Price for Angels and Ducks Could Be in Eye of Beholder

The Dodgers sold for $311 million. For the same price, buyers can own the Angels--and the Mighty Ducks too.

When Rupert Murdoch’s Fox Group purchased the Dodgers, it got one of baseball’s flagship franchises, an anchor for a second regional sports cable channel, and valuable real estate holdings, including Florida’s Dodgertown training complex and land surrounding Dodger Stadium.

Disney can offer no such enticements to Henry T. Nicholas III, the Orange County technology billionaire it has approached about buying the Angels and Ducks. But, by packaging the teams in the deal, Disney can fetch a similar price, a consensus of analysts suggests.

The disparity between analysts’ estimates--which range from $150 million to $250 million for the Angels and $80 million to $140 million for the Ducks--reflects the peculiar economics of professional sports and a variety of factors particular to this sale.

Disney paid $140 million for the Angels and $50 million for the Ducks. While the franchises have appreciated in value, operating losses--Disney claims an $8-million loss on the Ducks last season and more than $50 million on the Angels in the past three seasons--would compel any potential buyer to evaluate how he might make money in an industry where one of the world’s most successful corporations apparently could not.

“The teams are more valuable to some people than they are to others,” said John Moag, managing director of the Legg Mason Sports Industry Group and former chairman of the Maryland Stadium Authority.

“Disney obviously didn’t get the play it thought it was going to get. Rupert Murdoch clearly thinks there’s a lot of play there.”

Nicholas might perceive novel ways of exploiting sports franchises to benefit his company, Broadcom Corp., whose computer chips potentially could merge the Internet with television broadcasts. Or, analysts say, Nicholas and any partners might place a significant value on the perception they saved professional sports in Orange County.

On a strictly financial basis, however, the Angels and Ducks should wear the label of “buyer beware.”

New owners most commonly generate more money by demanding a new stadium or arena and negotiating a lucrative cable contract, but neither the Angels nor the Ducks could exercise that option. Edison Field and Arrowhead Pond already feature the luxury suites and club seats that generate millions each year for the teams that play there.

Disney paid $88 million toward the renovation of Edison Field, a job not completed until last year. Since the buyer would benefit from the revenue generated by the stadium, Disney might well demand the buyer repay the company for its investment.

“This is no different than somebody selling a house and saying, ‘We just spent $10,000 upgrading the kitchen. I expect to get that money back,’ ” said University of Chicago sports economist Allen Sanderson.

“If I’m Disney, that’s the opening approach I take,” said Bill Miller, executive vice president of the Leib Group, a sports ownership and facility consulting company in Milwaukee.

“Then it will become a negotiating issue. But that’s going to be a tough sell if you’re selling a baseball and hockey team that are losing money.”

Disney last year signed an agreement that binds the Angels and Ducks to the Fox Sports West channels for 10 years at a reported $120 million. The length of that deal precludes any short-term opportunity for a buyer to use the Angels and Ducks to start a cable sports channel or to threaten to do so in order to get a better cable contract. The deal also could prevent Nicholas from immediately combining cable broadcasts with potential Internet ventures.

“There’s value in that,” Moag said. “That’s a long time.”

But another analyst did not believe the long-term cable contract would lower the purchase price. Robert Caporale, chairman of Game Plan LLC, a Boston-based sports investment company, said Disney already extracted a premium price from Fox in exchange for abandoning the proposed ESPN West cable channel.

“I have a hard time believing Disney did a bad deal there,” Caporale said. “I don’t think the next buyer of the team is going to try to do what Disney attempted to do.”

Disney succeeded in increasing attendance at Angel games to 2.5 million last year, a 43% jump from the previous season and the highest figure in eight years. Still, the Angels attracted 2.8 million in 1982, and the population boom since then could allow a buyer to envision drawing as many as 3 million fans and thus increasing revenue from tickets, concessions, souvenirs and parking.

