Has Bud Selig Changed the Sports World Forever?

A drama is playing out in Texas involving Major League Baseball and the sale of the Texas Rangers that could have an impact on all sports. The outcome of this drama could forever alter the landscape of financing sports franchises not only in baseball, but in all sports leagues.

Tom Hicks owns the Texas Rangers and the Dallas Stars, and like many owners of sports franchises, used debt from multiple lenders to finance the purchase of those franchises. There are 40 lenders that are involved in the financing of Hicks' sports teams, and the debt on the Rangers franchise is approximately $525 million.

Hicks is a businessman that has made his fortune by borrowing money to buy businesses, spruce them up, and sell them for, mostly, a significant profit. He is a leveraged buyout specialist. One of his most famous deals was the purchase of Dr. Pepper and 7 Up for $646 million and selling those companies several years later for $2.5 billion. Hicks has also made money- lots of it- by running leveraged buyout funds, funds that used debt to buy companies and sell them at appreciated prices in the future. These private equity funds would gather funds from investors, borrow more money from lenders, and buy companies using these proceeds. The power of the leverage- debt from lenders- increased the buying power of the funds that Hicks ran. For example, he invested $2 million into Mark Cuban's Broadcast.com business and netted $55 million in less than a year when the company sold.

This is a great business when the economy is strong and growing. Leverage amplifies the positive return, making the profits to investors grow exponentially. Leverage is a fickle mistress, however, and when markets and the economy contract, leverage can be deadly.

No investor or investment manager gets every investment to work perfectly. One of Hicks' funds, named Fund 4, lost 30% for investors when the dot com bubble burst in 2000. Subsequent funds suffered losses, and in 2004, Hicks exited the fund management business.

This same business model has been used by Hicks in the acquisition of the Rangers and the Stars. As mentioned, the debt on the Rangers franchise is over $525 million. The Rangers franchise does not generate enough revenue to service the debt, which has meant during the tenure of Hicks' ownership the losses have been covered by Hicks personally. This is not a problem when revenue from other business ventures and investments is flowing in. However, when the economy turned and revenues from his other business interests waned, Hicks had to step up and cover the losses from personal funds.

In March of 2009, Hicks made a decision to stop covering these losses, and defaulted on an interest payment that was due to the lenders in the amount of $10 million. Hicks further spent reserves that lenders required to be maintained for future interest payments to cover operating losses for the Rangers and the Stars. Those reserves were originally $17 million. It was obvious that Hicks Sports Group (HSG) was in dire financial condition.

Hicks undertook an effort to sell one or both of the franchises, and seemingly secured a buyer for the Rangers, a group that included Chuck Greenberg and Nolan Ryan, and settled on a sale price of $500 million.

Which brings us to the drama that is now playing out in Dallas, in the offices of Major League baseball, and in the offices of the creditors of the Rangers.

The lenders have balked at the sale price. They contend that the team could fetch a higher price and this sale will result in losses they should not have to absorb. Last week, lenders holding 95% of the debt on the Rangers franchise voted to block the sale through the exercise of their legal rights as creditors.

The rightful and legal exercise of the creditor's rights has caused the Commissioner of Major League Baseball, Bud Selig, to step in and threaten to revoke the rights of the creditors if they continue object to the sale. He claims that he can do this using a little used rule that allows the Commissioner to act "in the best interests of baseball". According to Daniel Kaplan, writing in the May 10th issue of Sports Business Journal, Selig notified the lenders via e-mail on April 30th, that he could utilize the "best interests" rule to revoke their liens if the creditors attempted to block the sale.

The invocation of this rule is not without precedent, as it was used to facilitate the sale of the Montreal Expos.While the "best interests" rule was initiated to relocate a failing franchise, this is the first time that the rule has been used to negate the rights of the lenders that have financed the purchase of a sports franchise. This action is unprecedented and creates a negative new dynamic between a sports league and the lenders that finance the purchase of a franchise.

The creditors have indicated that they would pursue legal recourse if Selig initiates this action.

