Contact

Map

by Joe Cantiello

Part I

In July, of 2009, it was reported from various sources that MLB had loaned millions of dollars to Texas Rangers owner, Tom Hicks. Though no specific details were put forth by either Hicks or MLB of the why and wherefores for the loan it more or less has been confirmed that MLB has delivered a sum in many millions (between $10 million and $15 million with the $15 million figure most commonly quoted) being lent to Hicks to use in the shoring up of some cash flow problems that deter the Rangers from meeting certain debt responsibilities. According to Bob DuPuy, MLB COO, the money was not used to meet payroll and that MLB (back in July) was working with Hicks to sell the team as Hicks had requested of the sport. 

Some sources have said the loan itself was in fact not a loan at all but an advance on revenue sharing money that the Rangers were to receive later in 2009. Other sources have said that MLB routinely withholds money from the Central Fund shares each team receives annually and that teams can borrow from that money and that this is the how and  where Hicks was able to extract the “loan” from MLB.

The fact is this, in and of itself, the borrowing money isn’t that big of an issue and this situation has been sort of blown way out of proportion. In 1992, the Detroit Tigers borrowed about $5 million, which actually was used to meet their payroll obligations. In 1999 Kevin McClatchy borrowed $45 million, not from baseball but from other financial sources, to meet certain debts including his share in paying for the construction of the Pirates home field, PNC Park . In fact almost all owners have borrowed money in some form or fashion from either MLB or other financial sources and this process is a du rigueur course of action when owners, or for that matter any business in search of capital, needs to supplement cash flow to meet debt.

In addition, the SportsBusiness Journal (SBJ) reported, in 2006, the New York Yankees had refinanced/borrowed $240 million to satisfy debt. Actually, the MLB team, the New York Yankees, did not refinance anything rather their parent company Yankee Global Enterprises did. All parties associated with the financial deal declined to comment according to SBJ. The deal involved a consortium of financial institutions, which included Goldman Sachs, Société Générale’s SG Cowen unit, Bank of America and GSP Capital. SBJ reported, “Goldman and GSP declined to comment, while SG and Bank of America could not be reached for comment.”

According to SBJ Under the 2002 collective-bargaining MLB had established new debt rules that capped team debt at no more than 10 times cash flow, or 15 times if the borrowing was for a new stadium. Moreover, “Teams bereft of positive cash flow are limited to the $25 million cap. The New York Yankees lost up to $85 million last year, according to a December report in the New York Daily News, after accounting for $111 million in revenue sharing and luxury fee payments sparked by the team’s lofty payroll.” That meant the Yankees would not be eligible to refinance the amount they desired under MLB rules.

However, according to John Moag, a sports investment banker, a team such as the Yankees has other options for borrowing. This opened the door for the Yankees’ parent company to enter the picture. Moag stated to SBJ that Yankee Global would be paying a higher interest rate than the team because the team itself would not be collateral. And, when the team is not the collateral for the loan then MLB’s debt caps do not apply. Moag was quoted as saying, “[The Yankees] of course have the ability to do that; not a lot of teams do. They have the financial wherewithal and the revenues to support debt at that level.”

The bigger and more serious issue is that Hicks recently also defaulted on $525 million in loans tied to the Rangers and his NHL franchise, the Dallas Stars. Hicks has said the reason he let the loans fall into default was to force lenders to renegotiate the loans and that everything is “business as usual” regarding the Rangers and the Stars. Left unsaid is the obvious: A renegotiation of terms between Hicks and the lenders so that the terms of payment would be more advantageous for Hicks and therefore  resolve certain other cash flow problems he appears to be having in meeting certain debt obligations. A prime part among those other debt obligations is not only his sports investments here in the US but also his indebtedness involving his 50% ownership of the Liverpool Football Club (FC) of the British soccer’s Premier League.  

Andrew Zimbalist, a noted sports business/finance author and a Smith College economics professor, says “The notion that this is a modest hiccup, where all he’s (doing) is buying (time) before he makes payments (on the loans) so that he can properly run his franchises… I think he’s trying to put a …good face on it. But it’s not a good situation for him.”

