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Volume 20 No. 45

Leagues and Governing Bodies

The Houston Rockets needed only 50 days to lock down a buyer, Tilman Fertitta, who offered a record $2.2 billion for the franchise.
Is the sports team investment banking business in trouble?

In the last month, the Houston Rockets and the Miami Marlins were sold for a combined $3.4 billion, and in each case the club handled the process on its own and without a banker. Even on the buy side, traditional advisers were not deployed by either pending purchaser.

Rockets owner Les Alexander took only 50 days to find a buyer at a record price of $2.2 billion in a deal that was also aided by team CEO Tad Brown. The Marlins struggled through their process, which was led by team President David Samson. Still, in both cases, prices were boosted by the lack of teams for sale, and the higher prices in turn made for a smaller pool of possible buyers, negating the need for bankers’ robust Rolodexes. As a result, other teams that go on the market may follow the path of the Rockets and Marlins.

“There are a lot of people on the sell side asking why do I need a banker and this deal is going to make even more people ask that question,” said sports consultant Marc Ganis, of the sale of the Rockets to Houston-based billionaire restaurateur Tilman Fertitta. “If you are an individual owner selling a club, you have to look at the Rockets. There are only a small universe of buyers. You have to ask yourself why you would use a banker.”

If teams begin to turn from using mergers and acquisitions advisers, ironically it would return sports to the period before the space became big business. Back then, teams might issue a press release or put a notice in the newspaper, and then hope a wealthy local noticed.

That began to change in the 1990s when the business started to take off. League rules became more complicated and required experts who could navigate clients through what has become a regulatory thicket. By the early 2000s big banks entered the space, and soon many of the executives in charge of those practices spun off into their own boutique firms. Commissions for the banks are usually a few percentage points of the total deal.

The Marlins make a greater case for going it alone because they fetched a premium price even though their financial picture is bleak. The Rockets are one of the top-regarded teams in the NBA and play in a major market. The Marlins are big money losers and their ownership was not popular in the fickle fan market. Yet assuming the deal clears MLB scrutiny, the $1.2 billion price tag is far higher than outside bankers had thought possible.

First Look podcast, with team sales discussion beginning a the 20:30 mark:

“I will be keeping my eye on the market. Trust me, it is not lost on me that teams are being sold without representation,” said sports investment banker Sal Galatioto.

That’s not to say there’s no business for advisers like Galatioto. He is advising on the sale of minority shares in the Los Angeles Dodgers, and like many of his ilk, is working overseas where deals can often get more complicated.

And there are always deals like the Brooklyn Nets, who for years have been trying to sell a part of the team. The stake does not include an interest in the team’s arena, but may include a path to controlling ownership of the money-losing franchise, so it is not an easy transaction. Allen & Co. is the current incumbent investment bank, taking over for Evercore.


Houston Rockets

Sale price: $2.2 billion
Sell side: Les Alexander, owner; Tad Brown, CEO
Buy side: Tilman Fertitta

Miami Marlins
Sale price: $1.2 billion
Sell side: Jeffrey Loria, owner; David Samson, president
Buy side: Derek Jeter and Bruce Sherman; Jeter advised by Greg Fleming, formerly with Morgan Stanley

Bob Caporale is somewhat of the grandfather of the sports investment banking business, having started Game Plan LLC in 1994 when the sports business was still largely mom-and-pop operations. He considered the Marlins and Rockets deals getting done back to back without an adviser more coincidental than trend.

“Everything in the Marlins was goofy,” he said. And Fertitta, a former Rockets minority stakeholder, is well known to seller Alexander, Caporale pointed out.

Alexander essentially sold the team the way they were sold before Caporale came along: make an announcement the club is for sale and wait for the bids to flow in. When teams began to lose money, and prices began to rise, finding the right buyer often required a financial adviser. Now, many teams are thriving so owners are less apt to sell. That helps grease prices skyward, shrinking the pool of buyers.

“Les really did a perfect job,” said George Postolos, former president of the Rockets who now runs The Postolos Group sports advisory firm, of the Rockets owners. “He trusted his own judgement about the value of the team and no one was going to tell him what it was worth.”

The process brought multiple bidders offering at least $2 billion, with Fertitta submitting the winning bid of $2.2 billion. NBA owners must still vote on whether to approve the Rockets sale.

