Every now and then, a baseball team finds itself in serious financial trouble.
Under the ownership of leveraged buyout specialist Tom Hicks, the Texas Rangers became mired in financial difficulties so deep the team was taken into bankruptcy and eventually sold at auction.
Complex entanglements from the collapse of the Bernie Madoff Ponzi scheme are threatening the financial core of the Wilpon family, the owners of the New York Mets. This subject is seemingly in the national news every day.
Just this morning, I read an article at Fangraphs about potential options for the Wilpons. In it, author Alex Remington investigates the idea of public ownership of a baseball franchise, specifically the one that currently plays at Citi Field.
Referenced is The Institute for Local Self-Reliance, a liberal think tank, which published a list of the six minor league baseball teams believed to be owned by the public.
The Memphis Redbirds of the Triple-A Pacific Coast League is among the six, but the situation and description, referencing local leadership with a strong civic and charitable orientation, is out of date.
If you thought the Memphis Redbirds Baseball Foundation was still in control of the team, you would not have been alone. You would be in the same boat the Fangraphs author and the Institute referenced above.
It is no longer the correct answer, though.
Fundamental Advisors LP, a private-equity firm, gained control of the Redbirds franchise and AutoZone Park through the purchase of tax-exempt bonds after they went into default. The bonds were backed by the franchise and the ballpark. AutoZone opened in 2000, with its $80.5 million cost the record high for a minor league stadium.
Bloomberg.com sees these investor takeovers of distressed situations, specifically municipal debt, as a new wave.
In their own words, “Fundamental Advisors is an alternative investment platform focused on special situations and distressed opportunities – primarily in tax-exempt municipal securities.” The limited partnership is led by Chairman and CEO Laurence Gottlieb and calls Fifth Avenue in Manhattan home.
As the Memphis Redbirds Baseball Foundation headed toward a 2009 default of its $72 million tax-exempt bond issue used to fund the construction of AutoZone Park, their relationship with their original bondholders became “adversarial,” according to the Foundation’s treasurer, John Pontius. The debt caused a lack of working capital which the Foundation blamed for the club’s operational problems.
Pontius’ words in the Bloomberg article are positive with respect to Fundamental Advisors’ judgments in funding the baseball operation since taking control. Those previously managing the Redbirds on a day-to-day basis, Blues City Baseball, were cleared out, with a unit of media giant Comcast, Global Spectrum, awarded a facilities management contract for the team. That change began in July 2009 with naming of Ben Weiss, a long-time Global Spectrum employee, as Memphis’ new general manager.
For some time during the bumpy period, the Redbirds had been on the market. In fact, in September 2008, the parent St. Louis Cardinals signed a letter of intent to purchase their top farm team and rent AutoZone Park.
That did not come to pass. By January 2009, the Cardinals withdrew the letter of intent. Not surprisingly, the amount of debt, the impact of back taxes and future revenue projections were represented as major factors in the parent organization’s decision to walk away from the opportunity.
It is not known whether the club and ballpark are currently actively being shopped. Given the current environment, it would appear to depend on what Fundamental Advisors views to be its most advantageous business opportunity.