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Volume 22 No. 49
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For sports M&A, a red-letter year

The year 2015 is shaping up as a banner year for mergers and acquisitions in the sports industry, fueled by the twin forces of the heightened value of live media content and private equity interests both disgorging and buying sports assets.

On the same day last week, healthy bids came in for the Atlanta Hawks and for the Professional Bull Riders. News also emerged last week that Providence Equity Partners is considering selling the World Triathlon Corp., owner of the Ironman brand.

The submitted first-round bids for the Hawks ranged between $750 million and $900 million, sources said, a high range given the team is projecting $28 million of cash flow by the 2016-17 season, when the NBA’s new national TV contracts activate. That range translates to a cash flow multiple between 27 and 32 times, an unheard of level.

The $2 billion sale of the Los Angeles Clippers last year, for example, was about 20 times projected future cash flow.

Meanwhile, Spire Capital Partners looks as if it will get at least $100 million for its majority stake in the PBR based on the bids that have been submitted for that group, one source said. Providence also is looking at a sale in the high hundreds of millions of dollars range for World Triathlon Corp.

“I am expecting 2015 will be a stronger M&A year than 2014, and 2014 was a strong year,” said Charles Baker, a sports lawyer with DLA Piper. “It is somewhat coincidental that the Hawks and Ironman and PBR are on the market at the same time. That said, PE [private equity] firms are talking about returning money to investors right now, so it is not surprising that Providence and Spire respectfully are doing that.”

Meanwhile, Baker said, the “media thirst for ‘live’ continues unabated, which is certainly the case with the professional teams.”

Spanning the industry, the Brooklyn Nets are also on the market, though it appears that sale will wait out the Hawks process. Sales of minority interests in pro sports teams also represent a big ongoing business, Baker noted.

“I know a number of minority positions that will come to market in the next quarter,” he said.

Market experts talk about a transformational effect in how investors and professional money view sports, as the business has grown so large and has become a must-have for media distributors.

“Sports has graduated from where it was 10 years ago to be viewed by many sophisticated investors as its own distinct asset class,” said Steve Greenberg, Allen & Co. sports adviser. “People are viewing this as more than just a hobby or an amusement as they might have 10, 15 or 20 years ago.”

David Moross, who in 1998 started the first fund to focus on sports and entertainment, noted the industry has become a far more vibrant one since he began. “It’s two factors: These businesses are getting larger, and consolidation is occurring,” said Moross, chairman and CEO of Falconhead Capital.

Still, long-tenured industry hands note there is a difference between the team market and everything else. For teams, the market is slow. No MLB club, for example, has sold since 2012.

“We are in or about to enter a cycle or period of time where the major U.S. sports team owners are comfortable holding onto their ownership,” said Bob Caporale, chairman of Game Plan, which advises on team sales. He noted that better labor and media economics are keeping owners in longer.

Mitchell Ziets, who advises on stadium finances and teams sales, added, “Frankly, if you buy a team and it is doing well, why would you give it up?”

When a team does come on the market, though, the recent numbers have been eye-popping. Several market sources contend the Hawks are far overvalued, notwithstanding the $2 billion price Steve Ballmer paid for the Clippers last year.

The Hawks’ cash flow projection is less than one-third of what the Clippers expect. The Clippers also play in a solid basketball market, Los Angeles, while Atlanta is considered a modest pro sports town. In addition, the Hawks will soon have to contend with two new buildings opening in Atlanta — for the MLB Braves and for the NFL Falcons, both slated to debut in 2017. Those projects will compete with the dated suites and premium seats at Philips Arena.

Ziets understands the argument but contends that the bidders are looking at the long-term growth of the NBA — and perhaps the opening of the gambling category in the league, something NBA Commissioner Adam Silver has indicated he is considering.

If the Hawks numbers are accurate, Ziets said, “Then it is a referendum on the future of the NBA as it relates to gambling, as it relates to fantasy, as it relates to international.”

Also important to note is that first-round bids are often off the final price. The bids are set with little access to financial information, so they may be pumped up to get a bidder in the door and access to the numbers.