The Marlins process was the inverse, stretching over nearly a year with different groups coming in and out. In the end, the offer fronted by Derek Jeter won the bid. Jeter used a longtime financial adviser from Morgan Stanley, Greg Fleming, for counsel.

Given the complexity of the Jeter bid, which includes debt, preferred equity and many limited-partner stakes, some financial insiders are unsure it will pass MLB muster.

“Let’s see if the Marlins sale closes,” said Caporale, who lives in Miami. “I am still not 100 percent convinced.”

If the Marlins bid does fall apart, it could underscore the need to use advisers to vet would-be owners. But if the deal holds, the message to owners may be that whether it is an easy sale like the Rockets or a tough one like the Marlins, demand is so high for clubs that investment banks are unnecessary.

The jaw-dropping, record-setting $2.2 billion sale of the Houston Rockets that eclipses Steve Ballmer’s 2014 purchase of the Los Angeles Clippers for $2 billion signals a soaring of team values in the NBA that shows no sign of a slowdown.

“The Rockets sale validates the Clippers price and raises the bar for every franchise in the NBA,” said George Postolos, former president of the Rockets who now runs The Postolos Group, a sports advisory firm.

The Rockets sale to billionaire Tilman Fertitta announced last week comes as revenue continues to pour into the league from its nine-year, $24 billion television deal that began last season, its new $1 billion apparel deal with Nike, and steady growth in international revenue.

“What the Rockets deal tells me is that the Clippers were not an aberration,” said one sports investment banker familiar with current team deals. “Everyone was wondering if it was Ballmer or the Los Angeles market. The answer is that it is the NBA. If you buy the Rockets, you get one-thirtieth of NBA International, which will be a giant business.”

The next indicator of the NBA’s franchise values will be measured by the Brooklyn Nets, which last year announced plans to sell a minority stake in the team. Allen & Co. has been hired to bring in buyers and sources said the strategy has shifted to include a path to control of the team, a move that could spur the sales effort.

“What is a team in New York City worth?” said a banker familiar with league finances. “These are scarce properties.”

NASCAR fans could soon have more data showing what makes their favorite cars, and drivers, tick.

Industry stakeholders are working to make the sport less secretive, with drivers’ vital signs and additional pit stop data two elements under consideration to provide deeper engagement with fans. The thought is that sharing more data could excite diehard fans and entice casual or non-fans.

Such sharing is no small task, however, considering the amount of money teams spend each year to gain an edge on the track.

“We continue to look for new ways to make NASCAR a more interactive experience for our fans,” said Steve O’Donnell, NASCAR’s executive vice president and chief racing development officer. “Visor cams, PRO system officiating on pit road, the Air Titan program and race formats are just a few recent innovations that are collaborative in nature and designed specifically to benefit our fans. We continue to work with each industry stakeholder to develop future innovations and technology solutions to enhance the fan experience and continue leading the motorsports industry.”

Sharing data generated from drivers’ wearable technology and from pit road are areas under study.
Among the ideas being considered is drivers sharing data generated from wearables they have on during the race. That data could offset the stereotype that drivers don’t face the same rigors as other athletes.

NASCAR permitted drivers to use approved wearables starting in 2016. In July, driver Jamie McMurray tweeted a comparison of his wearable data after a bike competition and data after a NASCAR race, showing the similarities and in some cases even more extreme conditions during the race. The post drew nearly 1,400 retweets and more than 3,300 likes on Twitter.

Fox Sports NASCAR analyst Larry McReynolds said his network is interested in showing fans such information on screen during races, and is working with NASCAR and teams toward that end. McReynolds, who reflected on how long it took NASCAR to approve the visor cam that has now started to become commonplace, said he could see Fox comparing a driver’s heart rate before the race versus more stressful situations later in the race. First, team concerns and even governmental laws must be worked through. Drivers own their own wearable data.

“We want to always keep working to get more information out there,” McReynolds said, “but we don’t want to get too deep because if you get too deep, that can turn people off as well.”

