Quote:
Originally Posted by Strange Brew
Against my better judgment, I do want to add something to the discussion. Sports franchises often carry debt. You don’t buy a $1 billion asset with your own money, even billionaires need liquidity. And no, borrowing the money doesn’t make you poorer, it’s a simple concept of leverage. It introduces risk and improves the potential reward.
The NFL’s rule around how much debt owners can carry are the only ones I’ve seen discussed much in the public domain.
https://theathletic.com/1299155/2019...nchises/?amp=1
Brings up an interesting question of when an owner uses his interest in a club to borrow money to fund an outside venture. An aggressive labor union would view that as sport related money to which the players should be entitled. Not how I would see it. |
You might not buy a team with your own money. But what you can’t do is pledge your shares in the company that owns the team as collateral for a loan. If Edwards borrowed to buy his CSEC shares, any collateral would have been other assets - or maybe just an unsecured guarantee by Edco. I’m very confident about that, especially vis-a-vis the Flames, for a number of reasons:
A. The NHL tightly controls who can own a team. We all know this out of the Coyotes bankruptcy and Balsillie’s failed bid. Teams can only be sold with league permission.
B. Because of this a lender who took security against those shares would be foolish because those shares are worthless unless they can be solid for money. They can only be sold for money if the buyer is assured of having an ownership stake in an NHL franchise. Because of A, they can’t.
C. With respect to the Flames, I’m sure that CSEC has a Shareholders Agreement which tightly controls their internal ownership group. I’m betting those shares can’t be sold without group permission and that there may be rights to buy them among the group, at set discounted prices.
No one said borrowing made you poorer, although by definition, you now owe more money than you did the day before. What it doesn’t do is make you richer just because you borrow money. Presumably new assets acquired with the debt offset the increase debt but that just means your balance sheet is theoretically unchanged. You’ve just taken on risk, that’s all.