Thursday, April 16, 2009

Default in Big D Revisited

As previously reported, Tom Hicks, owner of the Dallas Stars, the Texas Rangers, and co-owner with George Gillett of the Liverpool Football Club of the English Premier League, has defaulted on a $10MM interest payment that was due to his lenders on the $525MM loan used to purchase the franchises. The $10mm quarterly interest payment was due March 31. The journal is reporting that the Stars and the Rangers are currently unable to fund their operating expenses AND pay the interest payment that is due, and that Hicks is unwilling to continue to cover the losses personally. Darren Rovell of CNBC is reporting that the NHL is giving Hicks and his Hicks Sports Group six months to renegotiate with his lenders, while Major League Baseball offers no such protection in the event of a default. The largest single loan is to Galatioto Sports Partners of New York, who are owed $100MM. Hicks' partner in the Liverpool Football Club, George Gillett, is currently rumored to have put his ownership interest in the Montreal Canadiens on the market as well.

Hicks' strategy is unusual to say the least. This is an aggressive tactic that could backfire should the lenders prove to be uncooperative. The degree of cooperation from the lenders will probably be a function more of the credit markets and the ability to secure funding rather than the strength of Hicks' negotiating position. The ostensible out for Hicks is his desire to sell up to 49% of both the Stars and the Rangers to minority investors. In this market, I would frankly be surprised to see many takers for a minority position in a franchise that is in a tenuous financial position. Couple that fact with a group of less than happy lenders, and how this situation plays out will bear watching.

All this points out the necessity for a franchise to operate in a fiscally prudent manner, not only from the management of contracts, but management of all operating expenses. As a fan, it is easy to say "spend the money" and buy talent to put on the ice. Fans of the Stars and Rangers must feel a sense of dread as they have seen their teams spend large sums of money for talent and now find them in dire financial straits, worrying about the future of their franchise. Kudos are in order for the Predators management for operating the team in a fiscally sound manner. Yes, it is frustrating at times to see talent go to other teams willing to pay the money. Imagine the frustration every Pred fan would fell right now if our ownership group were in default and the future of the franchise was once again in question.

1 comment:

  1. Good story. There's a lot to be said for running a franchise like a business. I hope folks remember that we almost lost the franchise this summer when we don't resign a player for too much money or don't overspend on a free agent. To many teams spend up to the cap and don't get value for what they bought (and we finished ahead of some of them).