Do owners who pay expansion fees pay with borrowed money?

[sawchuk1971]

Do you think owners who pay expansion fees pay with borrowed money?

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[dj4aces]

I saw something a while back that said the Vegas owner had a payment plan, but can't recall which thread I saw it in.

 

[aqib]

I saw something a while back that said the Vegas owner had a payment plan, but can't recall which thread I saw it in.

The link wasn't working but according to this article it was 3 payments. My guess is as expansion fees get higher they will have to use debt.

 

[dj4aces]

The link wasn't working but according to this article it was 3 payments. My guess is as expansion fees get higher they will have to use debt.

Thanks for that, because I honestly couldn't remember where I saw it. I don't know that the league will allow debt, but I do feel that with the rise in expansion fees and team valuations, the promise of future payouts (such as the sale of property in a mixed-use development) will be considered more acceptable.

 

[Voight]

I think most people who buy a team are using borrowed money. They aren't going to sink a ton of whatever liquid cash they have into a sports team; they'd rather use the banks/lenders money and pay that back.

 

[eojsmada]

I think most people who buy a team are using borrowed money. They aren't going to sink a ton of whatever liquid cash they have into a sports team; they'd rather use the banks/lenders money and pay that back.

This.

Most "cash" is tied up in investments/capital that they call a bank for, to give them a line of credit borrowing against the capital. Banks make their money off the interest and it allows the new owner to gradually pay off the debt over time rather than having to liquidate their capital and pay any gains, which would be doubly expensive in some cases.

 

[StreetHawk]

This.

Most "cash" is tied up in investments/capital that they call a bank for, to give them a line of credit borrowing against the capital. Banks make their money off the interest and it allows the new owner to gradually pay off the debt over time rather than having to liquidate their capital and pay any gains, which would be doubly expensive in some cases.

For the bank, they know the team won't be folded by the league, but would still be setup as the top creditor to get paid back if something did happen. As long as the prospective owner has the assets that the bank is comfortable with the value of those assets being stable, no reason to not lend the money.

It will end up being some combo of cash and borrowed funds.

 

[eojsmada]

For the bank, they know the team won't be folded by the league, but would still be setup as the top creditor to get paid back if something did happen. As long as the prospective owner has the assets that the bank is comfortable with the value of those assets being stable, no reason to not lend the money.

It will end up being some combo of cash and borrowed funds.

Yeah...usually the ownership group will pool together a bunch of cash but only enough so that it isn't a heavy tax liability, with the rest being fronted by a bank. And the banks will put a lien on the capital to back themselves up. Usually the bank will get its interest and principle back within 10-15 years, because the owners don't want to be on the hook for too long.

That's why it is incredibly rare for a new ownership group to spend heavily on a team in the first 5 years (Vegas being the most recent outlier I can recall). They are normally tied up pretty heavily with bank payments for a few years.

I do know of some deals where the bank was paid a specific amount to broker the deal, in lieu of interest payments...but that is also not typical.

 

[Gnashville]

Yes almost all billionaires are paper billionaires meaning they don’t actually have cash. Most of their wealth is in stocks and real estate ect. The only way to acquire huge amounts of cash is through a loan from a bank or multiple banks using the stock/ real estate ect as collateral

 

[kaiser matias]

For the 1991 expansion (that awarded Tampa and Ottawa), both team's ownership groups were chosen because they had no qualms about paying the expansion fee in one payment (Hamilton balked at this and was not granted a team). Ironically both ownership group (the "Yakuza" and Bruce Firestone) did not manage to make such payments and were forced to sell within a few years.