O/T-The Economist on the 'business of baseball"

The Texas Rangers are sold
Even in sport, a Pyrrhic victory
Aug 6th 2010, 17:24 by The Economist online

AFTER the Texas Rangers baseball club was sold for $593m at a bankruptcy-court auction on August 5th, the franchise’s owner, Tom Hicks, called the outcome "a win-win for all parties." It certainly looked that way. The victor was the investment group Mr Hicks had originally struck a deal with, led by Chuck Greenberg, a lawyer, and Nolan Ryan, a legendary former Rangers pitcher. Major League Baseball (MLB) dodged two bullets. Mark Cuban, the rival bidder and the owner of the Dallas Mavericks basketball team, is well-known for criticising referees, and might well have increased the Rangers’ player payroll. By bowing out once the bidding reached $581m, Mr Cuban spared the league both a difficult decision on whether to admit him had he emerged victorious, and a court battle had it sought to block him. Finally, the holders of $525m in defaulted debt issued by Hicks Sports Group (HSG), the company that controls the Rangers, got $100m-130m more in cash than they would have had they not convinced a judge to reject the initial sale agreement between HSG and Mr Greenberg’s group.

Yet just like in many auctions, Mr Greenberg and his backers may have fallen victim to the winner’s curse. Forbes magazine estimated the club’s value this year at only $451m, and calculated its operating income at just $17m in both 2008 and 2009. Although the team has done surprisingly well this year—they are almost certain to make the playoffs that determine the season's champions, for the first time since 1999, which should generate at least $30m in extra revenue—it will need to sustain this success for several years to rebuild its fan base (its average game attendance has been 21% lower over the last five years than it was from 1996-2001). And unlike in the original version of the sale agreement, they will not be able to count on profits from the lucrative car parks surrounding the team’s stadium, which are also used for Dallas Cowboys football games, to offset mediocre earnings from the team—the bankruptcy court stripped out an associated land deal from the sale. The high purchase price could also strengthen the players’ union’s argument against the owners’ efforts to restrict salaries during the next round of collective bargaining in 2011.

The real winners are the creditors, particularly Monarch Alternative Capital, a distressed-debt hedge fund which scooped up HSG’s paper on the cheap after it defaulted. While the bondholders have been pilloried in the press, as "vulture" investors are often portrayed, their victory is good news for teams hunting for financing in future. Now that a precedent has been set that lenders can turn to the courts if MLB or its owners try to sidestep them, they will probably be more willing to offer funding