Tuesday, July 14, 2020

If You Have to Ask, You Can't Afford It

At The Athletic today, Daniel Kaplan poses the question as the whether the bids being offered on the Mets reflecting a "pandemic discount". Specifically, Kaplan points to the $2 billion bid that Steve Cohen is rumored to have placed in the just completed first round of bidding, 23 percent less than the $2.6 billion that Cohen bid on the club back in February.

Kaplan goes on to refute the idea that the pandemic will affect the long-term value of sports franchises, citing experts at franchise valuations and bankers that the effects from the virus will be short-term. Unfortunately for the Wilpons, they aren't in a position to hold onto the team until the outlook clears up in a couple of years.

Apparently all is not lost for Fred and Jeff, however. Kaplan cites Michael Rapkoch, the founder and president of Sports Value Consulting, that something called an earnout might be written into a potential deal that would allow the seller to get additional compensation if future revenues exceed a certain level. I find it interesting that the Wilpon, once accused by Nelson Doubleday of deflating the value of the club when Fred was buying him out, would now be dependent on the new owner's accounting in that case. Doubleday might have a chuckle over that development if he was still around.

Kaplan pointed out that one of the reasons sports franchises like the Mets are so highly valued is for the large tax write-off. A buyer can amortize the purchase price over 15 years, which would provide a huge tax benefit. So, even if a potential buyer might be looking at decreased revenue for a couple of years, that sweet tax write-off is good for the next decade-and-a-half.

The story also includes a few digs at the Alex Rodriguez-led group that supposedly had the second-highest bid. Mentioning the story in ESPN about some celebrity football players that were investors in A-Rod's group, Kaplan quoted an unnamed investment banker that showcasing famous investors might be a sign that the group is desperately trying to attract investors because they're short of capital. I won't speculate on that, but if Alex wants to give me a call I'm willing to throw in my 4 figure investment with him that was so rudely spit on in the first round of bidding. All I'm asking in return is one of the smaller luxury suites furnished with two comfortable dog beds for a couple of good friends. Call me.

Of course a lot can change between now and the final sale of the club. I don't think I'd be as quick as Kaplan's source to write off A-Rod's bid. Alex and Jennifer Lopez have done a good job of attracting some big investors along with the football players, and I believe their plan to turn Citi Field and the surrounding area into an entertainment and shopping venue is a really good one. Frankly, no matter who wins the bidding, I would think the buyer would have to look at expanding their investment into that neighborhood. You could turn that area into something really special, and the fact that it hasn't been done yet is a huge missed opportunity.

Scott Soshnick at Sportico, who has broken a lot of the details of the bidding, reports that Cohen, A-Rod's group, Josh Harris and David Blitzer, and a 4th group (sadly not mine) have all advanced to the second round of bidding. I'm told this will take place on a sparsely inhabited island in the South Pacific. The bidders will have to fashion their own weapons out what they can find lying around, or whatever they can bribe someone else to make for them. There will be food provided, but to increase the challenge the caviar will be domestic and the wine will come in a box. It could get ugly.

Joe Pantorno at AMNY.com reports that the unidentified fourth bidder is a group led by C.K. McWhorter, the founder and CEO of CTRL USA, a private investment company.

Reports are that the Wilpons still harbor some bad feelings towards Cohen, and would prefer to sell to another bidder if the bids were close. We've also heard that Cohen has asked for the opportunity to bid $250 million more than any other high bid. If that's true, I guess we'll see if Fred and Jeff's feelings could be soothed with a quarter of a billion dollars. It would take much less than that to get me to forgive just about anything.

I find the process fascinating, but I take everything I read about it with a grain of salt. Remember, all of this discussion is based on rumor. Even if the amounts bandied about are accurate, we don't know all of the specifics of these bids. We could well be missing key information. So, when I write about this, it is with the humble acknowledgement that I don't know everything.

That'll do it for me today. Thanks for giving us some of your time today, we hope you'll come back soon. In the meantime, please stay safe, be well and take care.

 Follow me on Twitter @MikeSteffanos

No comments:

Post a Comment

The Defense Doesn't Rest

A renewed emphasis on defense would be a good thing for the New York Mets. Mike Vaccaro had an interesting column in the New York Post  abou...