Tuesday, August 03, 2010

In bidding for the Texas Rangers, Mark Cuban's possible outcomes are win, win, and probable win

Update: Cuban bowed out of the bidding for the Rangers at the $600M level, and therefore Greenberg/Ryan will own the team as soon as MLB approves.

I made a mistake in the article below. I did not know that Cuban had only purchased $2M of Tom Hicks debt. Therefore, Cuban obviously paid as much or more ... in legal fees ... as he gained in profit from the sale price being raised by $85M. Cuban explains his side of the entire sale process at Blog Maverick. He only purchased the $2M in debt so he could gain access to the financial records of the Texas Rangers and the Dallas Stars. He first looked at purchasing the Rangers in 2009, but believed Hicks had included undesirable non Rangers related debt into his demands. This was a deal breaker for Cuban. In mid July 2010, Cuban learned that the bankruptcy process could eliminate the undesirable non Rangers related debts from the deal. This reignited Cuban's interest in owning the team. However, with Cuban having his own money tied up in various investments, and having only a few weeks in which to raise capital for the potential acquisition, the Cuban and Crane partnership was unable to raise more than $600M with which to bid for the team.


Here's why: in 2009, Cuban bought some of the discounted Tom Hicks debt. Therefore, in thrusting himself into the bidding for the Rangers, Cuban's three possible outcomes are all wins:

1. Cuban loses the bidding.

Consider: by entering the bidding, Cuban has driven up the sale price of the Rangers by ... $50M? ... $100M? ... $200M? Therefore, Mark Cuban the creditor thus reaps a bigger return on his purchase of Tom Hicks' debt. Outcome: win for Cuban, triggered by Cuban shrewdly and aggressively jumping himself into the bidding process.

Note that Cuban could only be aggressive b/c Cuban is an expert on owning a professional sports franchise. Other creditors, due to their corporate ignorance of what it takes to be a successful professional owner, therefore could not trust their ability to put a proper value on the Rangers franchise, and therefore could not afford to be as aggressive as Mark Cuban.

No one seems to consider that Cuban could be bidding in order to drive up the price, and therefore in order to drive up the profit on his 2009 purchase of debt. There's no possible way to know, until tomorrow, what Cuban's true motives are. However, this is a logical motive which everyone in media seems to be overlooking.

2. Cuban wins the bidding, then gets his proposed ownership approved by MLB.

Win. Cuban now gets to own a franchise, i.e. do something at which he is expert. Further, Cuban eventually gets to use Texas Rangers games as programming for his HDTV Channel. If that happens, the Rangers' placement as prime tenants on HDTV would create wider appeal for the Rangers franchise: would thus increase the profits of and the value of the franchise. Add in that the Rangers are about to contend for World Series titles every year for the next decade, and HDTV exposure could result in the Rangers gaining a national audience, a la the Atlanta Braves in the early days of TBS. Mark Cuban's ownership might be the very best thing which could happen for the franchise.

Something else: Mark Cuban knows how to fill a venue to the brim with fans; knows how to create excitement around a franchise. Cuban is a born marketer.

3. Cuban wins the bidding, then gets denied by MLB

Outcome: probable win. In this scenario, if MLB awards the franchise to, for instance, Greenburg/Ryan, then I speculate MLB will insist that Greenburg/Ryan pay a price which is much higher than even the $540M which Greenburg/Ryan agreed to last week, and which was significantly more than the $502M which Greenburg/Ryan used as their bid over the last months. Cuban the creditor, even if he gets denied by MLB, still wins.

Separate note:

Nolan Ryan is speculated to be gone if Cuban wins. However: what else can Nolan Ryan say? If Cuban wins: Ryan may be gone, or Ryan may be interested in working with Cuban. No one knows. We do know that Ryan, at this moment, cannot possibly give any indication that he would be willing to work with Mark Cuban.

Realistically, anyone handicapping this issue would say that Mark Cuban and Nolan Ryan are oil and water. Ryan, however, can surprise. Once upon a time, Ryan was a big booster of pitching coach Tom House' unorthodox teaching techniques. No one, at the time, would have expected the meat and potatoes Ryan to endorse House' fruit and nuts methods.

As for Cuban, I expect him to be quite flexible re working with Ryan. Cuban is shrewd and adaptable. Cuban's mistakes are mistakes of enthusiasm. Cuban's are not mistakes of either intractability, or of I know better arrogance. Cuban's decision making process is shrewd and well considered. If Cuban seems hasty, it is often b/c - once he does make a decision - Cuban has the money and the confidence to immediately pull the trigger and go for it. Other organizations, both in sports and out of sports, usually take longer to implement actions which require big money and big risk.

1 comment:

David said...

If I had to use only one word to describe Cuban's sure bet on the Rangers....it would be Masterful. I mean, anyway the final bell tolled, he was on the way to the bank.

That's the difference between a wealthy person (Cuban) and a rich person (Ryan). One tries to use all of his resources and knowledge BEFORE going to war. The other jumps into the fray and figures there are risks involved and "wings" it. If you can't answer a capital call, you're winging it for sure.

Interesting reading as I understand about buying underlying debt in a bankruptcy or insolvency situation. More interesting reading for those who didn't know about it before Mr. Ryan taught them the lesson.