Sports Bubble Primed to Burst
In the world of illiquid assets, sports teams are as scantly traded as even the most esoteric mortgage-backed securities. And with markets for such things still frozen, the lofty valuations of recent years could soon be set to tumble.
The majority of sports franchises are owned by wealthy businessmen, most of whom made their fortunes in industries far removed from the on-field exploits of their hundred-billion-dollar hobbies. Now that those primary businesses are suffering -- and the ultra-rich are seeing their vast wealth depleted -- sports teams may be dumped into a decidedly unfriendly market.
The Wall Street Journal reports more than a few team owners have fallen on hard times, threatening to burst what many believe to be a bubble in America’s favorite sports dynasties.
Tribune Company (TRB), which recently filed for bankruptcy, owns the Chicago Cubs, a team with a storied history and a penchant for post-season misery. Tribune’s CEO, real-estate mogul Sam Zell, now wants to sell the team, along with Wrigley Field and a partial stake in a local sports network, for approximately $1 billion - not a bad return, if you consider that Tribune bought the Cubs from the Wrigley family in 1981 for a mere $20 million.
Zell, however, is facing a harsh backlash from loyal Cubs fans, who don’t want to see their beloved team sold with little regard for tradition - even if that tradition includes a World Series drought of more than a century.
Another real-estate developer turned sports mogul, Bruce Ratner, may be wishing he'd stuck to skyscrapers rather than sky-hooks. Ratner owns the New Jersey Nets, and, along with Forest City Enterprises (FCEA), is trying to build the team a new $950 million Brooklyn complex. Legal troubles and financing difficulties have stalled development; Forest City has stopped work on all other existing projects.
Ratner isn’t any more beloved than Zell: Nets fans have no desire to make the trek across the Hudson for games, and Brooklynites aren't interested in seeing luxury condos go up in their backyards.
If team owners are forced to sell into such an unfriendly market environment, once-stratospheric valuations could come back to earth. Most teams turn small profits; owners benefit instead from long-term appreciations in value, along with the celebrity status the job affords.
Like nearly every industry in the country, sports teams are likely to be faced with tough decisions, cutbacks, and even -- gasp! -- wage cuts. After years of wildly inflated contracts, a baseball team that thinks it's a good idea to pay $126 million for a pitcher who's lost almost twice as many games as he's won may think twice in future.
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Its seems they are level 1 or maybe mark to model. I am sure if some teams go for very less the value of others wil be brought down.
though the Yankees and ResSox will be the sports version of Level 3 assets , Mark to myth as there is some premium for them right?
Well lets see how much NYT gets for their stake.
Please, please write some more articles where sports and economics go along together.
In fact let me ask you this Andrew, what do you feel of pursuing a MS in Sports or MBA with a specialization in Sports management. There are a few universities offering that , in fact NYU does offer something.
Since the business of sports is not that much affected by recessions ( or is it ) and since it is arguably a growing industry , that might be the right way to go.
Any thoughts on that?
I am not sure if you have ever worked in the sports business, but I would suggest doing a bit of work in the industry first. This friend, who I grew up with, always wanted to be the commissioner of baseball. He is a sports nut (actually you can check out his blog at www.workingthecorners.com), but after working for the Giants out of college, left the business and doesn't want to go back.
He said sports is unbelievably bureaucratic (more so than other industries) and teams are very poorly run. It was a frustrating experience.
That being said, his may have been a unique experience, and if you have a passion for sports and business, you should go for it and make the decision yourself.
Glad you enjoyed the piece - what could be better than sports and business united as one??
I would argue, however, that sports teams are thinly traded enough that they'd all be Level II or III assets. There is no public market so they can't really be Level I -- but I do agree, as soon as a couple teams get sold it will definitely set a new market.
Andrew
I encourage sports but forget about roids, I will ask my kids to stay away from any "enhancing" stuff.
If one does not have the talent and skill just skip it and enjoy watching or play at a lower level .
Also I am aware of the hardships in minor league at any level.
But one should dream and try his best.
I will check out your friends blog , also it was good to know that its not always fun working there, the grass is always greener......
Also Costanza should have made it clear right ? ;-)
Regards
for us non-tycoons the interesting action will be in the secondary PSL market....if you're willing to play with falling knives and have the cash, this can literally be a once-in-a-generation opportunity to score some good seats.
Duly noted and fixed -- thank you.
