No offer, but potential majority buyer in talks for Hawks

[coachx]

http://www.ajc.com/sports/atlanta-hawks/no-offer-but-potential-1029955.html

Atlanta Hawks 2:52 p.m. Wednesday, July 20, 2011 .By Chris Vivlamore and Tim Tucker

The Atlanta Journal-Constitution

Efforts by the Atlanta Spirit ownership group to sell a majority stake in the Hawks have accelerated since the group’s sale of the Thrashers last month.

People familiar with the process say a potential buyer is currently doing due diligence – examining financial records – as the process moves toward an anticipated offer and more detailed negotiations for the basketball team and Philips Arena operating rights.

The people familiar with the situation would not identify the potential bidder because of confidentiality agreements, but they described the process as “moving fast.” They said no offer or exclusive negotiating agreement is in place but that the potential bidder, who might have partners, has the financial wherewithal to make a deal.

According to one of the people familiar with the talks, the potential buyer is “pushing very, very hard.”

Ladies & Gentlemen, the new owner of your Atlanta Hawks:

Edited July 20, 2011 by coachx

[coachx]

Schultz take:

http://blogs.ajc.com/jeff-schultz-blog/2011/07/20/potential-new-owner-for-hawks-can-only-be-good-news/

[lethalweapon3]

Totally in favor of Spinderella for owner.

~lw3

[AHF]

*Crossing fingers*

[Guest]

Please please please!

And this interest in the Hawks should be a clue to some people that hey, maybe the Hawks aren't really losing money. Just maybe, maybe these losses are accounting tricks and failing to understand these teams appreciate in value over time.

[AHF]

Please please please!

And this interest in the Hawks should be a clue to some people that hey, maybe the Hawks aren't really losing money. Just maybe, maybe these losses are accounting tricks and failing to understand these teams appreciate in value over time.

That and the fact that the new owner will be stepping into a much more favorable economic environment than the prior owners who never had the capital to run the ASG without Belkin.

Also, the new owner hopefully is a fan and wants to produce a winner. Mark Cuban could make more money somewhere else other than the NBA but obviously wants to win quite badly.

Appreciation is nice and absolutely needs to be accounted for but it doesn't pay any bills anymore than people's housing prices rising in 2006 did. Until you sell, it is all on paper. Seattle, for example, went from $200M in 2000 to $350M in 2006 which ended up as a profit but didn't help with the operating losses in the interim (the Sonics reported losses of $183M during that time but cash losses were believed to be more in the range of 60M). It appears one of the last straws for that group was a 17M capital call to fund operating losses in the last year of ownership. As you may recall, the ASG has had to go through a number of capital calls because franchise revenues have not covered expenses. If the ASG could afford to hold the Hawks, they would because the long-term appreciation of sports franchises is good.

That represents the peak value story since the Sonics were sold at the peak of the economy before things started downhill in 2007 and crashed in 2008 and they were bought at the time of the dot-com crash. That is a textbook case of buying low and selling high. Things are unlikely to have been as good for the Hawks over the last few years.

Hopefully the next owner will come with deeper pockets and a competitive bent.

Edited July 20, 2011 by AHF

[frosgrim]

I'll believe it when I see it. We've been down this road too many times over the past few months for me to get too excited.

[Guest]

Appreciation is nice and absolutely needs to be accounted for but it doesn't pay any bills anymore than people's housing prices rising in 2006 did. Until you sell, it is all on paper. Seattle, for example, went from $200M in 2000 to $350M in 2006 which ended up as a profit but didn't help with the operating losses in the interim (the Sonics reported losses of $183M during that time but cash losses were believed to be more in the range of 60M).

Its all accounting tricks and tricks and tricks. When you can write off depreciation of players, well then you just create accounting losses that aren't actual losses. And those "paper" gains/losses, that isn't right because those are actual gains/losses. Now I would grant you it takes time to sell (a house isn't very liquid) but those were certainly actual gains just as when the housing prices fell those were actual losses. I also grant you there may potentially be incorrect evaluations (like Forbe's valuing the Piston's at $450 million even though no one in their right mind would do that, Forbe is just wrong with the valuation). Its up to the discretion of the individual to determine whether or not they want to capitalize on the gains or cut their losses. Maybe its easier to think of this in terms of stocks (because those eradicate the problems of liquidity and valuation). When you have a stock that increases its price by 50%, do you just say "oh that's a paper gain"? I hope not, because its a real gain.

Dammit, another stupid tangent. Oh well, I am sure everyone can agree if this happens it will be great. Its gotten so bad with the A$G that the typical apologists don't come out of the woodwork with all the "grass is greener" talk.

[capstone21]

I hope he is a fan like Cuban and not just an investor

[thecampster]

Its all accounting tricks and tricks and tricks. When you can write off depreciation of players, well then you just create accounting losses that aren't actual losses. And those "paper" gains/losses, that isn't right because those are actual gains/losses. Now I would grant you it takes time to sell (a house isn't very liquid) but those were certainly actual gains just as when the housing prices fell those were actual losses. I also grant you there may potentially be incorrect evaluations (like Forbe's valuing the Piston's at $450 million even though no one in their right mind would do that, Forbe is just wrong with the valuation). Its up to the discretion of the individual to determine whether or not they want to capitalize on the gains or cut their losses. Maybe its easier to think of this in terms of stocks (because those eradicate the problems of liquidity and valuation). When you have a stock that increases its price by 50%, do you just say "oh that's a paper gain"? I hope not, because its a real gain.