While it will be interesting to see how this plays out for professional baseball and the Rangers, the impact of this action could have amazing ramifications for the entire sports world. The creditors, according to Kaplan, have warned Selig that if the Commissioner invalidates their rights, it will decimate sports financing in baseball. One lender, who requested anonymity, said that this action could freeze up sales of franchises in baseball, since most sales are dependent upon financing from creditors.

The money quote (pardon the pun) in Kaplan's article is this, "Bud can forget any lender, which includes any hedge fund or anyone, lending a single nickel or dime into baseball again," said Joe Kosich, who owns Dornich Capital Advisors and formerly ran sports lending for Wachovia Bank.

While this brouhaha is being played out in the confines of Major League Baseball, it is not a stretch to see the implications of this dispute for other sports. The chilling effect of this type of action would certainly limit the pool of potential buyers for a sports franchise if financing is not available.

The question is can a Commissioner in another sport, say a Gary Bettman, invoke a similar rule to limit the sale of a franchise by constraining creditors?

Funny that I should bring up Gary Bettman in this discussion.

In reading the Constitution and by-laws of the NHL, one does not find a specific "best interests" clause. One does find verbiage that discuss the "promotion" of the game, operating for the "good of the game", and actions that should be done for "protecting the integrity of the game". The Commissioner has the right to to "establish policies and and procedures regarding the provisions of the Constitution and by-laws... and any determination made by the Commissioner...shall be final and binding and shall not be subject to any review."

Sounds like the NHL Commissioner has wide latitude to act in the "best interests" of the game.

Unlike Bud Selig, Gary Bettman has the precedent of the Courts to back up his actions in the best interests of the game. Remember the Balsille attempt to purchase the Coyotes? The NHL negated the sale of the Coyotes to Balsillie because he did not abide by the rules of purchasing a franchise, and even though his offer price was higher than any other bid, it was not in the "best interests" of the NHL to have the purchase occur in the manner in which it was attempted.

So what does all this mean?

Should Major League baseball prevail in their forced sale, the effect will be to potentially dry up funds from lenders for the purchase of a sports franchise. As a result, the price or value of a sports franchise will decline because the pool of potential buyers will shrink significantly if financing is not available. Buyers that can write a check for a franchise- think the aforementioned Jim Balsillie- will be in great demand by potential sellers. Leagues may be forced to accept owners that at one time they would be unwilling to allow into their ranks. As financial institutions have initiated stricter underwriting standards for loans, the potential of a sports league to invalidate their standing as a creditor has a severely chilling effect and makes it more difficult for potential buyers to get financing.

Simply put, should lenders pull back from financing sports franchises, the value of those franchise will fall and it will be more difficult for existing owners to sell those franchises to potential buyers.

So this drama in Texas is speeding toward a resolution. The outcome can have impact on all of professional sports and the owners, and potential owners of a sports franchise.

We will see if the outcome is really in the "bests interests" of baseball.

And perhaps of all sports.

My View

Random thoughts from a warped and fevered mind...


Monday is Memorial Day, the unofficial start to the summer. For most, school is out, vacations await, and it is an extra day to sleep in and enjoy a day without the rigors of the work environment. In the hustle of daily life, a day off is welcome. It is that same hectic pace that causes many to forget the significance of the day we celebrate. Declared as a federal holiday and named "Memorial Day" in 1967, this day has been set aside to honor those that made the ultimate sacrifice to defend our freedom. All of us that enjoy our freedoms in this country cognitively know that there is a cost to those freedoms. For families that have lost loved ones, that cost is all to real and painful. Thomas Jefferson said "The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." This Monday, we honor the patriots that have secured our freedom by their willingness to lay down their life for us. In the midst of the barbecues and time with family and friends, pause for a moment and say a prayer of thanks for those men and women that have made our freedom possible.

A friend invested in a company that made revolving doors and toilet paper. Unfortunately, it went broke and he got wiped out before he could turn around.

