When the SEC dinged Mark Cuban with an insider trading charge, the thinking was that this spelled the end of his bid for the Chicago Cubs. But according to Cuban, that really hasn’t entered into the story. On his blog, the billionaire owner of the Dallas Mavericks has posted a pretty remarkable and insightful account of the process of buying a sports team, complete with the politics and business considerations involved. We’ll skip the inter-owner politics (e.g. does he get along with Bulls and White Sox owner Jerry Reinsdorf?) and focus on the money side.
See, he was in the process of offering $1 billion to Cubs owner Sam Zell, though they hadn’t yet made an agreement
Then the credit crisis hit and hit hard.
All of the sudden, what seemed like a sane business decision, didnt seem so sane any longer. In particular, the financial participations I had been discussing with my bankers were for shorter term loans. Just refinance at the end of the term. Its what everyone is doing. Except that it no longer seemed like a safe bet that I could refinance in a few years. I didnt want to be caught with a Sumner Redstone margin call, and for better or worse, the banks were getting worried about staying in business and the idea of matching the asset to the term wasnt something they were ready to do, unless of course they could convince 30 other banks to do the same thing. I thought about writing to Congress to get a bailout…just kidding.
Still, this wasn’t the total end. He could eschew leverage and instead bid with a group of investors. But it’s not so simple as just financing the bid differently. The changing scenario changes the price tag:
However, if we were going to pay cash, I was not going to bid anywhere near 1 Billion dollars for the assets. Once the credit crisis hit, the value of cash went through the roof. It was not just a matter of how much the Cubs were worth, it was also a matter of how much more money I could earn with that cash. Cash was and is king. Distressed investment opportunities were rolling in the door that could make me multiples of what any sports team could. I could not see any scenario where the Cubs were worth anywhere near the numbers that had been discussed in the media. There is one publicly owned team, the Atlanta Braves, that are owned by Liberty Capital. The market cap of ALL of Liberty Capital net of cash and debt got as low as $250mm dollars, and today trades for about $500mm dollars, and they own far more than just the Braves.
So suddenly, with the economic washout in full effect, Cuban is seeing plenty of interesting opportunities. The Cubs aren’t so much of a priority.
But it’s not over yet, and Cuban still thinks he has a shot:
So when it came down to it, I did what I thought was the only smart thing to do. I asked for an extension. I knew that if they got the money they wanted for the team, well my bid was not going to be high enough anyway. If they didnt, or the other bidders couldnt come up with their money, they would come back to me.
I’m still waiting.
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