Amidst plunging markets and a contracting economy in 2008, shareholders of Berkshire Hathaway received a letter from its Chairman, the legendary investor Warren Buffett. “Price is what you pay; value is what you get,” he wrote. “Whether we are talking about socks or stocks, I like quality merchandise when it is marked down.”
Socks or stocks, but what about a sports franchise? Given today’s roiling markets and the unsettled status of live sports, there seem to be few certainties for finding value. But if the aftermath of the Great Recession provides a guide, a narrow window may open where even a billion dollar team could be considered a steal.
To gauge the potential post-COVID market for buyers and sellers of sports teams, Sportico examined the last 20 years of franchise sales. Data was comprised of 103 deals across all four major North American sports leagues during both bull and bear periods. We looked only at sales that involved a majority stake or a change in principal ownership, since minority stakes lack control and are often sold at a discount. As former Houston Astros owner (and minority investor in the New York Yankees) John McMullen once famously quipped, “There is nothing quite so limited as being a limited partner of George Steinbrenner.” Estate transfers or mere changes in title between partners that did not alter ownership stakes were also excluded.
Given the few historical precedents for today’s turbulent economy, comparing sales from right before and after the 2007–09 recession to the rest of the data proves insightful. On average, there were about five transactions a year from 2000 to ’19. After the Great Recession ended, whether due to pent-up demand or the battered balance sheets of teams’ parent companies, a buying-and-selling frenzy resulted in seven teams traded in each of 2010 and ’11, while eight sold in 2012.
To be sure, any discount brought on by the Great Recession quickly evaporated and the pre-recession trajectory of record-breaking deals resumed. However, bargains emerged for two premier assets whose owners faced financial pressures: hockey’s Montreal Canadiens and baseball’s Chicago Cubs.
The Great Recession began officially in December 2007, according to the National Bureau of Economic Research. The Dow Jones Industrial Average dipped 6% from its October high after rebounding from the collapse of two Bear Stearns hedge funds in the summer, though few were predicting the crash—and chaos—that followed.
In the sports industry, it was still business as usual in early 2008. Through that summer, four teams sold. Three of them were small-to-mid-market NHL teams—the Edmonton Oilers, Tampa Bay Lightning, and Minnesota Wild—whose combined valuations (about $600 million) would have been unfathomable only three years prior. It was then, in 2005, that Bain Capital, the leveraged buyout firm once helmed by U.S. Senator Mitt Romney, saw the league as distressed during its labor stoppage and floated an unsolicited offer to buy all 30 teams for $3.5 billion. In the NFL, the Miami Dolphins became America’s first billion-dollar team. The two-tranche deal, completed in 2009, saw the franchise trade at nearly five times its revenue—a high water mark for a sales-multiple among football team transactions over the next decade. (The trailing average at the time was about four-times-revenue and today is closer to six, with major markets commanding a premium.)
Franchise sales across sports, however, ground to a halt once investment bank Lehman Brothers collapsed in September 2008. By the following March, the Dow was down 54% from its peak and terms like “quantitative easing” and “credit default swap” had entered the American lexicon. In June, the recession sputtered to an end, and the first sports team sale in a year was agreed-to in principal. Colorado business magnate George Gillett, Jr., who bought more than 80% of the Montreal Canadiens from Molson Brewing in 2001, sold the team, its arena and a spun-off entertainment company back to the Molson family and partners in a deal valued at $550 million Canadian.
The portion of the transaction attributable to the team itself amounted to little more than two-times its revenue ($228 million Canadian), according to financial statements that the team circulated to potential investors. In other words, the deal imputed virtually no premium for the NHL’s most storied team and one of the most identifiable brands in sports. (Gillett would similarly sell his co-owned soccer team, Liverpool F.C., for well below market value the next year, following a fight over the club’s called-in loans with the Royal Bank of Scotland.)
