If Bud Selig is right, new Hawks majority owner Alex Meruelo is the latest in a long line of successful businessmen who makes a dumb financial move by purchasing a professional sports franchise.
Selig, the Major League Baseball commissioner, famously told a congressional committee in 2000 that owners no longer could count on making up for operating losses by eventually selling at a profit.
“The problem, Senator, is that we've run out of greater fools,” Selig said.
Wealthy individuals have been willing to shell out big money to own sports teams even as the overall economy has declined. The latest is Meruelo, who was introduced at Philips Arena on Monday after agreeing to buy a majority stake in the Hawks and the arena's operating rights from the Atlanta Spirit Group.
Marc Ganis, president of the sports business consulting firm SportsCorps, said Meruelo paid about $300 million for an 80-percent stake in the Hawks and arena rights. Meruelo said ASG would retain a minority interest "for a period of time."
Ganis said the $300 million represents the “enterprise value” that includes Meruelo assuming "virtually all" of the debt on the team and the arena. ASG bought the Hawks and arena operating rights from Time Warner for about $200 million in 2004.
The team has reported steady operating losses since, with Forbes reporting a $7.3 million shortfall in 2009-10, the last season in which the magazine analyzed NBA franchise values. Last season the Hawks suffered a decline in attendance even while posting a winning record for the third consecutive season.
Meanwhile, NBA commissioner David Stern, who is negotiating a new labor contact with the players, has claimed that 24 of 30 league teams lost a combined $300 million last season. Meruelo, citing league restrictions because of the lockout, said he couldn't comment on his specific reasons for believing he can improve on the Hawks' financial fortunes.
Ganis said Atlanta is a an appealing market because of its size, relative wealth, corporate base, basketball interest and potential as a regional draw. He said Meruelo is banking on his ability to generate more revenue than the previous owners.
“The Hawks have been one of the lesser teams in NBA over long period of time -- with spurts of a difference -- in terms of attendance and consistent fan support," Ganis said. "That offers upside to someone who believes he has the business acumen and marketing ability to turn them around and make them more of a consistent winner and a consistent draw."
Meruelo said winning is the best way to bring in more fans but in recent years the Hawks have not drawn as well as their record suggests they should. They've lacked a superstar player, but Ganis noted that the team didn't always pack the house during Dominique Wilkins' days with the team.
Meruelo said that, in addition to winning, he would have to earn the “respect and loyalty” of fans.
“I think that will translate to people wanting to be part of the Hawks and have more excitement and support," he said.
Meruelo said he's been interested in buying an NBA team for years. Ganis said Meruelo spent that time talking to NBA owners and executives to learn the ins and outs of the business.
“He's not a neophyte,” Ganis said. “He's done a lot of homework, more than a lot of owners who get into this.”
Ganis said Meruelo's strategy of engaging fans is a good start to “establish stability and credibility” since ASG's tenure has been marred by internal squabbling among owners. Still, Ganis said that approach “only goes so far” in terms of making the Hawks profitable.
“He has to provide a value proposition for fans, not just in terms of money, but their time is at least as important,” Ganis said. “Following the Hawks, going to a game, watching them on TV, reading about them next day -- he has make it worth the time to people in the Atlanta market.”
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