August 21, 2009
It’s not news to anyone who loves sports that Sam Zell’s Tribune Co. has been in negotiations to sell the Cubs to the Rickett family since 2007. Given the obvious White Sox-bias of the current administration in DC there wasn’t much hope that Zell was going to get any bailout money to sweeten the pot, so in the end, he did the deal with the Rickettsfor $845 million. The deal includes Wrigley Stadium as well as 25% of the local Comcast sports network.
Acquisitions of sports teams are interesting for a couple of reasons. First, all of the transactions involve change in control conditions with real bite. The league – i.e. other owners – has to approve any transfer of control of a franchise. This makes any sale a clubby affair. If the other owners are unhappy with the identity of the purchaser or if the terms of the sale somehow set a precedent that causes fellow owners to hesitate, the deal can die. So negotiations with the seller often have to involve the league and other owners very early on.
Second, all these transactions involve ball parks in one way or another. Ball parks are large “specific assets.” Specific assets are assets that have value when used in one way, but then lose all their value if they are put to another use. Every try to hold an academic conference in a baseball stadium? Right, it’s not going to happen. You can’t even play soccer in a baseball stadium. A baseball stadium, particularly a big one like Wrigley has only one economic use and that’s as a baseball stadium for the Cubs. Separating ownership of the stadium from the team is hard to do. In fact, when it happens more often than not ownership passes to a public entity. Here's a paper by Mildner and Strathman with some data on stadium ownership in baseball and the NBA over the past few decades.
The specificity of the assets involved in sports transactions makes this kind of deal a perfect one for a Deals class. (I’ll write more about Deals classes next week after the semester starts.)
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