Dammit, another stupid tangent. Oh well, I am sure everyone can agree if this happens it will be great. Its gotten so bad with the A$G that the typical apologists don't come out of the woodwork with all the "grass is greener" talk.

The losses are mostly accounting losses against budget. A planned profit is built into the budget. Looks like this.

Gross Income: $300,000,000

Expenditures: $287,000,000

Gross Profit: $13,000,000

Estimated profit (5%): $15,000,000 -

Net Profit - (-$2,000,000)

[Diesel]

Please please please!

And this interest in the Hawks should be a clue to some people that hey, maybe the Hawks aren't really losing money. Just maybe, maybe these losses are accounting tricks and failing to understand these teams appreciate in value over time.

These owners aren't losing money. They have never opened the books to anybody but people who want to become owners and that has never dissuaded anyone from wanting to buy a team.

Can you hear that conversation?

Potential owner: "Man, you guys are losing 15 M per year. Gosh, I'm still going to buy!"

Yeah Right.

The lockout is about making sure that they always make money.

The owners bend the players over and cause a work shortage because they can. The owners always get their way.

[Randy]

Heck they must be making money. They've now sold the team 2 or 3 times in the last few months.

[Guest]

Heck they must be making money. They've now sold the team 2 or 3 times in the last few months.

Its not the selling that tells you they are making money, its that they are selling for a hefty profit that tells you they are making money. I'm sorry, but the facts surrounding all the (rumored and not) sales are blatantly pointing towards profitability for all the A$G projects. They probably did suffer from cash constraints with the Belkin buyout but these guys are making a killing even with all their mismanagement. I hope this rumored deal puts the A$G as just puppets on the sidelines, they screw up even the mundane day to day operations.

[AHF]

The losses are mostly accounting losses against budget. A planned profit is built into the budget. Looks like this.

Gross Income: $300,000,000

Expenditures: $287,000,000

Gross Profit: $13,000,000

Estimated profit (5%): $15,000,000 -

Net Profit - (-$2,000,000)

You don't have to have capital calls to cover paper losses and accounting lies.

The above doesn't resemble our business' way of calculating net income. A negative net income only occurs when the company spent more money than it brought in.

[sturt]

These owners aren't losing money. They have never opened the books to anybody but people who want to become owners and that has never dissuaded anyone from wanting to buy a team.

Can you hear that conversation?

Potential owner: "Man, you guys are losing 15 M per year. Gosh, I'm still going to buy!"

Diesel, now c'mon. That's extremely simplistic. People buy businesses every day from others, even though they may have some history of negative net income, based on what they consider to be potential based on failures of the previous owners in this way or that. That's not news. And, with all the complaining around here (or on any board for any pro team since it's just what fans tend to do) about all the bad decisions this ownership group has made, it shouldn't surprise any one of those fans that there would be buyers interested out of a premise that they believe they can do better.

The above doesn't resemble our business' way of calculating net income. A negative net income only occurs when the company spent more money than it brought in.

Not an accountant, but I've looked over a few financial documents in my time, and I've never been aware of any that did it any differently than AHF is suggesting.

[Guest]

Diesel, now c'mon. That's extremely simplistic. People buy businesses every day from others, even though they may have some history of negative net income, based on what they consider to be potential based on failures of the previous owners in this way or that. That's not news. And, with all the complaining around here (or on any board for any pro team since it's just what fans tend to do) about all the bad decisions this ownership group has made, it shouldn't surprise any one of those fans that there would be buyers interested out of a premise that they believe they can do better.

That explanation does not fit the overall trend of teams to be sold for more than they were purchased for. If potential owners are bidding into teams now on the premise that they can do better, then they would have been outbidding the previous purchase price instead of waiting years to then outbid. It makes more sense that the teams have been accumulating value that makes it more attractive to purchase at a higher price now than in the past. In other words, the teams are making money. If you want to drink the kool-aid and believe the yearly operating losses (tricks and more tricks), thats fine. But it is indisputable that the final transaction for these franchises (ie Howard Schultz selling the sonics...) has led to the conclusion that owning the franchise has led to being a profitable business venture.

A lot of what these owners are doing is like owning a house. If you look at yearly accounting reports, your house almost certainly is operating in the negative unless you rent it out (then it's a maybe). Now since this yearly operation of repairs, utilities, taxes, and mortgages turns out to be not profitable in an accounting sense should we just say house owning is bad business? I guess it's that simple and we should change all the laws associated with being a homeowner! /sarcasm Most people understand there are many factors involved with owning a home outside of looking at yearly operating expenses, I wish it could be the same for looking at sports franchises.

[AHF]

Why do a capital call to cover fictitious paper losses?

You only do a capital call when the business can't cover its own expenses.

[Guest]

Why do a capital call to cover fictitious paper losses?

You only do a capital call when the business can't cover its own expenses.

Being liquidity constrained does not imply you are making losses.

[AHF]

Being liquidity constrained does not imply you are making losses.

If you are generating more revenues than expenses, you don't need a capital call or multiple capital calls because the business generates revenues to cover its expenses. Owners prefer not to pay for things out of their personal assets if it can be avoided.

[Guest]

If you are generating more revenues than expenses, you don't need a capital call or multiple capital calls because the business generates revenues to cover its expenses. Owners prefer not to pay for things out of their personal assets if it can be avoided.

So if my air conditioner breaks and I have to take out a loan to replace it in my home then that is proof my home is not a profitable venture?