Future owners list?

[spiritof66]

To me, it's pretty simple.  Going on the limited information that's available, I'm pretty sure Georgia Angelos controls the ownership of the Orioles since she has a power of attorney to act for Peter Angelos, who still owns a majority of the team. She is very, very unlikely to sell while Peter Angelos is alive, since the sale would trigger an enormous capital gains tax that Peter would have to pay, diminishing the size of his estate. Maybe some event could induce her to sell and take the tax hit, but I can't imagine what it would be.

When Peter Angelos dies, that capital gains exposure will disappear. But upon Peter's death, there will be hundreds of millions in federal estate taxes and Maryland taxes to be paid by his estate, perhaps over time. (That estate tax liability could be deferred if Peter's will or trust leaves the team to Georgia, but it's pretty clear from Louis's lawsuit that the team is being left to his sons.) Again, the available information is limited, but in my view unlikely that the Angeloses will be able to pay those taxes without selling their interest in the Orioles. The higher the value of the team is, the worse the problem becomes -- higher estate taxes with no more cash to pay them, unless the Angeloses sell off part of their interests to raise cash. The Angeloses  presumably have income from their investments and real estate holdings, but they have no source of ongoing business income other than the Orioles.

Even if they could scrape together the cash needed to pay these taxes, the Angeloses and the Orioles would be left in a financially weak position, unable to spend competitively (or to withstand losses from another disaster like the pandemic). That's exactly the kind of economically marginal ownership that MLB wants to avoid. In addition, the Commissioner and many of the owners loathe Peter Angelos, don't care for John's politics, are very angry over the lawsuit that Peter began and John now has pursued for several years, and have enough sense to realize that John and Lou are a couple of nitwits with no real business experience who've never succeeded at anything. It's inconceivable to me that the owners would approve of John and Lou as long-term owners of the Orioles, though I recognize that that word may not mean what I think it it does. In fact, I believe MLB and the Angeloses have already reached a deal in which MLB has agreed to permit the current peculiar ownership situation to remain in place (rather than force a sale that would cause the Angeloses to incur the capital gains hit) and the Angeloses have agreed to sell their interests shortly after Peter's death. That would explain why the Angeloses have prepared for a near-future sale of the team by engaging investment bankers and avoiding long-term contracts.

One other thing. Most prospective buyers of businesses make offers determined largely by their estimates of what cash flows (after expenses are met) the business will generate under their ownership (that is, after getting rid of managers they don't think much of, making other improvements and cost savings, and  exploiting opportunities to combine the business with others) and the assessment of the current value of those estimated future cash flows. It's more complicated than that, but that is usually the core factor.

For most professional sports teams -- I'm not aware of any exceptions, but there may be some -- the bidder's value of future cash flows serves as a sort of baseline but typically gets overwhelmed by other factors. Very wealthy people, or groups of them, offer to pay prices for sports franchises that far exceed what a normal business valuation would lead them to pay. Why are they willing to pay so much? 

The wealthy people or groups that succeed in buying pro sports franchises are looking for more than a financial return. They also are looking to buy all kinds of financial rewards: sitting in the owner's box, being interviewed by the media and quoted in the newspapers even if they have nothing to say, going to owners' meetings, being regarded as civic heroes for moving or not moving, proving to the world how much they know about the sport, hoisting a trophy on national TV. etc., etc. There's a limited number of opportunities to buy assets that  provide these rewards, and an unsuccessful bidder may wait years before getting another opportunity -- at which point the prices are likely to be much higher. It's true that most of these rich people don't want to think they're throwing hundreds of millions of dollars away by spending much more than they think a franchise's expected cash flows are worth. Historry gives them comfort about that. While my information is out of date by a decade or so, I'm pretty sure this hasn't changed. Buyers of sports franchises depend on what's called the One More Schmuck assumption -- that is, when it's time to sell, there will be aggressive buyers eager to become sports franchise owners, and they'll pay plenty for that privilege. To make up the numbers, suppose a bidder believes a franchise will generate cash flows with a value of $900 million. That bidder might be willing to offer $1.6 billion in part because he believes that in five years, if the team has a good stadium to play in and hasn't been a complete financial or on-field disaster, he (or his heirs) will be able to sell for $2 billion or more to another guy (or group) that really wants to own a pro sports team. 

[SemperFi]

51 minutes ago, spiritof66 said:

To me, it's pretty simple.  Going on the limited information that's available, I'm pretty sure Georgia Angelos controls the ownership of the Orioles since she has a power of attorney to act for Peter Angelos, who still owns a majority of the team. She is very, very unlikely to sell while Peter Angelos is alive, since the sale would trigger an enormous capital gains tax that Peter would have to pay, diminishing the size of his estate. Maybe some event could induce her to sell and take the tax hit, but I can't imagine what it would be.

