M&A

Even During Dismal M&A, Sports Trophies Shine

Teams sometimes prove hot targets, while most deals remain on ice.
Alan RappeportJuly 8, 2008

It may be a slow time right now for dealing professional athletes in their various sports, but the franchises themselves are seeing action on the trading block. And some acquirers are using the market downturn to collect rare trophies.

Despite the 36-percent plummeting of the global market for mergers and acquisitions — to $1.6 trillion in the first half of 2008 from nearly $2.8 trillion a year earlier — several high-profile teams are on the market. Monday’s closing of a deal for the Edmonton Oilers, the storied Canadian team, made it the second National Hockey League team to change hands in a week. Owners of football’s Pittsburgh Steelers have also indicated that it may be time to punt, while the current owner of baseball’s Chicago Cubs, Sam Zell of Tribune Co., also has been mentioned as a potential seller.

“It’s somewhat cyclical,” says Gordon Saint-Denis, managing director of media, entertainment and sports for CIT, a finance company that made a $100-million loan agreement with Daryl Katz to purchase the Oilers. Right now, across the professional sports horizon, “there are anywhere from five to seven teams that are on the market,” he notes.

Katz, who owns the Edmonton-based Rexall drugstore chain, agreed to buy the Oilers three months ago for $200 million, securing half of the financing for the acquisition through CIT. According to Saint-Denis, interest in the deal was fueled by Edmonton’s thriving local economy and persistent interest in the team, which sells out most of its games, and which nearly won the league championship in 2006. The team had been owned by a group of more than 30 local investors.

Last week the NHL’s Tampa Bay Lightning was sold to Oren Koules, a Hollywood producer, also for $200 million, in a deal that took two years to complete. Hockey franchises tend to have less value than teams in sports with more U.S. popularity, such as football, basketball, and baseball. Saint-Denis says that football franchises sell for an average of $900 million and baseball teams tend to sell for between $300 and $375 million.

The Pittsburgh Steelers announced on Monday that they were seeking to restructure ownership because some family members of Art Rooney, the team’s late founder, want to leave the business. Team chairman Dan Rooney said on the Steelers’ Web site that he hopes to consolidate the remaining shares, but the Wall Street Journal reported on Tuesday that a local billionaire fund manager is interested in acquiring the team.

“It’s literally a once in a lifetime opportunity,” says Saint-Denis of the possibility of a deal for the Steelers. “It’s the same thing with the Cubs right now. If you’re interested in buying it, it’s probably not going to trade again for another 20 or 30 years.”

Franchises are often considered trophy assets, meaning that investors seek them for not just financial reasons but out of emotion or ego. However, prospects of a new arena (which the Oilers will soon be getting), along with a passionate ticket-buying fan base and a growing local economy, can make a team a good investment. A recent championship also can improve premiums, says Saint-Denis.

Winning is not everything, however. In spite of the Cubs’ historic championship drought, analysts expect that Tribune Co. could fetch as much as $1 billion for the team, Wrigley Field, and a share of the local cable market. Bidding for the Cubs has been slow, in part because new Tribune Co. owner Zell is trying to structure any deal to avoid taking on enormous capital-gains tax liabilities. The effort to find a partner to help Tribune take advantage of a “leveraged partnership” loophole has thus far thrown him a curveball.

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