Two other hockey teams sold in 2009. However, it is less clear the extent to which those transactions were directly correlated to the Great Recession, since both franchises had struggled financially for years. In November, the Phoenix Coyotes were purchased by the NHL out of U.S. Bankruptcy Court for $140 million, and the debt-ridden Florida Panthers were taken over by minority investors. The Panthers’ sale, which valued the team at $200 million, occurred after an agreement to sell to a special purpose acquisition fund, fronted by baseball legend Hank Aaron, crashed spectacularly. In the end, seller Alan Cohen settled for a deal worth $30 million to $40 million less than he had expected to receive only two months earlier.
In October 2009, the Ricketts family purchased 95% of the Chicago Cubs and Wrigley Field, as well as a 25% stake in the TV network now known as NBC Sports Chicago from the Tribune Company for $845 million. The Cubs alone were worth $600 million just before the Great Recession, according to economists at East Lansing, Mich.-based Anderson Economic Group. While the deal was a record amount for a baseball team at the time, a closer look reveals the extent to which Tribune, which was between bankruptcies, sold low.
Once the real estate and television components are factored in—along with the team’s stake in Major League Baseball Advanced Media, the league’s lucrative digital arm—the franchise itself was undervalued as part of the deal, says economist Ilhan Geckil, a co-author of Anderson Economic Group’s 2007 valuation report on the Cubs. As with the purchase of the Canadiens, the price-premium for the Cubs as a historic sports brand was, in the end, negligible.
Most of all, Tribune was a victim of timing. “A decline in the growth rate of cash flows during recessions adversely affect the value of sports franchises. The Cubs’ transaction price in 2009 directly reflects the adverse effect of the Great Recession on the team’s revenue and cash flows,” said Geckil, now a managing director at consulting firm EconOne in White Plains, N.Y.
For more than a century, the Cubs were baseball’s lovable losers. When the team finally won the World Series in 2016, following extensive renovations to Wrigley Field, the Ricketts family’s team-related holdings had grown to more than $2.3 billion, according to an updated valuation from Anderson Economic Group (which, in full disclosure, the author of this article compiled).
Discounted sports teams, like the recession itself, were distant memories by early 2010. Since then, growth in sports franchise sales has outpaced virtually every other industry or index. In May 2012, the Los Angeles Dodgers, only months out of Chapter 11 bankruptcy protection, were sold by Frank McCourt to a baseball-specific offshoot of the asset-manager Guggenheim Partners for $2 billion. Guggenheim put up another $150 million for a real estate joint-venture with McCourt, a land developer, involving the 261-acre parcel that encompasses Dodger Stadium. The deal, which contained fewer assets than the Cubs’ transaction and occurred only a few years later, ended up being 139% more lucrative.
For the sports world, the Dodgers deal was a sign of things to come. In the years since, there have been four other multi-billion-dollar sports team sales across the NBA (Los Angeles Clippers, Brooklyn Nets and Houston Rockets) and NFL (Carolina Panthers).
Past as Prologue
The U.S. economy has officially been in recession since February. In March and April, it shed 22.1 million jobs, leading to the worst unemployment rate since the Great Depression, according to the Bureau of Labor Statistics.
The first litmus test for the recession’s effect on sports valuations may well be the New York Mets. Last December, the team was offered for sale by the Wilpon family at a valuation of $2.6 billion, excluding media holdings, and an agreement in principal with hedge fund titan Steve Cohen fizzled. Sportico first reported that Philadelphia 76ers and New Jersey Devils owner Josh Harris and business partner David Blitzer, an executive at private equity firm Blackstone, are the latest to explore a bid. Retired baseball star Alex Rodriguez and his fiancée, the recording artist and actress Jennifer Lopez, are actively pursuing a rival bid, reportedly with Florida Panthers’ owner Vincent Viola and Vitaminwater co-founder Mike Repole as potential partners.
Of course, there are stark differences between 2008 and now. Equity markets thus far have rebounded faster in 2020, and the suspension of sports leagues as well as their resumption before empty venues are without precedent. However, it doesn’t take the Oracle of Omaha to realize that mark-downs, however fleeting, are likely to reach the shores of sports once again.
The only question is whether any cash-strapped owners will test those waters long enough to allow for savvy investors to make a move.