In the first quarter of 2010, paychecks from private business shrank to their smallest percentage of total personal income in the United States in the history of this country. Simultaneously, government provided benefits from Social Security, food stamps, welfare, and other  programs, grew to an all time high in the same period. The total personal income in the United States is the combination of what is earned by individuals  from employers and the payment of income through government programs like those just mentioned. According to the Bureau of Economic Analysis, private wages fell to an all time low of 41.9% of total personal income. This trend cannot continue, because the government is dependent upon the growth of private wages to generate taxes for its growing and expensive entitlement programs. One has to look no further than Greece and the civil unrest there to get an idea of what happens when governments try to cut back on the government funded benefits. This level of spending is unsustainable without enormous tax increases, and most governments, ours included, have shown they do not have the political willpower to cut spending.

How many weeks are in a light year?

Congress is wrestling with a financial reform bill that will supposedly change the way that Wall St. does business (full disclosure- I work with those on Wall St. managing investments). Both houses of Congress have approved a bill but it must be reconciled because there are substantial differences in both the House and Senate version. Senator Judd Gregg, a New Hampshire Republican, on Monday of this week called the bill a "disaster" because it did not address the "underlining causes of the economic issue, which were real estate and underwriting." Amazingly, both the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Association (Freddie Mac) are excluded from the reform effort. To date, Fannie and Freddie have been bailed out to the tune of $300 BILLION dollars. and they continue to bleed red ink at a rate of $8 Billion per month. Yet Congress does not deem it necessary to include them in a financial reform package?! One reason is that both of these entities are closely intertwined with the very Congress men and women that should oversee their operation, funneling thousands of dollars back to their campaign coffers. Fannie and Freddie have become a cesspool, and any effort to clean up any financial mess and regulate the financial services industry must include these two entities as well.

In high school, I was in the French club. All we would ever do is surrender to the German club.

And that, my friends, is my view.

The Hockey Community Continues to Reach Out

The hockey community in Nashville is known for its passion for the sport and their love for the Predators. After the Nashville flooding, the hockey community in Nashville will be known for their response to those that are hurting and in need.

SlapShot Radio, lead by our very own Paul McCann , has organized a fund raisng event to benefit Youth, Inc. YI operates an in-line hockey program in Bellevue that involves a number of children from the community. Their rink was destroyed in the recent flood, and repairs are a very expensive proposition.

Paul, and his wife Denise, have organized a viewing party and SlapShot Radio remote broadcast at Pie in the Sky Pizza on Wednesday, June 2nd from 5-9:30. There will be special guests dropping by; there will be some great silent auction items available; and of course, the Stanley Cup game will be on the HD televisions at Pie in the Sky.

Pie in the Sky is located at 110 Lyle Ave. off West End.

Come join Paul, Pete Weber, and local hockey fans as we raise money for a great cause and enjoy the Stanley Cup playoffs.

This is a great fund raising effort for a great cause.

Thanks, Paul.

Re-View and Pre-View: A Look at the Conference Finals and the SCF

Time for the View to take a look at his prognostication ability for the Conference finals and look ahead to the Stanley Cup Finals. Here we go...

San Jose versus Chicago

The Pick: Chicago in 7

Outcome: Chicago in 4

The Sharks reverted to form and bowed out of the Stanley Cup Playoffs without winning a game in the Conference finals. A team that had gotten balanced scoring from multiple players suddenly had only one player that could play consistently, and Patrick Marleau was not enough to overcome the potent Blackhawks. Evgeni Nabokov was not bad in net for the Sharks, but neither was he great. He had to be for the Sharks to have a chance to win this series. His counterpart, Hawk netminder Antti Niemi, was amazing. He made some stops that just caused you to say "Wow". The Hawks offense was the usual dangerous and explosive unit, but perhaps the story of this series- and the playoffs- was the emergence of Dustin Byfuglien as an offensive force. The Sharks just could not control the big man and he made them pay with two game winners and in general created havoc in the offensive zone. The Chicago defense did a great job of shutting down the big  guns of the Sharks, with the exception of the aforementioned Marleau. Danny Heatley was held without a point in this series. The Hawks, however, were firing on all cylinders in this series.

