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LWIB: THe Battle Over Who Controls the Sale of the Texas Rangers, Tidbits PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Monday, 17 May 2010 01:12

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall“, Commissioner Selig’s threat to revoke the Rangers franchise “in the best interests of baseball” focuses attention on the rights of pro sports leagues to determine who owns “their” franchises, plus the weekly tidbits.

THE SALE OF THE RANGERS, THE LATEST BATTLE OVER WHO CONTROLS FRANCHISE OWNERSHIP?

At the beginning of LWIB, many sports biz pundits predicted that the week would see some major developments in the ongoing stalemate between Hicks Sports Group (HSG) and a group of 40 lenders over the amount of the proceeds that the lenders would receive from the sale of the Texas Rangers. MLB long ago approved the sale of the franchise from HSG to a group fronted by sports attorney Chuck Greenberg and Rangers president Nolan Ryan. It came to light last week that last month MLB commissioner Bud Selig notified the lenders that he would use the powers of his office to act “in the best interests of baseball” and seize the franchise from HSG, in turn selling it directly to the Greenberg/Ryan group. In doing so, MLB would revoke a reported $70 million in liens on the franchise, further diminishing the amount of dollars available to the lenders. Naturally the lenders reacted negatively to Commissioner Selig’s threats, threatening litigation and sabre rattling in the press over the future negative impact that this action would have on “sports credit”. The lenders were already miffed with MLB, believing that they approved the offer of Greenberg/Ryan over higher offers that would have netted the lenders more money. As the week ended, the rhetoric on both sides had subsided, perhaps suggesting that HSG and the lenders were close to a deal. If Commissioner Selig does revoke the franchise from HSG, everybody expects the most recent in a lengthy series of legal battles fought over the rights of professional sports leagues to control the buying and selling of “their” franchises. LWIB Mike Ozanian wrote for Forbes:

….Selig now says he can force creditors of Hicks Sports Group to accept the bid by an investor group led by Chuck Greenberg and Nolan Ryan for the Texas Rangers because of his power to act "in the best interests of baseball" even though the bid would pay the bankers $260 million, $40 million less than the bankers would get from a another group willing to pay more for the team. Selig would in effect do this by eliminating the lien the bankers have on the Rangers. While baseball teams are often not sold to the highest bidders (think of John Henry's purchase of the Boston Red Sox) it is the only time I can recall MLB picking a buyer who would deliver a smack down to lenders.

Mr. Ozanian is correct in his assertion that MLB approved the bid for the Red Sox by a group led by John Henry over higher offers from both Charles Dolan and another group led by Miles Prentice. The acquisition of the Red Sox by Mr. Henry’s group in 02 was part of a larger swap of franchises orchestrated by MLB which resulted in Mr. Henry selling the Florida Marlins to Jeffrey Loria, who in turn sold the Expos to the other 29 owners. Economist Andrew Zimalist wrote in his book May the best team win: baseball economics and public policy:

According to Attorney General Tom Reilly of Massachusetts, MLB documents show that the commissioner’s office was actively manipulating the composition of the bidding ownership groups and, ultimately, pressured the existing ownership of the Sox to accept a bid from the commissioner’s favoured group, despite the fact that it was $90 million lower than another bid. Under ordinary circumstances, such behavior would be vulnerable to an antitrust (restraint -of-trade) claim.

AND

Because 53.48 percent of the Red Sox was owned by the Yawkey Trust,…..the state attorney general (AG) undertook an investigation of the sale. Unexpectedly, MLB’s long-standing presumed antitrust exemption had come into conflict with the Massachusetts AG’s duty to oversee the disposition of charitable trusts. Eventually, Attorney General Reilly struck a deal with Harrington and Henry that obliged Henry to make extra contributions to Boston-area charities, but it still left the ultimate money transfer at least $60 million below the Dolan offer.

Richard Sandomir reported in the New York Times:

Last month he cited his “best interest” powers to outsiders — lenders to the Texas Rangers — in a letter telling them he expected them to accept the estimated $575 million bid for the team by a group led by Nolan Ryan, the Hall of Fame pitcher and team president, and Chuck Greenberg.

In essence, he said he could invalidate the liens that the lenders hold on the team to put the Greenberg group in place. Gabe Feldman, director of the sports law program at Tulane University, said Selig was testing the breadth of his vague powers. “He’s saying to lenders, ‘If you don’t agree to the sale, I’ll take over the team, and my gaining control will impact you,’ ” he said. He added, “It’s consistent with the views of commissioners and leagues that they get to decide who their owners will be.”

