By Bill Shea
Crain’s Detroit Business
Published: August 15, 2010
The bank hired to broker a sale of the Detroit Pistons and Palace Sports & Entertainment Inc. is seeking $500 million from potential buyers — a price industry insiders and likely bidders consider inflated by $100 million in this market, a source familiar with the situation said.
Karen Davidson, who has owned the National Basketball Association franchise and the PS&E umbrella management organization since the March 2009 death of her husband, Guardian Industries Inc. Chairman Bill Davidson, has hired New York City-based Citi Private Bank’s sports finance and advisory team to broker a sale.
Citi declined to comment, as has Davidson through her spokesman.
Detroit sports and pizza industrialist Mike Ilitch, who announced Aug. 9 that he’s told Davidson he wants to buy the Pistons and PS&E, likely would pay less than $400 million for both, said the source, who agreed to speak to Crain’s on the condition of anonymity.
That’s because of the economically depressed metro Detroit market, the source said, and because Ilitch in February hired Tom Wilson, the longtime PS&E president who knows the inside details of the Pistons’ and Palace’s financial situations.
Ilitch already owns the Detroit Tigers and Detroit Red Wings, so he’s familiar with the local sports markets.
The most recent NBA team sale was a $450 million deal for the Golden State Warriors in July. Industry insiders have called the sale, which is the most ever paid for an NBA team, significantly inflated.
The Pistons are valued at $479 million by Forbes.com, although analysts warn that the financial publication’s valuations are suspect. That figure is believed to include the Palace of Auburn Hills but not the DTE Energy Music Theatre or the contract to operate Meadow Brook Music Festival on behalf of Oakland University.
Other sports industry insiders agree that $500 million, or even $400 million, is unlikely.
“Today, with the financial uncertainty, the tremendous dislocation of the Michigan economy, that would be an extraordinary price to be achieved,” Marc Ganis, president of Chicago-based sports consulting firm Sportscorp Ltd.
“If it were two years ago, maybe.”
Instead, he also thinks a sale price under $400 million is likely.
“If the sellers are very lucky, and they’re able to get a competitive bid going, the number might start with a four,” Ganis said.
If Davidson wants to sell quickly — she said recently a deal likely will be done before the NBA season begins in October — then the price will be lower.
The Golden State sale price included a “location premium” for the team’s Oakland setting — near the deep pockets of Silicon Valley and San Francisco.
“There’s a location discount for the Pistons,” Ganis said.
The entertainment venues are believed to be equally or more attractive to Ilitch because they are profitable, generating an estimated $70 million annually in revenue, and because they have long been competitors with facilities owned or operated by Ilitch-owned Olympia Entertainment Inc. — Cobo Arena, Joe Louis Arena, Comerica Park and the Fox, Masonic Temple and City theaters.
The Ilitches will see an “immense amount of return” if they buy Palace Sports, said Rodney Fort, a professor of sports management at the University of Michigan, because they will have the “market cornered on everything.”
“It will generate an even larger return than most people think about,” he said. “The profitability of what they do is going to go up compared with what it currently is. The big money seems to be in all the other entertainment events. Between Olympia and Palace, they got “em all.”
The Ilitches funded their sports and entertainment empire with the proceeds from the Little Caesar Enterprises Inc. pizza chain they founded in 1959.
If there are a number of bidders for the team, auction style, then the price could quickly escalate from what a single buyer might pay, said Michael Rapkoch, president and founder of Addison, Texas-based Sports Value Consulting LLC, which does sports team valuations and advising in all four major leagues.
“If you really want it, you’re going to pay it,” he said.
Rapkoch thinks the Pistons would be a good fit for the Ilitches, and considers them a leading contender to complete a sale because they have the money. (See story, this page.)
“People who have the financing in place, and the equity and ability to fund future losses (are the front-runners),” he said, while those who have to assemble partners are less likely to get consideration.
Bill Shea: (313) 446-1626, email@example.com