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January 2, 2009
Off-the-Field Losses Crimp Team Owners
Prestige of Owning Sports Franchise Is Lost When a Principal Business Struggles Along With Athletes
The Wall St. Journal
By Matthew Futterman
For all the talk of slumping ticket sales and sponsorships, the most troubling scenario for the sports industry is the growing trend of team owners beset by financial problems in their principal businesses.
...The problems have been spreading as the souring economy diminishes the fortunes of team owners. That jeopardizes the essential ingredient of the sports business: rich people who can afford a really expensive hobby.
"The willingness or tolerance for future losses is very, very low," says Allen and Co.'s Steve Greenberg, an investment banker to the sports industry and former deputy commissioner of Major League Baseball. "More owners are looking to operate at break-even or better. The problem is, it's hard to turn a $15 million to $25 million loss into break-even in a short period of time."
Unlike other recessions, this one threatens to wipe out sports owners who were recently willing and able to put up with meager profits or annual losses because of rising team values and the perks of the investment, such as the celebrity status.
...
Many owners' primary businesses incurred deep losses in 2008. As a result, league officials and investment bankers fear a market flooded with teams for sale at a time when potential buyers are few and credit for acquiring sports teams is difficult to secure, which would lead to shrinking team values.
...
Also feeling the crunch is Forest City Enterprises Inc., the real-estate developer behind Bruce Ratner, principal owner of the National Basketball Association's New Jersey Nets. The company said last month it was ceasing all development projects, after its stock price fell from $60 in 2007 to under $6.Forest City, which owns 23% of the Nets, pegged losses for the team at $30 million through the first nine months of 2008. The Nets have lost more than $100 million since Mr. Ratner acquired the team in 2004, forcing him to slash payroll.
Forest City still wants to develop a $950 million arena in Brooklyn for the Nets, but the project is stalled amid legal wrangling and financing problems.
NBA Commissioner David Stern says Forest City's ability to secure financing for the arena is hampered now, adding: "Our hope is that will improve in 2009."
Posted by lumi at January 2, 2009 5:13 AM