Mr. Sandomir’s report also includes the opinions of both the aforementioned Andrew Zimbalist and former MLB commissioner Fay Vincent that the powers of the commissioner’s office to act “in the best interests of baseball” do not extend to the realm of the disagreement between HSG and the lenders.

Maury Brown, founder of the Biz of Baseball, offered this prediction should Commissioner Selig act good on his threat to revoke the franchise from HSG and complete the sale without the consent of the lenders. If the action takes place, the creditors would then move to push the Rangers into involuntary bankruptcy in an attempt to gain a higher sale price through former bidders Jim Crane or Dennis Gilbert than what the Greenberg/Ryan group is offering.” Such speculation that the HSG lenders would seek to garner better results from the sale of the Rangers franchise via bankruptcy court automatically reminded sports biz watchers of RIM billionaire Jim Balsillie’s recently failed attempt to purchase the NHL’s Phoenix Coyotes. Last month Zach Lowe reported on the stalled sale of the Rangers at AM Law Daily:

In any case, this marks the latest clash between sports leagues, their arcane ownership rules, struggling owners, and creditors. Recall the now famous case of the NHL's Phoenix Coyotes, whose owner included the team in a Chapter 11 filing and tried to sell the team through the bankruptcy court to a Canadian businessman with plans to move the club to Ontario. That prospective owner, Jim Balsillie, offered nearly $100 million more for the team than any other bidder, and the Coyotes bankrupt owner preferred Balsillie's deal. But the NHL (represented by Skadden, Arps, Slate, Meagher & Flom) thought Balsillie unfit to be an NHL owner and opposed the plan to move the team to Canada. The league claimed authority over any franchise move and accused the Coyotes and Balsillie of using the bankruptcy courts to get around league rules. The debtors countered (in part) by simply pointing out that Balsillie's deal offered the most money for creditors and thus should win the day.

In other words: Another clash of traditional business interests with a sports league's desire to control who owns its teams. It's a clash we're seeing now in the battle over the Texas Rangers.

SELECT READ MORE TO SEE MORE ON THE POWER STRUGGLE OVER THE SALE OF THE TEXAS RANGERS, PLUS THIS WEEK'S TIDBITS

The Spring 10 edition of the Harvard Law School’s Journal of Sports & Entertainment Law includes the article, In re Dewey Ranch Hockey. The article written by J.D. Candidate Ryan Gauthier is an examination of Mr. Balsillie’s failed attempt to circumvent the NHL’s rules governing franchise ownership and relocation.

The outcome of the case here, however, simply reinforced the position that leagues have the power to prefer purchasers of franchises and who may be a league member, even in a bankruptcy scenario…..In the end, owners and potential owners are unable to use bankruptcy law as an end-run around league rules, as they were given a great amount of deference by the bankruptcy court here.

AND

Going forward, unless leagues are set to expand, potential franchise owners need to be in good favor with the powers-that-be. Potential owners would do well to remember that a professional league is a partnership, and that it is difficult for a court to force a partnership to accept a member that it does not want.

Commissioner Selig’s threat to revoke the liens on the Rangers franchise is probably an empty one, a tactic to increase the pressure on the lenders to compromise with HSG. As many have noted, the MLB owners have nothing to gain by antagonizing sports lenders. And again as many have noted, lengthy litigation benefits none of MLB, HSG or the lenders. The silence over the weekend (after weeks of unrelenting leaks from both sides) in the press probably signals a deal at hand. But LWIB does again remind us what an odd business professional sports is. A world where the prize doesn’t always go to the highest bidder and the owner of an asset doesn’t control who they sell it to. Is that right or wrong? Depends on who you ask.

WEEKLY TIDBITS

  • MLB ON FOX

The Sports Media Watch blog has been monitoring the declining ratings for MLB on Fox. Evidently even the Red Sox/Yankees games are seeing diminished audiences. Perhaps that it is behind Fox’s decision to experiment with Saturday regular season baseball in prime time. See Michael Hiestand in USA Today.

  • CANNIBALIZING BROADCAST RIGHTS

Fox Sports chairman and CEO David Hill has long been outspoken on the subject of league owned TV channels. Mr. Hill believes that league owned channels “ghettoize” (not his words) the product and that network TV is vital to the renewal of league fanbases. Mr, Hill was again critical of the leagues, including MLB, in remarks he made to paidContent.org last week. Mr. Hill’s position on the subject is particularly interesting given the reports last week that ratings for MLB Network are not good. The surest way to boost ratings for league owned channels is to program more live games and most importantly, playoff games. Stay tuned.    

