Jim Crane might want to be mindful of that old adage, “be careful what you wish for.” After several failed attempts at ownership, including having to back out at the 11th hour of the Astros in 2008, the Houston businessman and his large investor group finally own the Astros.
I’ve been told that Crane understands the challenges that await him with the ballclub, and that he’s a fighter that has seen worse. He and the team of executives he’s assembled will need all they can muster in the near to mid-term to take on the club. Here’s what’s in store.
Going to the AL and Addressing the Fans
Right out of the gate – and really before his approval today – Crane is dealing with a dynamic he and his investors never bought into in May when the sales agreement was reached with Drayton McLane: moving the Astros to the American League. The move goes almost entirely against popular demand which is to keep the team in the NL where there is 50 years of history.
Crane had no choice, really.
Sure, Crane could have backed out. On principle (and in truth, financial considerations), he could have walked away from the deal, but the fact is that whoever the new owner of the Astros was going to be, the move to the AL West was going to be part of the deal. In that, Crane, who tried in 2008 (Astros), 2009 (Cubs), and 2010 (Rangers), would walk away from what he said has been a life-long dream.
The challenge now is creating his legacy after all of this. The move is part of the deal. Most of the fans are left in a lurch over the move, stuck in a power-play forced on by the league and the players looking to balance out the schedule and the addition of a one-game playoff with new Wild Card teams. If Crane is up to the challenge, he can be the salve for the fans’ wounds.
Ed, Tal, and the Front Office
This is one that Crane and his team have had plenty of time to get ready for. Crane’s fingerprints are already on the team having had the decisions to move Hunter Pence and Michael Bourn run by him. Now, the moves will shift to the front office.
It’s already been reported that Crane and Co. will be looking to restructure the Baseball Ops side of the club. That puts GM Ed Wade and President of Baseball Operations Tal Smith clearly in the crosshairs and will likely be some of the first key moves made by Crane in the coming days.
The Astros and Being Out of Debt Compliance
Fans of the Astros may not know this, but as of today, your team is officially out of compliance with MLB’s debt rules. Of course the league knows this as it comes with a sale that now ranks as the second-highest in league history. Going into debt to make the deal happen was what Crane and his investors needed to do to seal the deal.
In other words, the Astros now carry more than 10 times their annual revenues.
In speaking with representatives of Major League Baseball, the debt service rule is designed to allow flexibility for sales transactions to be in violation of the rule, if only for a short period. As one league source said, “If we didn’t make an exception for the rule, no sales transactions would take place.”
It’s how fast Crane and Co. can get back into compliance with the league’s self-imposed rule that will be key.
According to the SportsBusiness Journal, Crane’s deal reportedly sees a $220 million debt component from Bank America. But, in a sign that financial institutions are looking more closely at how debt is collateralized, Crane and the investors have considerable capital in the deal. As the SBJ reports, the loan “is conservatively structured, with covenants, for example, requiring Crane to pre-fund expected losses. Some of the loan also is set aside for interest reserves, the sources said. “
The interest rate on the deal is 275 points over the London Interbank Offered Rate, or LIBOR, a floating rate index, according to the SBJ.
The report goes on to say that the Astros already have borrowed approx. $55 million in debt from MLB’s league-facility fund.
(See Crane’s key investors)
While other reports have said that Crane will be getting a loan from MLB, when I spoke to the league in July they denied that to be the case, but did say that the Astros would continue to have access to the league facility fund.
How the Move to the AL Impacts the RSN
A large reason why Crane and his group were willing to agree to an initial $680 million sale price was the newly formed Comcast SportsNet Houston that has the Astros, Houston Rockets, and Comcast as partners. The new RSN is a key piece in helping the Astros address the debt component. The Astros and Rockets own 77.5 percent and is reportedly worth $1 billion.
But, getting the RSN off the ground means programming and the move to the AL was a massive factor. Crane negotiated compensation for the move that reportedly sees a $35 million discount on the sale from McLane and $35 million coming from MLB. Crane likely argued that games starting later and now less Cardinals and Cubs – teams with large appeal – were going to impact the RSN’s bottom line.
What will be interesting is seeing how the new schedule is arranged for the Astros in 2013. Might there be a healthy dose of AL East games with the Yankees and Red Sox to help with the draw? We’ll see.
Putting the Unsavory Aspects of Crane’s Businesses in the Rearview Mirror
The final approval of Crane’s deal for the Astros marks what should be the beginning of the end of talk around the discrimination lawsuits and war-profiteering charges that were part of what reportedly held up the vote to approve the Houston businessman in August (see the Forbes report). All of that should be forgotten if the Astros are continued to be run as a pillar of the Houston community. In other words, I’m sure Crane is hoping, as is this author, this is the last ink spilled on the topic.
As noted, Crane is faced with challenges no other owners have ever had to deal with. Each sale is difficult, but this one is tougher than most. Putting a 106-loss season behind them, the Astros now have a fresh slate to work from. They are not entirely behind the 8-ball, but it would be a lie to say it’s all smooth-sailing out of the gate. The next 5 years will be critical to getting the Astros into not only winning on the field, but also off-the-field.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, and is a contributor to Forbes SportsMoney blog.. He is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network (select his name in the dropdown provided).
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