At this point it is necessary to point out that Hicks throughout his career has specialized in the buying and the reselling of many different types of businesses to amass his fortune and status as a self made billionaire (2009 Forbes annual survey). In plain words, Hicks is a master at the practice of the leveraged buyout.

Tom Hicks is a founder of the noted firm of Hicks, Muse, Tate and Furst as well as Hicks Holdings LLC, which owns Hicks Sports Group. Hicks Sports Group (HSG) is the designated owner of the Texas Rangers and the Dallas Stars. Hicks’ through another holding company, Kop Football Holdings, Ltd also owns 50% of the Liverpool FC.

Hicks gained his experience in his career of leveraged buyouts as a member of the First National Bank of Austin ’s ( Texas ) venture capital group. Within a short time he broke off from the bank and with Robert Haas formed the firm of Hicks and Haas.

In the mid 1980’s this firm acquired form Hicks’ brother, Steven, the first of his soon to be conglomerate media enterprise. Hicks through his holding companies has control over the two largest radio station chains in the US , Clear Channel (remember that name) and Chancellor Media (and that name).

However, most notable is for Hicks is that shortly after the media acquisition Hicks and Haas, in 1985, took a reported $88 million of other people’s money (that is the trick of leveraging buyouts) and brought a bottling plant and several soft drink companies, including giants Dr. Pepper and Seven Up, and then after about 18 months took the combined companies public. Then in 1995 Dr Pepper/Seven Up was sold to Cadbury Schweppes for $2.5 billion, which resulted in a return of $1.21 billion of the investor’s funds on the original $88 million. Some sources say Hicks himself between his share of the fees on the fund that he managed on the soft drink deal and his profit on his own money used in the deal realized a profit of over 1400 per cent.

In 1995 Hicks, also, turned his attention to sports when he purchased the NHL Dallas Stars. The Stars are Hicks most successful sports team post-acquisition by the fact the team has twice went to the leagues championships, the Stanley Cup Finals and was victorious once. Then in 1998 he purchased the MLB Texas Rangers, a team that has been in MLB’s post season tournament twice but in both instances quickly eliminated without a win. 

An insight into the way Hicks operates can be seen in how he went after and signed a young and growing star player in Alex Rodriguez. To get Rodriguez’ name on a contract to play for the Rangers, he offered him a ten year $250 million contract. Considering it was about $80 million more than the next closest bid Rodriguez gladly signed the offered deal. However the insight is into how Hicks envisions his role in businesses and in this particular contract as a microcosm of that role is this: When a Hicks’ company makes an acquisitions he typically avoids arguing over every last nickel and dime because “... if we have to go up another 5% (or more) at the end we ought to do that, because if we weren't willing to do that we shouldn't have been in the process in the first place." Hicks then says that particular manner of thought was a prime directive in getting Rodriguez’ name on the dotted line when Rodriguez’ agent, Scott Boras, wanted a $10 million bonus in addition to everything else agreed upon at the time. Hicks says, “… we decided that was a good investment. In the context of the overall deal, I wasn't going to let it prevent us from doing it." But, in the end, is this logic that Hicks used in seeing what most other people would never even consider seeing, which is that most people saw Rodriguez’ contract as a ten-year contract that is $25 million per year for ten years but Hicks sees the contract as being for $24.4 million per year for seven years and with deferred money considered it actually “only” $22.4 million for seven years.

Here’s how Hicks figures the deal: While the total contract averages $25.2 million a year, Hicks stresses that each year of the contract has at least $3 million in salary deferred.  Hicks also said then that he fully expected that continued success by Rodriguez would lead him to invoke an included option to opt out of the contract and seek a new deal after seven seasons, which would mean that Hicks would be rid of the responsibility to pay Rodriguez any further money. (An option Rodriguez did use after he was traded to the Yankees to sign a new deal with the Yankees.) So this is the rational Hicks uses to say, “I really view it as a seven-year contract for $171 million. (and)… with the deferred money, it knocks it down to $156 (million) or $157 million."