Philadelphia versus Montreal

The Pick: Philadelphia in 7

Outcome: Philadelphia in 5

The size and physicality of the Flyers was just too much for the Smurfs in the bleu, blanc, and rougue. Philadelphia kept coming at the Habs in waves and and Jaroslav Halak finally cracked under the pressure. On the other end, Michael Leighton continued his storybook run in the playoffs since taking over for the injured Bobby Brian Boucher, posting back to back shutouts in the series. The Flyers had strong play from Jeff Carter and Mike Richards, and Chris Pronger was a beast on the blue line. Pronger continues to chew up minutes and provide quality ice time for the Flyers, seeming to get stronger the more he plays. The Flyers were relentless, and their determination has propelled them past a speedy and game group of Canadiens.

So there you have it, a perfect 2 for 2 in my finals predictions. Proof that even a blind hog occasionally will find an acorn.

So now we are down to two teams vying for the opportunity to hoist Lord Stanley's silver chalice. Without further ado, here is my analysis and prediction:

War. That is the best way to describe how this series will shape up. An all out war. Two teams that bring talent and a physical presence to this matchup. Questions abound about this series. Will Leighton continue his strong play in net and hold off the potent Blackhawk scorers? Can Antti Niemi continue his quality play and handle the pressure of the Cup finals? Can the Flyers contain Dustin Byfuglien? I expect to see the top pairing for the Flyers on the ice against Kane and Toews, but this means that the other D for the Flyers have to step up big time in this series. The challenges that the Hawks present with all their lines means that the Flyers D corp is going to have to play a near perfect series to keep the pressure off Leighton. The Hawks will face a gritty, physical team in the Flyers, and this will be an interesting challenge for their squad. Philly will not hesitate to mix it up, and both teams will have to work to keep their emotions in check.

Behind the benches are two seasoned coaches. The edge goes to Philadelphia with Peter Laviolette having won a cup with the Hurricanes. Don't count out Joel Quenneville, but the slight edge will go to the Flyers in this area.

Both teams are playing with confidence and swagger, and I don't think the Flyers will be affected by the bedlam that will be the United Center. Will the Philadelphia rowdies have an impact on the youngsters on the hawks roster? Probably not.

From a fan's perspective, this will be a fun series to watch. I expect it to go seven games.

My Pick: Chicago in 7

And there you have it, one more set of predictions. Remember, this prediction is for amusement purposes only.

American Needle Bursts the NFL's Bubble

In a 9-0 ruling today, the U.S. Supreme Court reversed a 7th Circuit Court of Appeals ruling and said that the National Football League cannot be treated as a "single entity" for the purposes of marketing and "core business decisions".

This case arose when the NFL terminated a contract with American Needle, a manufacturer of hats and apparel licensed with the NFL, and awarded the contract for the entire League apparel business to Reebok. American Needle sued on the basis of an anti-trust violation under the Sherman Anti-Trust Act, claiming the NFL had limited competition. The trial court in Northern Illinois ruled in favor of the League, and that ruling was upheld by the 7th Circuit Court.

American Needle then filed for the case to be heard by the Supreme Court. In a surprising move, the NFL also petitioned the court to hear the case.

The crux of the case revolved around the concept of a "single entity", which the League claimed it was. Although the NFL is comprised of 32 teams, the premise was that the League operated as a single entity to promote the sport; make key business decisions; and market the game, League approved apparel, and the players themselves.

The NFL claimed that operating as a single entity was efficient, cost effective, and helped to expedite the decision making process regarding marketing and other core business functions (remember that phrase because it it going to be very important in just a moment). The NFL was joined by the National Hockey League, Major League Baseball, and the National Basketball Association in support of this position. Each league went as far as to file an amicus brief with the Court and provide very high paid legal assistance to support the NFL.

In writing the opinion of the Court, Justice John Paul Stevens stated that the League was comprised of separate, profit maximizing entities whose interests in marketing team apparel are not necessarily aligned. (Remember when the NFL sued the Dallas Cowboys and Jerry Jones for cutting their own licensing deal with Nike?). The Court deemed that

"this agreement joined together separate economic actors pursuing separate economic interests such that it deprives the marketplace of individual centers of decision making and therefore of diversity of entrepreneurial interests and thus of actual or potential competition."

