consideration, operating costs and revenues not the least of them.”Despite the increase in for-sale signs and the low sale prices in recent transactions, signs of vitality do remain.Overall, average franchise values, as computed by Forbes Magazine and other outlets, continue to rise, albeit at much slower rates than in the 1990s. Certain prize assets, such as the Boston Red Sox and Celtics, continue to command top dollar. The Red Sox, sold with the New England Sports Network, fetched $700 million in late 2001. The Celtics, basketball’s most storied franchise, sold for $360 million last year.The Montreal Expos, currently owned by Major League Baseball, also could fetch a higher price than standard industry formulas normally would dictate, particularly if the team moves to the baseball-starved Washington, D.C., area.And many industry executives say the downbeat economy is giving pro sports a much-needed dose of fiscal reality.”Both the capital structure and caliber of owners [in more recent deals] are much more solid,” Montreal Canadiens owner George Gillett said. “Lenders are also being more prudent. That’s a positive sign.”

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