Off-the-Field Losses Crimp Team Owners
Prestige of Owning Sports Franchise Is Lost When a Principal
Business Struggles Along With Athletes
Matthew Futterman. The Wall Street Journal
For all the talk of slumping ticket sales and sponsorships, the most troubling scenario for the sports industry is the growing trend of team owners beset by financial problems in their principal businesses.
The issue crystallized last month when Tribune Co., owner of the Chicago Cubs,
filed for bankruptcy-court protection. The problems have been spreading as the
souring economy diminishes the fortunes of team owners. That jeopardizes the
essential ingredient of the sports business: rich people who can afford a really
"The willingness or tolerance for future losses is very, very low," says Allen and Co.'s Steve Greenberg, an investment banker to the sports industry and former deputy commissioner of Major League Baseball. "More owners are looking to operate at break-even or better. The problem is, it's hard to turn a $15 million to $25 million loss into break-even in a short period of time."
Unlike other recessions, this one threatens to wipe out sports owners
who were recently willing and able to put up with meager profits or
annual losses because of rising team values and the perks of the investment,
such as the celebrity status.
The Cubs and Red Sox are profitable. For owners of franchises that are
unprofitable, slumping team revenue and the recession are a discouraging
"The 401(k)s and their equivalents that belong to these owners are
cut in half like everyone else's," says David Carter, director of the
sports-business program at the University of Southern California. "Their
ability to secure financing and continue operating is going to get hurt."
Also feeling the crunch is Forest City Enterprises Inc., the real-estate
developer behind Bruce Ratner, principal owner of the National Basketball
Association's New Jersey Nets. The company said last month it was ceasing
all development projects, after its stock price fell from $60 in 2007 to under
Forest City, which owns 23% of the Nets, pegged losses for the team
at $30 million through the first nine months of 2008. The Nets have
lost more than $100 million since Mr. Ratner acquired the team in 2004,
forcing him to slash payroll.
Forest City still wants to develop a $950 million arena in Brooklyn
for the Nets, but the project is stalled amid legal wrangling and financing
NBA Commissioner David Stern says Forest City's ability to secure financing
for the arena is hampered now, adding: "Our hope is that will improve in 2009."