Houston Rockets owner Tilman Fertitta furloughed 40,000 employees across his restaurant and hotel/casino empire in the wake of the Coronavirus outbreak (presumably because with the government forcing the closure of his restaurants/hotels/casinos he couldn’t afford to keep them on the payroll), but the cash-strapped businessman said he will not consider selling a stake in his NBA franchise to fund operations “as a matter of pride.” Instead, Bloomberg reports the Landry’s Inc. and Golden Nugget chairman will talk “with [several] banks about potentially raising as much as $200 million of additional liquidity” to float his companies until the shelter-in-place orders are lifted. There’s been some speculation that Fertitta “wasn’t necessarily equipped with the financial resources to be an NBA owner” since he bought the team in ’17, so with his core businesses burning through millions of dollars/day talk of a sale isn’t particularly shocking. However, it does beg the question; are there other team owners who might need to sell a stake in their franchise to cover costs while the sports world remains on hold?
Howie Long-Short: It’s fair to assume that guys like Fertitta and Micky Arison (Carnival Cruise Lines) may be having a particularly bad month, but the sports investment bankers we spoke to did not believe either – or any other NFL, NBA or MLB owner – would be forced to sell an interest in their teams during the sports hiatus. That’s because unless an owner has businesses that are in the tank and is over-leveraged across his/her portfolio (the leagues themselves have low debt limits) he/she would presumably have the short-term capital needed to make it through the next few months.
Of course, the longer the sports world is sidelined, the greater the chance that a team owner will face cash flow problems – thus increasing the probability of a sale being consummated. One of our sources said “if there were to be an extended layoff it would become a question of how long each owner could afford to fund millions of dollars/month in salaries.” Remember, not every league has reduced player costs and/or furloughed employees. While most of the sports media assumes “the sports hiatus is a blip and that it will be game on again sooner than later, we still don’t know what the long-term ramifications of the virus are (i.e. is there a second round coming?) or if the fans will return to stadiums and arenas once the games begin again.”
A second sports banker indicated that his company’s analysis showed few control owners are currently desperate for cash. That’s good news (for them) because unloading a minority stake right now could be difficult. “It seems a little bit out of touch to be calling around during a global pandemic asking if someone wants to buy a small piece of your team. Sure, there is always a market for distressed opportunities, but there likely won’t be many full-priced L.P.s sold until business returns to normal.”
Control stakes are a different animal. If one were to become available, it would likely still command a premium (simply because of how few and far between the opportunities are). But don’t look for a team owner to unload a profitable sports franchise because of a difficult quarter (or two). That’s because the business fundamentals behind NFL, NBA and MLB teams are strong and “most [of the owners] are really, really rich.”
Equity stakes in NHL teams that fail to break-even or MLS clubs that regularly lose money (which is all but a few) would seemingly be the most likely to hit the market if the sports shutdown drags on. One of our investment banking sources said that he “wouldn’t be shocked if at some point the owner of a team that has been losing money – and now faces trouble with his/her primary business – decides that it no longer makes sense to continue funding the losses.”
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