Also, armed now with a prime time MLB star player in his arsenal and a NHL “power house” with a Stanley Cup to their credit Hicks started to make noise about forming his own Regional Sports Network (RSN). (RSN’s have been very big revenue providers for some MLB teams most notably the Yankees, Mets and Red Sox.) At this point Fox Sports Net Southwest offers about $550 million for TV rights to the Rangers and Stars games for 15 years. Mike Cramer, COO of the holding company for both teams and the lead negotiator behind the TV deal, says, "We were fully prepared from day one to go down our own path and create our own regional sports network. It was opportune having Tom in our corner and having the other side know he (Hicks’ reputation) was behind the whole thing."

And in the great scheme of things, this is the vision Hicks utilizes in most of his business dealings. There is always more than meets the eye to the casual reporter or person of what he does. Hicks does nothing without  considering all the different possible aspects and angles that surrounds the deal and what it can mean to his personal bottom line. With a Tom Hicks deal there is always more to a deal than what it appears a deal is about. A keen insight into a common Hicks business plan is this from a 2001 Fortune Magazine article, “(Norm) Green (former NHL Dallas Stars owner) gave up and got $84 million from Hicks who entered with an exit strategy firmly in mind: Build up the team, build an arena, and cash out in five years.” (My italics)  

In 1999, Leon Gould, chief investment officer for the Whitehall Financial Group, an investment company presages and reinforces this idea forwarded by Fortune when he says, "He (Hicks) always has an exit strategy. He is not doing it to hobnob with all the other sports owners. He is a money maker."

With this insight and knowledge regarding Tom Hicks we can now begin to examine how he came to be the owner of a team in the nation's seventh-biggest market and the reality of Hicks financial situation. This in itself will further expose how Hicks conducts his business affairs.

Moreover, in the words of one internet report on Hicks, “It gets murky”.

The following is an excerpt from an unpublished story I am presently in the midst of writing and is (1) necessary pertinent information and (2) lays the ground work for part of the how and the why Hicks became the owner of the Texas Rangers.

 “Great Texas Land Grab” Part 1:  In 1988, George W. Bush, Fort Worth financier Richard E. Rainwater and Rainwater’s associate, Edward “Rusty” Rose, led a team that purchased the Texas Rangers for $86 million. The Rangers at the time played in an old minor league stadium that was without any amenities such as luxury suites that helped a stadium create revenue. The new owners, therefore, threatened to move the Rangers out of Arlington , Texas . The threat inspired the city to put forth a deal that was to help finance a new stadium by raising $135 million through a local sales tax increase. The owners themselves were to put up another $50 million. However, the owners effectively never paid a dime because to raise their share of the stadium funding the owners placed a one-dollar surcharge on each ticket sold to Ranger games.

On Jan. 19, 1991 , the citizens of Arlington voted two-to-one to approve a sales-tax increase to build a new ballpark. The result of the overall deal that the City of Arlington gave to the Bush/Rainwater/Rose ownership team was more than $200 million in public assistance to finance the building of the ballpark in Arlington with the added benefit that all profits from the new stadium went to the owners: Bush, Rainwater and Rose, et. al.

The stadium’s lease was a typical example of how the city of Arlington benefitted the Bush ownership team. In The Buying of the President 2000 ( Avon ), by Charles Lewis says, “The stadium’s lease is a case in point. Unlike an apartment tenant, the rent that the team’s owners pay is applied toward purchasing the stadium. The maximum yearly rent and maintenance fees for the Rangers are $5 million; the total purchase price for the Ballpark at Arlington is $60 million. Thus, after 12 years the owners will have bought the stadium for less than half of what taxpayers spent on it.”

But the Bush team also put together another very lucrative deal that profited themselves and left the taxpayers of Arlington with nil. They brought the land that surrounded the new stadium.

The city of Arlington created a separate corporation, the Arlington Sports Facilities Development Authority, to manage construction of the new stadium. The new corporation then, using the city’s authority, seized land around the footprint of the stadium for the purpose of “parking and future development”.