  • LOCAL TV RATINGS FOR RAYS, NATS AND PADRES

Nothing boost TV ratings like winning….in most cases. TV ratings are up on MASN for the surprisingly competitive Washington Nationals reports Dan Steinberg for the Washington Post. (HT Fang’s Bites) “Overall, Nats ratings on MASN and MASN2 are up 43 percent over last season at this time. That's good for a 1.0 household rating in the Washington market, equal to about 20,335 households.” (Ok, that is still terrible but it’s a start)

The Tampa Bay Rays have the best record in MLB and it is reflected in the upsurge in their local TV ratings. The St. Petersburg Times reported that Fox Sports Florida is garnering significantly larger audiences for Rays games this season:

According to Fox, an average of 94,000 households in the Tampa-St. Petersburg market tuned into Rays games this April, compared with 47,000 last April.

That compares with an average annual viewership of 31,000 households in 2007 and 62,000 in 2008, the World Series year.

Despite woeful attendance, according to the report the Rays rank in the middle of the pack in MLB in local TV and radio income due to the large Central Florida market.

The exception to the rule is the San Diego Padres, one of the most pleasant surprises thus far in the season. The Padres lead the NL West and only the Phillies have a better record in the NL. Evidently San Diegans have not yet jumped on the bandwagon. Mike Ozanian wrote for Forbes, “Attendance at Petco Park has averaged 22,000 this season, down almost 4 thou from 2009. TV ratings have averaged 3.8 (about half of what the Tigers are getting), down from 4.3 last season.”

  • PORTLAND BEAVERS UPDATE

As mentioned here last week, Ballpark Digest is monitoring the rumored, impending sale of the Triple A Portland Beavers franchise. According to BD, franchise owner Merritt Paulson is asking $17 million for the franchise but the report predicts a final sale price south of $15 million.

  • UPDATE ON RAYS NEW BALLPARK

There are a lot of politics to play out between the city of St. Petersburg, Pinellas County and Hillsborough County before an agreement is forged to construct a new baseball stadium for the Tampa Bay Rays (inevitably it always get done). As previously noted, St. Petersburg is the key because they are the Rays current landlord and a lease is in effect until 27. LWIB saw reports that Pinellas and Hillsborough counties are nonetheless jockeying for position. Ballpark Digest reported that “The Tampa Sports Authority, which already owns and oversees the major sports facilities in Hillsborough County, is adding a MLB ballpark to its potential portfolio.” And Neil deMause reported at Field of Schemes that “…Pinellas County is thinking about starting a new sports authority…”

  • BLUE JAYS OWNER TO LAUNCH ADDITIONAL SPORTS CHANNEL

Speculation that media conglomerate Rogers Communications Inc. (RCI) will sell the Toronto Blue Jays was further quelled LWIB with the news that they have reacquired the rights to 25 Blue Jays games (RCI will now broadcast all 162 Blue Jays games) More importantly, RCI is set to launch another all sports channel. RCI, which owns all MLB rights in Canada, effectively traded the rights to “Sunday Night Baseball” to competitor TSN (also an all sports channel) and in return reacquired the broadcast rights to 25 Blue Jays games this season. (William Houston posted the press release and provided some relevant context) RCI currently owns and operates four regional all sports channels (all branded “Sportsnet) and has plans to soon launch a new national all sports channel “Sportsnet Extra“. According to the Toronto sports media pundits, the Blue Jays games will be an integral part of the programming on the soon to launch channel. Two weeks ago Chris Zelkovich reported for the Toronto Star:

There are also plenty of rumours of change involving Rogers Sportsnet and its plans to launch another channel. While Sportsnet won’t comment on what’s happening, there are many in the business who believe a fifth channel will be on the air before summer.

The Toronto Blue Jays were so sure Sportsnet Extra, or whatever it will be called, was imminent they were expecting to place 13 games on the new channel. They’re still thinking it will launch soon, which is why they’re releasing their TV schedule a month at a time.

The real question is: What would the channel show?

Well, Sportsnet has a lot of baseball thanks to its MLB deal in addition to those aforementioned Blue Jays games.

AND

While the Jays are barely drawing flies at the stadium, they’re doing all right on television. A new Sportsnet channel with a heavy dose of Jays could produce enough in cable fees to keep everybody at Rogers happy.

LWIB Bruce Dowbiggin of the Globe and Mail reported on the same developments and included a rather foreboding comment, “In fact, it is the Blue Jays’ programming value, not wins and losses by the team, that keeps Rogers’ suits content to maintain baseball in Toronto. (Heaven forbid Rogers’ bean counters decide it makes more financial sense to buy the programming from new owners …)”


Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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