Another Word on Franchise Ownership – Beware the Real Estate Mogul

Building off yesterday’s discussion of the Phoenix Coyotes ownership mess, the problem is actually rooted in Jerry Moyes’ original purchase. He partnered with Steve Ellman, who’s sole purpose was to build a development near the arena. Another one of these grandiose retail areas that real estate developers sell the public on how it will infuse the local economy, however usually only benefits the developer.

Fast-forward a few years, Ellman builds his development, sells his share to Moyes, and eventually we’re left with Moyes unable to fund the losses the team sustained. It’s hard to know the original intentions of the owners in 2001, but this deal smells of real estate motives. The goal was to build and arena and retail development – not run a hockey franchise. And that’s how its played out. Maybe Moyes had better intentions, but without he was not equipped to run the team or finance its losses, at least without Ellman. Look at the Islanders, taking just as big a hit in the pocket, however Charles Wang is not running into bankruptcy court and causing controversy.

With so much power over who joins the ownership ranks, the NHL and every other sports league should evaluate the motives of the potential owner and the commissioner’s office should consider contractual obligations that allow the league to mettle in team business if a franchise is not meeting certain performance expectations. On the second point, it’s no different than operating a company, the board of directors are accountable to shareholders. In this case, the shareholders are the other owners and the league office represents them. A poorly run team diminishes the value of the entire league, while a well run team improves the economics of the league at large.

The first point specifically targets owners who try to use sports teams as pawns in a real estate project. Bruce Ratner is playing out this same game with the New Jersey Nets. He bought the team with the sole purpose of creating a mammoth development in Brooklyn with an arena, apartment buildings, and retail. The focus has been on his project, not the team for the past 5 years, as he has battled court cases, had his staff strike landmark sponsorship deals, hired and then fired a well-known architect, and for better or worse stirred controversy. Meanwhile, the team was forced to cut expenses and trade its best players, and is losing over $40 million a year. Admittedly, they probably needed to make the trades and start over from a player development perspective, but the franchise is in a holding pattern. Everything centers around “when the Nets move to Brooklyn” – the free agents will come, fans will come, profits will come.

The deal may never happen. Ratner reportedly wants to sell, another indication it will never happen. If that’s the case, they are stuck in the Meadowlands losing boat loads of money and have basically lost the last 5 years when they could have addressed the situation because Ratner was trying to leverage the team for a project to benefit his business.

Owners with real estate motives destroy franchises, then leave the problem to the next person. The franchise suffers, the league suffers, the fans suffer, and the players probably suffer. Given their control over the situation, leagues should recognize this type of deal and either prevent it or put stipulations in that prevent an owner from leveraging a franchise for real estate, ruining the team in the process, then walking out on it. The leagues should blame themselves – and do something about it.

2 Responses

  1. If the Brooklyn deal doesn’t happen, the Nets are screwed, for two reasons.

    1. The Devils control suite and ad revenue at the Prudential Center, something they aren’t likely going to cede unless Devils owner Jeffrey Vanderbeek buys the Nets himself.

    2. When YankeeNets sold the Nets to Ratner, it did NOT include ownership of YES. The Nets’ former share of the network belongs to the former owners of the team. As you mentioned, Ratner did not buy the Nets to profit from them directly, but make the team a value-added feature to the Barclays Center and Atlantic Yards.

    The major incentive for the Nets, Devils and Islanders not to leave town is because the broadcast revenues are higher than a smaller market where they’d be the only game in their market. However, that would not be much of an advantage to a potential owner of a Nets team not based in Brooklyn.

  2. That’s my point about Ratner – he made a big bet on Brooklyn, it it fails he gets out with some lost profit, the team is left to suffer.

    By the end of the year, either Brooklyn construction will be underway, or negotiations with Vanderbeek/Prudential Center underway, or Kansas City and Seattle will start knocking on the door.

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