Lehman Brothers' experiment in sports investment banking has become a victim of Wall Street's sagging economy. Lack of business has forced its Sports Group to slash 40 percent of its positions, including a top senior vice president.
Three executives on the 10-person staff were laid off last week, including Gordon St. Denis, the senior vice president who helped craft the white paper that led to the formation of the original group at SG Cowen. A vacant position was also eliminated.
The group's move to Lehman Brothers from SG Cowen 17 months ago may have been poorly timed. The stadium boom has subsided, baseball's labor unrest has stymied financial transactions and the economy is in the dumps.
"The recession has had a negative impact on sports finance," said Dan Champeau of Fitch IBCA, which is preparing a report for release next month on the effects Sept. 11 and the recession have had on the business of borrowing cash in sports. "The drop in the stock market has taken billions of dollars in net worth away, and dropped down the number of potential franchise owners."
Lehman follows other banks such as J.P. Morgan Chase in significantly cutting its sports staff in the face of a weakened economy that has limited clubs' options of raising money.
Ashish Raythatha and Brad Rangell, along with St. Denis, were laid off last Monday, and the group eliminated the position vacated when Edward May resigned in June to go to law school.
"We are still committed to [sports] and boast one of the largest groups on the street," said Jason Farago, a Lehman spokesman. Farago wouldn't comment on the layoffs.
Lehman, a financier of YankeeNets and the YES Network, will continue operations with six full-time professionals.
Fitch's Champeau points to two other debilitating trends: the hemorrhaging in corporate America that has led to less money for sponsorship and hospitality, which would provide collateral for loans and bonds, and the labor uncertainty in MLB that has stopped dead any potential sales of league teams. Several clubs, such as the Oakland A's, Anaheim Angels and Minnesota Twins, have been on the market for more than a year.
These factors converged at Lehman, which lured Sal Galatioto and his team away from French bank SG Cowen in April 2001. Galatioto apparently fended off several efforts to cut his group while other units of Lehman responded to the economic slowdown with layoffs. Last Monday he could no longer hold off these forces, a source said.
"Today's financing markets have tightened significantly, and sports are one of many sectors that have been affected by it," said David Moross, chief executive of Sports Capital Partners, which buys and invests in sports companies. "Lehman Brothers clearly has identified this as a concern."
Earlier this year J.P. Morgan Chase reduced its sports finance group, which was once one of the top on Wall Street, to a single executive.
When Morgan formed its group in 1998, it ushered in an age of aggressive staffing by Wall Street in this area, as the wave of stadium financings and team sales was in full fever pitch.
Since arriving at Lehman, Galatioto's group has only two announced transactions: a credit facility for the YES Network and refinancing for YankeeNets.
The group also has had several small private financings that it will not reveal, a source said. The group has also been advising Mets owner Fred Wilpon in his negotiations to buy out partner Nelson Doubleday. Lehman could be in line to finance the $135 million Wilpon needs to buy Doubleday's interest.