When Peter Angelos dies, that capital gains exposure will disappear. But upon Peter's death, there will be hundreds of millions in federal estate taxes and Maryland taxes to be paid by his estate, perhaps over time. (That estate tax liability could be deferred if Peter's will or trust leaves the team to Georgia, but it's pretty clear from Louis's lawsuit that the team is being left to his sons.) Again, the available information is limited, but in my view unlikely that the Angeloses will be able to pay those taxes without selling their interest in the Orioles. The higher the value of the team is, the worse the problem becomes -- higher estate taxes with no more cash to pay them, unless the Angeloses sell off part of their interests to raise cash. The Angeloses  presumably have income from their investments and real estate holdings, but they have no source of ongoing business income other than the Orioles.

Even if they could scrape together the cash needed to pay these taxes, the Angeloses and the Orioles would be left in a financially weak position, unable to spend competitively (or to withstand losses from another disaster like the pandemic). That's exactly the kind of economically marginal ownership that MLB wants to avoid. In addition, the Commissioner and many of the owners loathe Peter Angelos, don't care for John's politics, are very angry over the lawsuit that Peter began and John now has pursued for several years, and have enough sense to realize that John and Lou are a couple of nitwits with no real business experience who've never succeeded at anything. It's inconceivable to me that the owners would approve of John and Lou as long-term owners of the Orioles, though I recognize that that word may not mean what I think it it does. In fact, I believe MLB and the Angeloses have already reached a deal in which MLB has agreed to permit the current peculiar ownership situation to remain in place (rather than force a sale that would cause the Angeloses to incur the capital gains hit) and the Angeloses have agreed to sell their interests shortly after Peter's death. That would explain why the Angeloses have prepared for a near-future sale of the team by engaging investment bankers and avoiding long-term contracts.

One other thing. Most prospective buyers of businesses make offers determined largely by their estimates of what cash flows (after expenses are met) the business will generate under their ownership (that is, after getting rid of managers they don't think much of, making other improvements and cost savings, and  exploiting opportunities to combine the business with others) and the assessment of the current value of those estimated future cash flows. It's more complicated than that, but that is usually the core factor.

For most professional sports teams -- I'm not aware of any exceptions, but there may be some -- the bidder's value of future cash flows serves as a sort of baseline but typically gets overwhelmed by other factors. Very wealthy people, or groups of them, offer to pay prices for sports franchises that far exceed what a normal business valuation would lead them to pay. Why are they willing to pay so much? 

The wealthy people or groups that succeed in buying pro sports franchises are looking for more than a financial return. They also are looking to buy all kinds of financial rewards: sitting in the owner's box, being interviewed by the media and quoted in the newspapers even if they have nothing to say, going to owners' meetings, being regarded as civic heroes for moving or not moving, proving to the world how much they know about the sport, hoisting a trophy on national TV. etc., etc. There's a limited number of opportunities to buy assets that  provide these rewards, and an unsuccessful bidder may wait years before getting another opportunity -- at which point the prices are likely to be much higher. It's true that most of these rich people don't want to think they're throwing hundreds of millions of dollars away by spending much more than they think a franchise's expected cash flows are worth. Historry gives them comfort about that. While my information is out of date by a decade or so, I'm pretty sure this hasn't changed. Buyers of sports franchises depend on what's called the One More Schmuck assumption -- that is, when it's time to sell, there will be aggressive buyers eager to become sports franchise owners, and they'll pay plenty for that privilege. To make up the numbers, suppose a bidder believes a franchise will generate cash flows with a value of $900 million. That bidder might be willing to offer $1.6 billion in part because he believes that in five years, if the team has a good stadium to play in and hasn't been a complete financial or on-field disaster, he (or his heirs) will be able to sell for $2 billion or more to another guy (or group) that really wants to own a pro sports team. 

It's a small club, generally guys that were super successful in a business they know and think that will translate to their hobby.  I think you are spot on with the Angelos family and their relationship with MLB, I'm sure JA got a call on the "open the books" offer.  I'll also add that I don't think the debt the family would have to take on after capital gains would be acceptable to MLB.  MLB and the MLBPA are much more powerful than the average fan realizes. 

[spiritof66]

58 minutes ago, SemperFi said:

It's a small club, generally guys that were super successful in a business they know and think that will translate to their hobby.  I think you are spot on with the Angelos family and their relationship with MLB, I'm sure JA got a call on the "open the books" offer.  I'll also add that I don't think the debt the family would have to take on after capital gains would be acceptable to MLB.  MLB and the MLBPA are much more powerful than the average fan realizes. 

