Owner Tom Hicks’ living on borrowed dime casts doubt over Rangers, Stars through loan default

Hicks’ loan default casts shadow on Rangers, Stars

DALLAS — Tom Hicks owns the Texas Rangers and the Dallas Stars because he’s been a pro at turning borrowed money into handsome profits.

Few could match the tall Texan’s ability in the world of leveraged corporate buyouts, and he used that wealth to become a force in the world of professional sports. He’s not just the owner of both Major League Baseball and NHL franchises in a big U.S. market, but also half-owner of the top-tier English soccer club Liverpool.

Now, though, Hicks’ borrowing has clouded his future with the Rangers and the Stars, after he defaulted last month on $525 million in loans tied to the teams. Liverpool isn’t caught in the same mess, but the club’s indebtedness has drawn the ire of British lawmakers, who said major teams’ borrowing amounted to “financial doping.”

Hicks has said he defaulted on loans behind the Rangers and Stars to force lenders to renegotiate terms of the deals, calling it a “nonevent” for coaches, players, fans and the rest of the operations.

Financial analysts aren’t so sure about that.

“The notion that this is a modest hiccup, where all he’s really trying to do is buy himself a few weeks before he makes payments so that he can properly run his franchises … I don’t find that part compelling,” said Andrew Zimbalist, a Smith College economics professor who specializes in sports business. “I think he’s trying to put a relatively good face on it. But it’s not a good situation for him.”

The 63-year-old Hicks, who wouldn’t comment for this story, and his partners bought and resold countless companies while building his fortune in the 1970s and ’80s. Perhaps most notable among those were the separate purchases of Dr Pepper and 7UP for a total of $646 million. The combined companies were later sold for a reported $2.53 billion.

His early years of sports ownership were a huge success, too, on the field and off.

He bought the Rangers in 1998 — about a decade after the Dr Pepper/7UP deals — and was part of the only back-to-back division titles in franchise history. The Stars won their first Stanley Cup three years after Hicks bought them.

Victories on the business side came quickly as well. The Rangers opened a stadium four years before the Hicks purchase, so new revenue streams were still pouring in. He bought the Stars not long before Dallas voters approved funding for a new arena, and Hicks ended up with a heavy financial stake in that plan.

About the time that downtown arena opened, the Rangers and Stars signed a lucrative 15-year television contract that put them among the top revenue producers in their respective leagues.

The TV deal “probably excited Tom enough” that he soon signed infielder and slugger Alex Rodriguez to the richest contract in team sports history, said Michael Cramer, a former president of the Rangers and Stars and still a shareholder in Hicks’ sports enterprise.

“In hindsight,” Cramer said, “you wish you hadn’t done that.”

As each year passes, the $252 million, 10-year deal with A-Rod looks more like the tipping point when Hicks’ fortunes with his U.S. pro teams started to dive.

The Rangers finished last in their division three straight years before they traded Rodriguez to the Yankees, and a decade-long erosion of their fan base ensued.

Six years ago, the Stars were on the verge of completing the cycle Hicks had used to create his fortune. After building the team’s value, he wanted to sell the club and figured to double — at least — his $84 million investment. Looming NHL labor strife short-circuited that plan, and a lockout that canceled hockey for a year soon followed.

The sport’s revenue flow has been restricted ever since, and more turmoil surfaced in the NHL this week when the Phoenix Coyotes surprised the league by filing for bankruptcy. NHL officials subsequently revealed they had been running the franchise since November.

This year, injuries helped prevent the Stars from getting a playoff spot, costing Hicks revenue just about the time the interest payment on his loan was due.

“If the Stars had made the playoffs and made it to the second or third round, you’re looking at probably a $10 (million) to $15 million difference, which probably would have made this issue go away for the time being,” said Cramer, who left the Hicks empire in 2004 and is now a professor in the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University.

Cramer also pointed out that baseball was the first of the major sports to face the failing economy while trying to sell season tickets and sponsorships. The others had done most of their selling before the bottom fell out in the fall, he said.

“It’s all about cash flow,” Cramer said. “This year there was this convergence of things that doesn’t help a couple of teams that clearly are challenged to make money on a yearly basis.”

Cramer and other analysts consider it fairly unlikely that Hicks will lose either of his U.S. teams.

As reasons, they cite the value of the franchises ($810 million combined, according to Forbes magazine) relative to the debt and the large number of lenders tied up in the loans (about 40).

“It’s hard to put together that many people to get a consensus,” Cramer said. “Clearly, no bank ever wants to take an asset and try to operate it and dispose of it itself.”

The leagues aren’t talking, but Cramer says he’s pretty sure he knows what they’re saying behind the scenes: Hicks needs to reduce debt associated with the teams.

Hicks has said part of his plan to reduce debt is to raise money through selling minority partnerships in both franchises.

Roger Noll, a Stanford economics professor who studies sports business, said he thought a baseball team would be attractive to investors because the price could be good. Cramer’s not so sure, saying he believes as many as two-thirds of the nation’s major pro sports teams are looking for the same thing, whereas investors are hoarding cash and not interested in spending on things they can’t control.

If minority partners are scarce and Hicks’ lenders won’t budge, Cramer wouldn’t be shocked if his former boss sold one or even both his teams outright. But Cramer figures it will be because the price is right, not because Hicks has no other choice.

“There are literally a hundred things that could happen,” Cramer said. “It almost doesn’t do us any good to speculate.”