“Wins and losses have a lot to do with how you do,” Moag said. “You can sugarcoat this business all you want and try all the fancy marketing you want, but the bottom line is, you need to win.”

The Angels won in 1982, the second of three division championships. The last came in 1986, and the declining attendance could well reflect fans wary of following the Angels after repeated September collapses.

“The state of the franchise may not be quite as important unless you take a dreadful case like the Clippers,” Sanderson said. “Those things tend to go up and down.”

A new owner, seduced by the short-term success of Jerry Colangelo with the Arizona Diamondbacks and Wayne Huizenga with the Florida Marlins, could spend lavishly in the hope of fielding an instant winner. Then again, that didn’t work for Murdoch.

The Ducks already sell out two of three games, with the average ticket price at $42.56 for next season, up 49% from the inaugural 1993-94 season. With merchandise sales among the best of any professional sports team, and with the Fox Sports West contracts in place, analysts fear the Ducks cannot turn a profit so long as salaries grow unchecked.

“The Mighty Ducks’ situation is at maximum potential,” Caporale said. “What you have is what you get. You’re not going to be able to do much more with it on the revenue side. You can’t control expenses yourself.”

Although the average NBA payroll is just $3 million more than the average NHL payroll, each NBA team receives $19 million more in annual national television revenue. With the NHL labor agreement extending through 2004, the league faces the unappealing dilemma of watching salaries continue to spiral or risking a season-stopping lockout.

No baseball team has filed for bankruptcy, as the Pittsburgh Penguins did in the NHL. But, with the expiration of every recent labor agreement resulting in a strike or lockout, any buyer must consider the possibility of losing games when the current deal runs out--in 2001 or, if either players or owners exercise an option, in 2002.

Disney’s agreement with Ogden Corp., operators of the Pond, also could lessen the value of the Mighty Ducks. If Disney sells, advertising rights worth an estimated $2 million a year revert from Disney to Ogden. However, since the Ducks can leave the Pond with two years’ notice and since the Pond has no tenant without the Ducks, analysts suggest Ogden would quickly negotiate to share that ad revenue with a buyer.

Since the name “Mighty Ducks” reflects a Disney brand name, just like Mickey Mouse or Goofy, Disney could well lower its asking price in exchange for retaining or sharing licensing and merchandising rights for the hockey team. While NHL teams generally share revenue from merchandise sales, the NHL permits Disney to keep all revenue generated from the sale of Duck merchandise at Disney stores and other company retail outlets.

“If you’re the owner, why wouldn’t you want Disney to do it? They already have a built-in distribution system,” former Angel president Richard Brown said. “I would be shocked if Disney didn’t contract for exclusive marketing rights for the Ducks.”

The purchase price for the Angels and Ducks also could reflect the length of the approval process in both baseball and the NHL. In addition to the $140-million purchase price, Disney agreed to cover the Angels’ 1995 losses, although baseball owners did not approve the May 1995 sale agreement until January 1996.

Disney Chairman Michael Eisner, already under fire from shareholders for falling stock prices, must ensure a sale price high enough to satisfy investors.

In April, the Ascent Entertainment Group agreed to sell the Denver Nuggets basketball team, Colorado Avalanche hockey team and Pepsi Center arena to Bill and Nancy Laurie for $400 million.

The shareholders of Ascent--like Disney a publicly held company--then sued, citing other potential buyers who promised to pay a higher price. Ascent last month sold the teams and arena to Donald Sturm for $461 million.

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The Going Rate

Walt Disney Co. purchased the Angels for $140 million and the Mighty Ducks for $50 million. Analysts’ estimate of their current worth:

JOHN MOAG (Legg Mason)

Angels: $200-$250 million

Ducks: $120-$135 million

BILL MILLER (Leib Group)

Angels: $190-$230 million

Ducks: $100-$140 million

ROBERT CAPORALE (Game Plan LLC)

Angels: $150-$200 million

Ducks: $80-$100 million

RICHARD BROWN (Former Angel President)

Angels: $175-$200 million

Ducks: Declined to state