Hard Economic Times Coming To Sports Franchises

The NHL doesn't have a team in Houston, so I'm pretty confident that most of you don't follow the league, and don't have any idea about some of the severe financial problems facing many of the southern teams.  The NHL has intervened in Phoenix in an attempt to find new ownership for the club.  A part owner of the Nashville Predators recently pled guilty to securities fraud - some of the proceeds from the fraud were used to purchase the Predators.  There have been reports that the Atlanta Thrashers had difficulty with meeting payroll, and there are a lot of questions about the viability of the franchises in Tampa Bay and Miami.

Though you probably haven't read about those problems, there's a chance that you're aware that Chase Bank and the Bank of America loaned the NBA $175 million because 15 unnamed franchises are suffering severe financial difficulties.  And since the Bank of America received TARP funds, it can be argued that your tax money is being used to subsidize the NBA.

I bring this up because the financial difficulties affecting the rest of the nation are now impacting Major League Baseball. 

The Hicks Sports Group, the company owned and run by Tom Hicks, owns the Texas Rangers of MLB and the Dallas Stars of the NHL.  As our sister paper, the Dallas Observer detailed yesterday, Hicks is refusing to pay off the debts of the Hicks Sports Group (HSG), and this has led his creditors to declare that HSG is in default.  The Observer, linking to the Wall Street Journal and the New York Times, also reports that both teams are unable to pay both their operating expenses and their debt service.

Tom Hicks is attempting to spin this by saying that he defaulted on $10 million in interest payments on $525 million in loans because he wants to restructure a new deal with his lenders while finding partners to join him in the ownership of the Rangers and Stars. Hicks is quoted in the story as saying "the current situation does not make economic sense." So he wants a deal that is more favorable to him than it is to the lenders.

You know, I went to two rather expensive private law schools, and I paid for those schools by getting student loans. Now I'm still paying off the loans, and I've got to admit, this current situation doesn't make much economic sense for me at the moment, especially as I was laid off last month and I have yet to find a new position. But if I were to decide to default on my loan payments so that I could dictate the restructuring of a new deal with my lenders, I would be laughed at. Well, laughed at as well as taken to court for every penny in my possession and the complete and total destruction of my credit rating. So I'm not buying Hicks's spin. I don't think he's defaulting to get a better deal. He's defaulting because he can't make the payments.

Now if you want to read about the ramifications to the Dallas Stars, I suggest you go read The Third Intermission where I discuss this matter in depth. But since hockey is a minor sport here, I'm interested in discussing the ramifications this might have on major league baseball.

The immediate worry is that the creditors will actually foreclose. But as of now, the creditors have agreed to hold out following through on this action for 180 days. And as old-time Astros fans remember, it's possible that the creditors could take control and run the Rangers until they find a possible buyer. If they don't want to do that, then it's possible the creditors can force an MLB-sanctioned sale of the Rangers. (Seeing as how I believe Tom Hicks still owes Alex Rodriguez money, maybe A-Rod should do like Mario Lemieux did with the Pittsburgh Penguins in the late-90s and just take control of the team in lieu of payment.)

Now MLB ownership is known as a "Friends of Bud Selig" club. If you're not a Bud-approved buyer, then you're not going to be allowed to buy the team, no matter how much more financially superior your bid might be. As Mark Cuban or several prospective buyers of the Boston Red Sox and Washington Nationals can all attest. But if the Rangers are forced into foreclosure, it's likely that they, and not Bud Selig, will have final say.

But forget the Rangers for a moment because in the coming months, more teams might be experiencing financial problems.  The owners of the New York Mets were big investors with Bernie Madoff. The San Diego Padres are currently being sold to a former co-owner of the Arizona D-backs, but the deal has funny financial structuring that essentially has the current Padres owner financing the deal. The Oakland A's are in a market where they can't draw fans, and their grand plans for a new stadium in Fremont just fizzled. And things are such with the Astros that Drayton McLane is now forcing his game-day employees to pay for their meals.

It's probable that this thing is just limited to Tom Hicks and his franchises. But it's highly probable that this is just the tip of the iceberg and that soon we'll be seeing more teams in MLB and then in NFL joining their brethren in the NHL and NBA in economic distress

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