You probably saw the news last week. Texas Rangers and Dallas Stars owner Tom Hicks, who also owns part of the Liverpool soccer club, defaulted on a $10 million payment connected to $525 million in loans.
It’s not the end of Hicks’ ownership reign, but it’s not a good sign, despite what Hicks would have you believe.
When the news broke, Hicks, who famously agreed to give Alex Rodriguez a 10-year, $252 million contract despite the fact that there weren’t teams within a sniff of that deal, played it off. He actually said that he defaulted intentionally.
While there are no immediate penalties for defaulting on a loan like this, it’s not like it hurts his personal credit rating, insiders I spoke to have said that they’ve never heard of a person doing this on purpose.
The next step in the process is for Hicks and those lending the money to sit down and negotiate a new payment schedule and perhaps a new number that needs to be owed.
The catch is that the ability of the lenders to be flexible has little to do with Hicks’ business and more to do with the still frozen credit markets.
So what happens if things can’t be worked out?
Well, the Wall Street Journal notes today that the lenders have agreed not to take control of the Dallas Stars for at least six months, abiding with the National Hockey League provisions that protect a team from immediately going into foreclosure.
So the immediate solution for Hicks is to sell pieces of his teams to raise enough cash to remain the owner or eventually just hand them over to the banks. But, trust me, the banks don’t want the teams. They want the money.
Hicks’ greatest problem might be his inability to accept reality. In mentioning that he’s ready to sell parts of his teams, he has mentioned selling a 49 percent stake, so that he can raise money while still maintaining his majority ownership position.
Not only has the value of his teams probably dropped at least 25 percent because of the marketplace, but the person who is buying has to have more cash than ever before. And someone who doesn’t have a sports team who is going to buy now is going to want majority ownership, if not immediately upon purchase, within a couple years.
The other way it could shake down is if either of the leagues decide to buy the teams for a reasonable price, hoping that they could flip it around when the economy clears up a bit. This actually last worked when Major League Baseball flipped the Montreal Expos and turned them into the Washington Nationals. But in order for the league to buy a team, they have to make sure that contraction is off the table.
Questions? Comments? SportsBiz@cnbc.com