The Court said that although all 32 teams work together to promote the game, they were still 32 separate business entities that competed for the same talent both on and off the field as well as had divergent economic interests particular to their local markets. There was, in the eyes of the Court, enough difference between the franchises to preclude the League acting as a single entity.

The League had asked the Court to rule on its single entity status for the purpose of making "core business decisions" for all 32 franchises. The marketing of team apparel was the nexus for the hearing before the Court, but the League was requesting a broad anti-trust exemption for all of its business functions.

Why is this significant?

Simply put, as a single entity, any sports league could centralize the control of operations within the league office. Salaries could be placed on a standardized scale for players and coaches. Free agency would change dramatically as the league would have greater control over player movement. As a single entity, a sports league could unilaterally impose restrictions on the players that limits movement due to free agency or salary restrictions and not have to worry about the anti-competitive considerations of such actions.

Now that the single entity concept has been dismissed by the courts, the NFL, and all sports leagues, will have to collectively bargain with their players in good faith to avoid anti-trust considerations. The impact of this will be felt next year, as the CBA's for all the professional sports leagues are up for re-negotiation. Wonder why the other sports leagues were vigorously supporting the NFL in this case? Now you know.

The net effect of today's ruling by the Supremes is that all the sports leagues are still going to have to be aware of anti-trust considerations, not just in the marketing of a particular league and its licensed products, but also in the more contentious area of labor negotiations with their players. Single entity status would have given the leagues tremendous power in negotiating the upcoming CBA's and would have changed the dynamic between a league and its players to highly favor the league.

This case has been remanded back to the lower court for further analysis of the anti-trust violations cited in this case. I would not expect this case to be over, as the NFL feels it has some valid arguments about their position. They could settle out of court, but I believe that they may attempt to argue this position from other legal angles.

With all the sports leagues facing potentially contentious labor negotiations, single entity status would have given them a decided advantage. As it is, the players still have leverage in their negotiations, so I would expect to see some fireworks in more than one league after next season.

NHL fans all too painfully remember our last lockout season, and are hopeful that we do not have to endure another season without hockey.

Here is to hoping the owners and the players don't burst our bubble.

My View

Random thoughts from a warped and fevered mind...


A lot of sound and fury emanates from Washington these days about a "corrupt" and greedy Wall St. (full disclosure- I make my living interacting with Wall St. and managing investments). And without a doubt, there have been corrupt actions by firms and individuals that occupy positions of power on Wall St. The solution, at least as proposed by some in Congress, is for more government intervention and regulation. On the surface, that sounds good. Take away the greed and corruption through government regulation and oversight. But here is the important question- what if the government and its regulators are just as greedy and rapacious as the supposedly evil free enterprise of Wall Street? Won't happen, you say? Let me tell you about Shore Bank, a Chicago bank that by all intents and purposes failed. This bank was bailed out to the tune of $140 million by J.P. Morgan, CitiGroup, GE, and Goldman Sachs. Notice anything about these names? GE, Citi, and J.P. Morgan all received massive amounts of TARP or TALF bailout funds from the government. Goldman Sachs is currently under investigation by multiple regulatory agencies into their business practices. And Shore Bank? A major contributor to the Obama campaign. Some of these firms say privately that they have been pressured to assist in the bailout. Connect the dots, and remember Shore Bank the next time you hear someone in Washington say that the government has to intervene in the free market to prevent corruption.


Just wondering- can a bald man get a hairline fracture?

"You do Medicare for God and Country because you lose money on it. The only way to provide cost effective care is outside the Medicare system, a system without constant paperwork and headaches and inadequate reimbursement." So says Dr. Guy Culpepper, a Dallas area family practitioner as quoted in the Houston Chronicle. Since 2007, Texas physicians have been opting out of taking Medicare patients at a rate of 100-200 per year. As of 2008, 62% of primary care physicians in Texas no longer accept Medicare patients. How bad is it for the doctors? In 2001, a doctor receiving a Medicare payment of $1,000 made $410 after covering operating expenses. Cuts have been made to the program through the years to try to curtail expendititures, and there is another cut proposed for this year of 21%. If that reduction is enacted, treating the same patient today would net to them $72. The dilemma for Congress is that if they eliminate the Medicare cuts in order to keep more physicians in the system, it will cost $276 billion over the next ten years. This is problematic for seniors, who have, in many instances, a long history with their primary care physician. If they want to stay with those that opt out of Medicare, their costs will now be out of pocket. This is also going to become a crisis in the future for all of us as the U.S. faces a shortage of primary care physicians.