According to papers obtained by Lewis and the Center for Public Integrity, the owners, (Bush, et al), would identify the land they wanted to acquire. Then one of the minority Rangers’ owners, who happened to be a realtor, would offer to purchase the land for prices he, himself, set. These prices were well below what the owners believed their land was worth. However, if the landowners refused to sell their property then the Arlington Sports Facilities Development Authority had the right, per order of the city of Arlington , to take the land and then allow the courts to determine the price.

Some of the owners that were forced to sell their land eventually sued and won settlements that totaled $11 million that were paid after much delay by the Bush ownership team. But the payment of the settlement was not paid by the then present owners of the team but by the owner who brought the team from the Bush ownership team, Tom Hicks.

Bush has always professed ignorance of the shady land grab but in October 1990, he casually said to a reporter for the Fort Worth Star-Telegram: “The idea of making a land play, absolutely, to plunk the field down in the middle of a big piece of land, that’s kind of always been the strategy.”

The Buying of the President 2000, Lewis and the Center for Public Integrity report that the final payoff for Bush and Rainwater came when after Bush was elected governor of Texas, “Bush put his all of his assets into a blind trust, with one notable exception: his stake in the Rangers. (Former Rangers’ president, Tom) Schieffer kept Bush apprised of the owner’s efforts to sell the team to Thomas O. Hicks, the chairman of Hicks, Muse, Tate and Furst, Inc., a firm that specializes in leveraged buyouts and until recently owned AMFM, Inc., the nation’s largest chain of radio stations. Hicks and employees of his companies are Bush’s No. 4 career patron, having given him at least $290,400. In 1998, Hicks helped provide Bush with an even greater windfall. He bought the Texas Rangers for $250 million, three times what Bush and his partners had paid 10 years earlier. The new stadium and the real estate around it greatly boosted the final sale price. And, since his partners had upped Bush’s stake in the team from 1.8 to 11.8 percent, his cut from the proceeds of the sale was $14.9 million, a 25-fold return on his investment of $606,302. Rainwater, who had put far more money into the team than Bush, made $25 million.”

“Great Texas Land Grab” Part 2:  In January 2008 the Dallas Business Journal reported that tenants were being lined up for a new 800,000 square foot retail component called Glorypark that was under construction between the Rangers Ballpark in Arlington and the Dallas Cowboys' new stadium. The owner? Texas Rangers principal owner, Tom Hicks. The Dallas Business Journal says, “Glorypark will offer multiple uses, including 500 hotel rooms and 275 residential units. Also unlike Easton, (a similar development in Cleveland, Ohio that is designed to look like a classic American main street, with public spaces, fountains, a street grid, and metered storefront parking), Glorypark will see foot traffic from fans who attend games at two major athletic venues.

The Texas Rangers reported 2.3 million in attendance at Rangers Ballpark in Arlington during 2007; and the $1 billion Dallas Cowboys stadium, which is expected to be completed in 2009, could accommodate more than 100,000 fans at (each of) the team's eight regular-season home games scheduled each year.

‘Fans don't want to just show up for the game and leave. They want to eat, shop and walk around,’ said Scott Wysong, director of the Sports and Entertainment MBA program at the University of Dallas in Irving . Wysong said Glorypark could also attract events such as NCAA Final Four tournament games, car shows, conventions and concerts.”

“Great Texas Land Grab” Part 3: This part of the story is actually not completely written at this point but is worth keeping watch over. Hicks has asked MLB for a loan to help it see him fulfilling the team’s financial obligations. While it is not unusual for a team to borrow money during a cash flow snag, it is worth noting Hicks background as a “specialist in leveraged buyouts”. Hicks may be preparing for another Texas voter bailout of his Texas ball team or he may be preparing to unload the team and move onto greener and more prosperous business pastures. Either way considering Hicks business acumen expect Hicks to enter into an eventual proposed deal that will generate sizable revenues for his pockets at little to no cost/investment of his own.

Submitted 1/11/09

Comment on this article to Comments@informativesports.com

Contact the Mailbag if you have any Sports Questions 
Mailbag@
informativesports.com