(Source: www.forbes.com)

During the 1980s leveraged buyouts were all the rage. Deals were done with little cash and lots of “other people’s money.” High leverage meant higher valuations.

LBOs peaked with RJR Nabisco. After some deals crashed badly sanity was restored.

The proposed sales of the Miami Marlins and Houston Rockets harken me back to that era. League debt limits for both baseball and basketball are technically being adhered to, but the incoming owners would be taking on a lot of debt to close the deals.

Although headlines are everywhere about the Derek Jeter/Bruce Sherman group on the verge of buying baseball’s Marlins for $1.2 billion the group has recenlty been in Texas and Florida trying to raise money. They are still $150 million short, according to my sources. That’s just to get to $1.2 billion (six times revenue). What about the $150 million or so in operating losses in subsequent years?

Leverage? The Marlins have $400 million of debt and the incoming owners want to use another $175 million of preferred equity from a fund that in reality is high-interest loan. The team also has tens of millions of dollars in deferred expenses coming due soon.

The Rockets are a different situation. The NBA team is very profitable, has little debt and the league is growing rapidly with no shortage of investors looking to buy teams. But Tilman Fertitta is not liquid. Bankers are telling me he has less than $300 millon of cash and liquid assets.

To get the $1.75 billion of equity needed to buy the Rockets for $2.2 billion (nine times revenue), Fertitta is borrowing hundreds of millions of dollars against his Landry’s restaurant business and Golden Nugget casino. The debt is on Fertitta’s businesses, not the team, so he gets his prize.

More Info: www.forbes.com

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