I used to work at an origami plant, but it folded.


Heard of the PIGS? You have been hearing about one very prominently in the news- Greece. The others? Portugal, Ireland, and Spain. The PIGS are important for several reasons. Of immediate concern is the fact that their economies are on the verge of collapse and, if they do so, could plunge the Euroland economy into a funk and lead to potentially fractious relations among the European Union membership. The financial aid package to Greece has strained political ties in the EU as other members have had to step forward to bail out the profligate and frankly stupid spending and economic policies of the Greek government. My friend Dirk Hoag asked if this was a "Greece fire" or something worse. I think it is a Greece fire that has the potential to burn down the house of the EU. More importantly, Greece, and the other members of the PIGS, should serve as a canary in the coal mine to governments all over the world. Unchecked spending cannot continue without dire, if not catastrophic financial and social consequences. This is a lesson that governments all over the world seem to forget and have to painfully re-learn time and again. Let us all hope that the U.S. is listening and watching lest a Greece fire in our own house get out of control.


Do pyromaniacs wear blazers?

And that, my friends, is my view.

Blue Jackets and Worthington Foundations Contribute to the Flood Relief Effort in Nashville

Central Division rival Columbus has fought many fierce battles with the Nashville Predators on the ice. The level of competitiveness between these two teams has led to many spirited contests, and it would be an understatement to say that Columbus does not like Nashville.

Yet, in a time of need in Nashville, the Columbus franchise and their fans have proven that hockey fans aren't like other fans. The Blue Jacket Foundation has announced a $5,000 gift to the Community Foundation of Middle Tennessee to support the flood relief effort in our area. Additionally, this gift has been matched by the Worthington Foundation, a foundation created by the owners of the Blue Jackets.

Here is the press release:

In response to the ongoing need for flood restoration funds in the aftermath of massive storms that devastated the greater Nashville area earlier this month, the Columbus Blue Jackets Foundation announced today the donation of a $5,000 emergency grant to the Metro Nashville Disaster Response Fund of The Community Foundation of Middle Tennessee.  Columbus-based metals manufacturer Worthington Industries joined with the Foundation and pledged a matching $5,000 grant from their corporate Foundation. Money from this fund will be granted to non-profit organizations that provide relief, restoration and clean-up efforts in the affected region.

The Nashville Predators organization was among those greatly impacted by this natural disaster.  In addition to damage sustained at the team’s Bridgestone Arena, many staff members are dealing with severe personal losses at home.       

“Although we are rivals on the ice, we are fellow members of the NHL family and the Blue Jackets Foundation is proud to support one of its own,” said Wendy Bradshaw, executive director of the Columbus Blue Jackets Foundation. “With this emergency grant, we are hoping to remind others that although the restoration efforts no longer top the daily news headlines, the need for monetary support of the extensive rebuilding and clean-up projects is urgent and ongoing.”

Blue Jackets fans interested in making a contribution may visit www.cfmt.org/floodrelief or send donations to The Community Foundation, P.O. Box 440225, Nashville, TN, 37244.

Since its inception 10 years ago, the Foundation has awarded nearly $3 million in community grants to non-profit organizations that serve the Foundation’s main pillars of giving: pediatric cancer; education; children’s health and safety; and the development of youth and amateur hockey.  For information on the Columbus Blue Jackets Foundation, visit www.BlueJacketsFoundation.org. 

The response from the hockey community to the disaster in Nashville and surrounding areas has been phenomenal. The hockey family around the country has rallied support for relief and restoration efforts that has been exceptional.

Thank you to the Blue Jackets Foundation and the Worthington Foundation for your support in this difficult time.

Once again, you have proven that hockey fans aren't like other fans.