Owning Lightning Isn’t About Profits

Owning Lightning Isn’t About Profits
By MICHAEL SASSO
The Tampa Tribune
Published: Aug 10, 2007

TAMPA – Two-hundred million bucks for a perennial money-loser?

This week, accountants and ordinary sports fans alike must be scratching their heads at the buyout of the Tampa Bay Lightning. The exact sale price hasn’t been disclosed, but Lightning President Ron Campbell suggested Thursday that $200 million, the figure often cited in news reports, is at least in the ballpark.

For that princely sum, the new owners get a team that, the Lightning have said, has lost more than $60 million since the current owners, Detroit-based Palace Sports & Entertainment, bought the team eight years ago.

Although the price doesn’t appear to make financial sense, investment bankers who help sell sports teams said money-losing teams actually are pretty good long-term investments. Professional sports teams are so few and far between, they have good “scarcity value,” said Sal Galatioto, the New York-based investment
banker who worked on the Lightning deal. That helps drive up their value, particularly among millionaires who want a little prestige.

Meanwhile, losing money on a sports team can help a businessman offset profits from other businesses, reducing his taxes, said Richard Powers, an assistant dean at the University of Toronto’s school of management.

In the end, owning a team like the Lightning may be less about profits and more about limiting your losses until you can sell it for a windfall. On Tuesday, a group called Absolute Hockey Enterprises announced they are buying the Lightning, although the deal still needs approval from the National Hockey League. The group, which has said it plans to keep the franchise in Tampa, also would gain several benefits beyond
the team itself.

The Lightning, which are among the leaders in the NHL in home attendance, also have a lease agreement to use St. Pete Times Forum without paying rent. The new ownership group also would be entitled to the revenues from concerts and other events at the Forum. In addition, it would pick up 5.5 acres of land on each side of the arena, assessed for tax purposes at $17.5 million.

Also, the Lightning have won several enviable concessions from Hillsborough County over the years, including being exempt from property taxes and being reimbursed by the county for up to $35million in improvements to the Forum.

With all its advantages, though, the Lightning still manage to lose millions of dollars each year. The team lost about $13 million in its 2007 fiscal year, Campbell estimated. Revenues from Lightning tickets and music concerts, arena concessions, and TV and radio broadcasts came to about $88 million, but expenses hit about $102 million, he said.

In paying about $200 million, the new owners are doubling the $100 million that current owner Palace Sports paid for the team in 1999.

Is the team really worth it?

The Tribune was unable to reach two of Absolute Hockey’s partners, real estate investor Jeff Sherrin and
Hollywood producer Oren Koules, on Thursday. Earlier this week, however, Sherrin said he and the group’s
third partner, Doug MacLean, were watching the Stanley Cup on television together in Columbus, Ohio, when the idea of purchasing a team together suddenly dawned on them.

They may also be thinking of the potential returns that even a money-losing team can mean in the long run.

Craig Leopold, owner of the Nashville Predators professional hockey team, paid an expansion fee of $80
million in 1997 to found the team. The city of Nashville, Tenn., picked up $25million of that cost. Recently, he was able to sell the club to a group of businessmen for $193 million – even though he said he lost $70 million running the team over the years.

The returns can be even greater in the National Football League, which is on far better financial footing
than the NHL.

Michael Rapkoch, a Dallas-based consultant who helps sports teams with their valuations, said the most
extreme case might be that of Billy Joe “Red” McCombs. The Texas businessman bought the Minnesota Vikings football team for about $250 million in 1998, and sold it seven years later for more than $600
million.

Rapkoch said hockey has its flaws, including the lack of a valuable television contract. Still, the sport may be on the upswing. After the NHL lockout during the 2004-05 season, which canceled the season, the players and team owners created a new salary cap that should keep player salaries from spiraling out of
control, Rapkoch said. The salary cap for the upcoming season is $50.3 million for each team.

“I think the key in hockey is buy it smart, don’t overpay, be smart in what you pay your players, and you
have a really good chance to make a return,” Rapkoch said.

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