Do owners who pay expansion fees pay with borrowed money?

[sawchuk1971]

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

 

[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.

 

[Voight]

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.

NFL only allows owners to borrow a certain amount against their team and they usually dont like it when teams do so. They would rather make the loan themselves.

 

[aqib]

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

They also avoid paying capital gains tax for selling the stock.

 

[aqib]

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.

Ironically, Karamanos also bid for Tampa Bay and he also only wanted to pay $29 million up front. Firestone thought he could make the money back by developing the arena around the arena, but the neighbors didn't want it.

This article talks about that expansion process. The money quote is this "In a new book, Gil Stein, who succeeded Ziegler as president, said the process came down to someone saying these words: ''We'll pay the $50 million'' -- the expansion fee."

HOCKEY; A Soap Opera on Ice (Published 1998)

Article discusses various controversies surrounding Tampa Bay Lightning franchise, including absentee owner Takashi Okubo, debt, lawsuits and poor record on ice; photo (M)

www.nytimes.com

 

[LadyStanley]

NFL only allows owners to borrow a certain amount against their team and they usually dont like it when teams do so. They would rather make the loan themselves.

So many expansions. I recall that at least one league requires 50%+ of "cash" to be paid for purchase/expansion fees. The balance could be financed. Some leagues have line(s) of credit available for owners to borrow from rather than having to go out to financial institutions on their own.

The NHL does have accountants review finances of prospective purchasers/expansion folk to ensure they can meet normal business expenses of a club and pay their debts.

 

[aqib]

So many expansions. I recall that at least one league requires 50%+ of "cash" to be paid for purchase/expansion fees. The balance could be financed. Some leagues have line(s) of credit available for owners to borrow from rather than having to go out to financial institutions on their own.

The NHL does have accountants review finances of prospective purchasers/expansion folk to ensure they can meet normal business expenses of a club and pay their debts.

Yet they still had Sanjay Kumar and Boots Del Baggio after the John Spano scandal exposed that they aren't very good at vetting owners.

 

[dj4aces]

Yet they still had Sanjay Kumar and Boots Del Baggio after the John Spano scandal exposed that they aren't very good at vetting owners.

The hope for future expansion is that the league has more than learned their lessons with their poor choices. Hope, in this case, is extremely emphasized, because they don't exactly have a good track record overall. But... at least Vegas and Seattle seem to have very solid ownership.

 

[aqib]

The hope for future expansion is that the league has more than learned their lessons with their poor choices. Hope, in this case, is extremely emphasized, because they don't exactly have a good track record overall. But... at least Vegas and Seattle seem to have very solid ownership.

Well to be fair its harder to fake a $1.2-2 billion purchase than $185 million for the Islanders for Spano and a whatever the 25% of the Predators cost Del Baggio

 

[Anisimovs AK]

Well to be fair its harder to fake a $1.2-2 billion purchase than $185 million for the Islanders for Spano and a whatever the 25% of the Predators cost Del Baggio

The much higher price point protects the NHL from a lot of the riff raff issues they had in the past