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Posted on Tue, Apr. 14, 2009
Pressure from lenders could force sale of Texas Rangers, Dallas Stars, experts sayBy ANDREA AHLESaahles@star-telegram.com
Dallas billionaire Tom Hicks risks losing control of the Texas Rangers and Dallas Stars now that his sports firm, HSG, has formally defaulted on $525 million in loans, financial experts say.
Although experts agree that creditors could force HSG into bankruptcy, that possibility also appears to be a long way down the road.
"A banker doesn’t want to own a baseball team, but it would be possible to put enough pressure on Hicks where the team ownership would be changed," said Stan Block, a finance professor at the Neeley School of Business at Texas Christian University.
Lenders have notified HSG that it has formally defaulted on $525 million in loans. Hicks said recently that he intentionally missed the March 31 interest payment as he tries to restructure the debt.
According to The Wall Street Journal, Hicks missed a $10 million quarterly interest payment on HSG loans. The paper reported that the largest lender is Galatioto Sports Partners, a New York sport-financing group, which has lent nearly $100 million to HSG.
In a statement on Tuesday, Hicks reiterated that he is in negotiations to restructure HSG’s debt and emphasized that the baseball and hockey teams have not been affected by the discussions.
"Both Major League Baseball and the National Hockey League have strong protections for their franchises when discussions such as these are under way," Hicks said. "As an owner and lender to HSG, I am working to negotiate something that will make economic sense going forward for me, HSG and its lenders."
However, experts say negotiating with lenders is much more difficult now because of the credit crisis and economic recession. And with the Stars not in the playoffs this year and the Rangers struggling to get fans through the gates, Hicks may also have a hard time attracting cash from new investors interested in buying a minority stake in a team.
"If you can find minority interest in the New York Yankees or the Boston Celtics, that’s one thing. But to buy a minority interest in the Texas Rangers is quite another," Block said. "If that’s part of his strategy to bring in more minority-interest investors, I think that’s going to be much more difficult than in the past."
Lenders could force Hicks instead to sell a majority of his stake in one or both of the teams. And if Hicks continues to miss interest payments, lenders could work with the league commissioners and attempt to find new ownership, experts say.Major League Baseball has intervened to take control of a team before, as it did with the Montreal Expos earlier this decade, when that team’s owner bought the Florida Marlins. The Expos, which struggled for years with declining attendance, later moved to Washington, D.C. and became the Nationals.
"Just because Major League Baseball could exercise very strong ownership control over Hicks, the question is whether they would actually want to do that," said Victor Matheson, an economics professor at the College of Holy Cross in Worcester, Mass. "They don’t have any interest in having a failing franchise in the Metroplex."
In the past decade, several NHL franchises or their minority owners have entered bankruptcy. Usually, the teams have emerged from bankruptcy court with new owners, as the Pittsburgh Penguins did after filing in 1998.
To avoid bankruptcy, lenders may want Hicks to sell some other assets to pay down the debt if he can’t find new investors, said William Maxwell, a finance professor at the Cox School of Business at Southern Methodist University.
And while Hicks may be unwilling to do that to keep his teams, Maxwell said he expects some sort of deal to be struck before the end of the year. Hicks has said that he intends to retain control of the teams.
"It’s a big game of chicken going on," Maxwell said. "It could take a while to kind of play out, but again, it’s in everybody’s best interest to essentially do it as quickly as they can."
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Sports bankruptcies In the past 30-plus years, the only professional sports franchises to enter bankruptcy were in the National Hockey League.
Team Year
Pittsburgh Penguins 1975
Los Angeles Kings* 1995
Pittsburgh Penguins 1998
Ottawa Senators 2003
Buffalo Sabres 2003
Nashville Predators* 2008
*Minority owners only
Source: Victor Matheson, College of Holy Cross
ANDREA AHLES, 817-390-7631
http://www.star-telegram.com/804/story/1317335.html