|Barbarians are at the ticket gate of a stadium near you|
NEW YORK ( TheStreet) -- After taking on Corporate America, private equity firms are set to storm the gate of sports teams as owning a sports team becomes less of a pastime for the mega rich. Already, a flurry of team sales to private equity titans shows an increasing interest by buyout investors in the sports world. With a flurry of ownership changes in the NBA to go with the bankruptcy sale of the Los Angeles Dodgers and the New York Mets woes luring financiers, the question now is whether sports teams will be seen as a bona-fide investment.
Watch for a resolution to the L.A. Dodgers bankruptcy and the sale of the NHL's St. Louis Blues as a leading indicators on how investment firms will enter the sports ownership fray in what they see as profitable or cash generating assets. That would be counter to the traditional reason for owning a team: fan-fever, social graces or simple vanity. In the Dodgers sweepstakes, private equity firms like KKR ( KKR), Thomas H. Lee and Providence Equity Partners have emerged as prospective buyers, but without a primary interest in the National League ballclub. Instead, the private equity investors may be eyeing the Dodgers sports programming business, which have a similar value as Madison Square Garden's ( MSG) MSG Networks, the New York Yankee-owned YES Network and the Boston Red Sock-run New England Sports & Entertainment Network. In February, Forbes reported that the private equity firms were looking at joining one of the remaining groups bidding on the Dodgers, with the possibility of contributing up to $300 million in an overall acquisition that is likely to fetch $1.5 billion. Those reports indicated that the buyout firms would be interested in the Dodgers sports programming rights, which could pave the way for the creation of an independent sports network. A BusinessWeek feature indicated that many of the Dodgers interested buyers are targeting the baseball teams distribution rights, which could net a more than $3 billion T.V. deal. Those prospective buyers include Time Warner Cable ( TWC) and Comcast ( CMCSA), in addition to a consortium led by Leo Hindery of the YES Network that includes private equity fund Colony Capital, according to BusinessWeek. If Hindery's consortium were to win, they could attempt to build an independent network like YES that would put it in a strong negotiating stance with a cable systems looking to distribute games.
In the 2009 sale of the Chicago Cubs by the then-bankrupt Tribune Company, the $845 million sale to investnements mogul Tom Ricketts was bolstered by the Cubs 20% stake Comcast SportsNet Chicago. The value of an independent network in bargaining with a cable provider was also highlighted in the spat between Time Warner Cable and MSG, as a Jeremy Lin-inspired Knicks winning streak brought Linsanity to a stalled programming negotiation. For more on the importance of sports networks, see why the 2012 Jeremy Lin Knicks blackout began with Cablevision's ( CVC) spin of MSG in 2010. Instead of retaining MSG under its cable network umbrella, Cablevision decided on a MSG shareholder spinoff that kept a sizeable stake in the New York Knicks and Rangers in the hands of the company's owners the Dolan family. Already private equity investors are whetting their appetite for sports teams and likely for more than just the thrill of the game. In July 2011, Apollo Global Management ( APO) and Blackstone ( BX) Joshua Harris and David S. Blitzer bought the NBA's Philadelphia 76'ers for $280 million from Comcast, in a deal that didn't include the team's arena. Comcast still retains control of the Philadelphia Flyers. The 76'ers also have long-term programming contract that lowers its still significant media value. "I think for Josh or any buyer these days, it's all about the media rights," said Scott Milleisen, a managing director of JPMorgan's Private Bank in a Forbes Sports Money interview. A month earlier, Tom Gores, the head of Platinum Equity bought the Detroit Pistons for $325 million, in a deal that included the team's Palace of Auburn Hills arena. In a Tuesday ACG conference on sports M&A, Bradley Rangell of Citi Private Bank noted that for Platinum Equity, the Pistons deal represented a "strategic fit" with its many other corporate investments. Meanwhile, the Toronto Raptors were owned by private pension fund The Ontario Teachers' Pension Plan, until a $1.3 billion sale of the fund's 80% stake in a sports holding company in 2011. The bulk of the Boston Celtics ownership group consists of private equity executives from Bain Capital, Silver Lake Partners and Accel Partners. So what would the problem to a increasing private equity involvement be? For one thing, a profit mindset may lead to increased monetization efforts, which could increase in-stadium and T.V. sports viewing costs. Secondly, for-profit owners may favor a team's profit and loss statement over wins and losses. Another question is whether investment funds would look at ownership as a quick flip investment.
The sale of the St. Louis Blues of the National Hockey League may give the first insight into how a financial buyer exits a team. In March 2011, the Blues' chairman Dave Checketts, formerly of MSG, said he would look to sell the team after its 70% owner TowerBrook Capital Partners decided it wants out of its Blues investment after just five years of ownership. The announcement came as the franchise showed signs of profitability that could turn make the investment profitable in a sale. Since TowerBrook's 2006 investment, the finances of the Blues suffered as a result of a purging of stars and poor on-ice play. However, the team currently tops the Western Conference on a string of smart signings and a crop of young stars. To be seen is whether a team sale imposed by financial owners cuts short a revival in the franchise, which would have fans singing the blues. So far the Blues have had tough luck finding a buyer. Watch for a L.A. Dodgers and St. Louis Blues sale resolution to speak volumes about how private equity may take an increasing role in sports through the buying and selling of teams. New York Mets fans may also want to watch with interest, as a resolution to their teams financial and onfield woes, not to mention the legal battles of its owners, are all still unclear. Recently, hedge fund magnate Steven A. Cohen bought shares in the Mets, after an ambitious $200 million stake buy from long-time fan David Einhorn of Greenlight Capital was tabled. Meanwhile, the Phoenix Coyotes are still in need of a new owner after the NHL bought the team out of bankruptcy. -- Written by Antoine Gara in New York