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Originally Posted by Badgers Nose
We will have to agree to disagree.
Most teams are run under a umbrella corporation.
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So? That's not what you said. You said the teams were being run under umbrella corporations that the owners haven't invested any capital in, so that the owners can walk away at any time without taking a loss. That isn't even remotely true.
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The owners use the law to shield themselves form taking too much of a hit. Its the way almost every corporation in America is run. Nothing unusual about it.
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Yes, it's called limited liability. The owners' losses are limited to the money they choose to invest. However, they can still lose that money, which in the case of major pro sports franchises, usually amounts to several hundred million dollars. You try to make it sound like the owners have no skin in the game.
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It isn't people like you and me that are buying these teams. That is what you fail to understand. The corporation gets a loan to buy the team, these are not cash deals.
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Forbes, as it happens, has figures on the debts of each team. Except for the recent shady deal involving the Phoenix Coyotes, none of the owners financed their purchases primarily with debt — because no bank or investor would be stupid enough to accept the kind of dodgy deal you are suggesting as security for a nine-figure loan.
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No one is walking away from 125 million dollars when the team goes bankrupt. They are walking away from $100+ in dept that the bankruptcy courts can go after. These are people that smash $1 million cars and think its funny. Their real money is safe (alot more than it costs to buy an NHL team). That is why no one bought Phoenix, they would only buy it with Glendale's money.
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There are two reasons why the Phoenix team was bought with Glendale's money:
1. The team, in its present location, is a guaranteed money-loser, and people who buy expensive assets in order to lose money are generally too stupid to have that kind of money to begin with.
2. Glendale was stupidly putting the money on the table. Nobody was going to make a deal that did not take advantage of the sucker in the room.
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Regarding markets: The floor and ceiling are known. These folks did not get into a position of being able to buy a team by not knowing how to read a balance sheet.
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They did not get into that position by being able to read the future. Nobody knew, and few even suspected, back in 2005, that the salary cap (and floor) would double in five years and continue to increase.
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When they go out and commit $100 million to a player or two in this low revenue markets like Minn or NJ they know there is zero chance of that investment becoming profitable.
So why would they do it? Most owners are not even local. It is not civic pride, its a bit of low risk fun and glory.
Then they walk away if it doesn't work, or less likely sell for a profit if it does.
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Who's been walking away? Specifics please.
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For most of these folks a team is a little diversion. A toy to play with.
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These people are also not stupid, and know better than to voluntarily toss away $30 million a year of their own money on a toy.
Owners of pro sports franchises generally fall into four classes:
1. For-profit business people. In the NHL, the Maple Leafs are the classic example. The Toronto franchise is a licence to print money. The current owners paid $1 billion for the franchise because they know that under the rules of the salary cap, it is a guaranteed cash cow — unless people in Toronto lose interest in hockey. The former owners, the Ontario teachers' pension fund, were about as careful and profit-seeking and risk-averse as an investor can be. The Rangers and Bruins also have owners of this type. Chicago used to have a profit-minded owner — hence all the bitter jokes at the expense of 'Dollar' Bill Wirtz — but Rocky Wirtz seems willing to run the Blackhawks at a loss. He'll have to figure out a way to balance the books eventually.
2. Sportsmen. The Flames' owners are a good example of this. They bought into the franchise knowing that they would not see any substantial cash return on their investment, because they were hockey fans and civic boosters who wanted to have an NHL team in their town. When the team was profitable, they donated a good deal of the profit to minor hockey and other charities. When it lost money, they grumbled but paid the bills. Teams with sportsmen as owners come closest to being the toys you spoke of. However, their resources are not infinite, and in general, they do try to break even on yearly cash flow. These owners are the backbone of the league, and made up the faction responsible for three consecutive lockouts in the last 20 years. They are willing to put up their own money to buy NHL clubs, but they aren't willing to lose more money year after year just to keep player salaries rising.
3. Speculators. The classic case here is Charles Wang, a man who notoriously doesn't know or care much about hockey, but bought the Islanders as part of a scheme to redevelop a district on Long Island. The scheme fell through because of governmental obstruction and local opposition, leaving a white elephant on Wang's hands. He eventually came up with a Plan B — to park the team in the Barclays Center, where at any rate it will lose money more slowly — and may be expected to wash his hands of it altogether at some point.
4. Crooks and con men. These are the only people who buy NHL teams without using their own money, because, frankly, they haven't actually got any. What they have got is the ability to look impressive and talk people into taking massive IOUs. Bruce McNall fell into this class, and the less said about him, the better.
Steve Ellman, when he bought the Coyotes, was a sort of hybrid between the speculator and the con man, since he sold the whole Westgate project to Glendale by fast-talking and emotional exploitation. He built the project with other people's money, largely the Glendale taxpayers', and then sold off the money-losing hockey team to a chump, keeping the (supposedly) valuable and profitable real-estate investments for himself. Alas for Ellman, he went bust in the 2008 financial crash, like a lot of other high-fliers with big debts and small assets.
None of these cases fit your description of the typical NHL owner. Basically, you are accusing all the owners in class #2 of being in class #4, with the potential to exit via #3 if they make money. The existence of class #1 you ignore entirely. It's a cockeyed view of the business, cooked up from unrelated bits of cherry-picked evidence and seasoned with a bottomless cynicism about human nature — or rather, about the nature of rich people, whom you seem to regard as something less than human.
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Making them ante up more cash as part of the purchase would make it harder to buy/sell teams and would keep the less committed buyers out.
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More cash than what? Specific examples please. In particular, let's hear what you know about the financing of Craig Leipold's purchase of the Minnesota Wild, which is the particular case being discussed.
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The bond would act like a damage deposit, behave and pay the bills and you get your cash back. Most banks won't give a loan for this kind of deposit, not even to billionaires - because they would have no way of reclaiming it.
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And likewise, most banks won't give a loan for the purchase of a pro sports team that is losing money every year, not even to billionaires. You are, in effect, suggesting something that is already happening, but you don't know it.