Another idea is sharing more data from pit road with viewers, potentially by bundling the information into a package that fans could monitor during races. Crew members and the cars themselves generate scores of data during pit stops; crews change a driver’s tires, tweak the car’s setup and fill it with gas in less than 15 seconds, while NASCAR keeps track of how fast cars are going on pit road and breaks it down by segments in order to catch drivers exceeding pit road’s speed limit. NASCAR owns the data related to pit road timing and scoring, while teams own data and video related to their specific cars’ pit stops.

NASCAR isn’t alone in pushing for sharing more data. The new owners of Formula One want to make more data public in that racing series as well. F1 CEO Chase Carey has spoken repeatedly about secrecy in the sport being an inhibitor to growth — one which he intends to change.

Carey was quoted in The Financial Times in June as saying team executives who don’t want to share the intricacies of their car setups “look at the world they compete in and do not remember why we do this thing … which is to create the best experience.”

McReynolds, a former top crew chief, said he still deals with current crew chiefs who get upset when he shares a trend going on in teams’ car setups. He said that earlier this season Hendrick Motorsports’ Chad Knaus, crew chief for seven-time champion Jimmie Johnson, was puzzled as to why McReynolds shared details about how teams have a secondary fuel reserve they can switch to if they’re running out of gas.

“He unloaded on me — he said, ‘Why are you showing that stuff?’” McReynolds recalled. “I said, ‘Chad, it’s part of our sport. … If I don’t show the fans what you guys mean when you tell your driver to throw the switch, I’m not doing our fans justice.’”

Joe Gibbs Racing's studio is designed to mimic the race team’s shop floor.
Joe Gibbs Racing has settled into a new production studio at its headquarters near Charlotte, as the front-running NASCAR team says what was once just an idea has become a near necessity.

JGR built the 1,600-square-foot studio that will be geared toward digital and social media because of ever-increasing requests from sponsors and media outlets for content from the Monster Energy NASCAR Cup Series and Xfinity Series organization.

Since the studio opened a few months ago, JGR has produced a variety of content there, including a video series shown on Facebook Watch, and plans to start recording a new podcast from the space this week.

JGR has a dedicated team of five employees who generate digital and social content, and it’s encouraging all of the team’s PR and account executives to think about content opportunities. The race team hosts weekly meetings devoted to social media planning, which falls under the direction of Bryan Cook, digital marketing director.

“It’s a good spot to be able to create more content, which is a big deal now,” JGR President Dave Alpern said. “It’s one thing to produce content at the racetrack, but when you’re producing content during the week, it just gives us the ability where now we don’t have to disrupt workflow or move things around down in the shop while they’re trying to prepare for a race.”

Alpern declined to disclose the cost of the studio, which was built into an existing room in the corner of the team’s merchandise shop. But he said it was negligible because JGR essentially just retrofitted the room, moved in equipment like tools and a show car, and covered an entryway to provide a suitable backdrop for shoots.

Sponsor FedEx used the space for a video to reveal its FedEx Cares paint scheme.
“[Comparing] price per square foot versus what it will deliver, there’s probably not a more valuable room in the shop,” Alpern said.

The space resembles JGR’s actual team shop, with pennants from past wins painted on the wall, and one side that’s filled with equipment such as Goodyear tires and tool kits. The other side looks more like a studio where a talk show could be taped.

Sponsor FedEx used the space in July to reveal its special philanthropic FedEx Cares paint scheme. The video, which was distributed on Facebook, looks like it was shot on JGR’s shop floor, but it was actually shot in the studio.

JGR plans to record — both through audio and video — a new podcast at the studio hosted by driver Daniel Suarez, who is in his rookie season in the Monster Energy Series. JGR has also been shooting episodes of its new “Joe Gibbs Racing on the Job” series on Facebook Watch, where the team highlights the stories of surprising or interesting positions among its 600 employees.

It is targeting 15 episodes of the series each season along with supporting content such as blooper reels. JGR’s sponsors can get involved in the five- to seven-minute episodes. One episode under production, for example, shows a tire changer using DeWalt tools.

As stakeholders in the sport deal with business metric declines in recent years, Alpern said he wouldn’t be surprised if other teams follow suit and build studios of their own to deliver more nontraditional value to sponsors.

Fellow NASCAR front-runner Hendrick Motorsports has a social media command center and a separate production studio, with two-full time video producers on staff.