The profile of  MLB owners has changed a lot. A generation ago (that should be vague enough), many of the owners were wealthy,  but not super-wealthy, unimpressive people whose wealth and positions were inherited. This is the group that Peter Angelos looked down on because of his status as a self-made man.  I know a couple of people who met with owner committees in, I guess the '80s. Both, in different ways, were shocked at the owners' lack of business sophistication and, in one case, intelligence. Those qualities have been upgraded dramatically. I would guess that the current owners are less fun to be around, drink a lot less, and are far more protective of their assets and the secrecy of their operations. I guess that's progress.  It's hard for me to imagine that they would vote to allow the Angeloses, in shaky financial position and without non-baseball resources or business experience, to own the Orioles for the next 30 years.

[EddeeEddee]

10 hours ago, Frobby said:

You can’t really compare the profit a team makes in a year, or even in 10 years, to the profit earned on a sale of a team.   When prospective buyers are deciding what they is willing to pay, they are asking themselves this question (with a bit of simplification): how much profit do we think this team will throw off every year on average, how much risk is involved, and what is the likely long-term rate of inflation?   So let’s say they think the team will generate $100 mm/yr. and inflation will run at 3%.  They’ll run a calculation of what that income stream, into perpetuity is worth after the inflation adjustment: $100 mm for year 1, $97 mm for year 2, $94.1 mm for year 3, etc. and sum all that together.  Then they’ll discount that number pretty heavily for risk, because it’s not like you’re buying a US treasury bond.  

On everyday inflation (like the Consumer Price Index or whatever most generally measures inflation) I'm not really convinced because I can't see how a prospective owner of an MLB team would consider everyday inflation a major issue because it always goes up and down for any business.  And inflation can be an opportunity as much as a cost, depending on the business, at least for awhile -- an opportunity to jack up ticket prices, concessions and merchandise prices as well.  The biggest cost for a business owner is usually labor.  In fact, for a major league owner I suspect the inflation I'm really worrying about is the inflating salaries of players.  If the Orioles had a league average payroll then they would not have made any profit last season -- instead would have been well in the red.  

But these owners are so wealthy I suspect the traditional fiscal and quarterly business cycles that normal CEOs and business owners worry about are not at the forefront of their minds.  These guys have already made their money.  An MLB baseball team is somewhere between a toy and long term investment.  Now if baseball teams start to fall in value because of falling TV revenue or whatever reason, then everything changes. 

But if I'm about to inherit a team from my dad, I have to think I'll become much wealthier selling the team than trying to eke out a profit each year trying to depress the salaries, raising ticket prices and hoping gambling and maybe something else new will add some kind of additional revenue.  Especially now I'd say sell while you can before the overall economy and baseball economy face the music.

[EddeeEddee]

10 hours ago, Frobby said:

You can’t really compare the profit a team makes in a year, or even in 10 years, to the profit earned on a sale of a team.   When prospective buyers are deciding what they is willing to pay, they are asking themselves this question (with a bit of simplification): how much profit do we think this team will throw off every year on average, how much risk is involved, and what is the likely long-term rate of inflation?   So let’s say they think the team will generate $100 mm/yr. and inflation will run at 3%.  They’ll run a calculation of what that income stream, into perpetuity is worth after the inflation adjustment: $100 mm for year 1, $97 mm for year 2, $94.1 mm for year 3, etc. and sum all that together.  Then they’ll discount that number pretty heavily for risk, because it’s not like you’re buying a US treasury bond.  

On everyday inflation (like the Consumer Price Index or whatever most generally measures inflation) I'm not really convinced because I can't see how a prospective owner of an MLB team would consider everyday inflation a major issue because it always goes up and down for any business.  And inflation can be an opportunity as much as a cost, depending on the business, at least for awhile -- an opportunity to jack up ticket prices, concessions and merchandise prices as well.  The biggest cost for a business owner is usually labor.  In fact, for a major league owner I suspect the inflation I'm really worrying about is the inflating salaries of players.  If the Orioles had a league average payroll then they would not have made any profit last season -- instead would have been well in the red.  

But these owners are so wealthy I suspect the traditional fiscal and quarterly business cycles that normal CEOs and business owners worry about are not at the forefront of their minds.  These guys have already made their money.  An MLB baseball team is somewhere between a toy and long term investment.  Now if baseball teams start to fall in value because of falling TV revenue or whatever reason, then everything changes. 

But if I'm about to inherit a team from my dad, I have to think I'll become much wealthier selling the team than trying to eke out a profit each year trying to depress the salaries, raising ticket prices and hoping gambling and maybe something else new will add some kind of additional revenue.  Especially now I'd say sell while you can before the overall economy and baseball economy face the music.

[EddeeEddee]

2 hours ago, spiritof66 said:

To me, it's pretty simple.  Going on the limited information that's available, I'm pretty sure Georgia Angelos controls the ownership of the Orioles since she has a power of attorney to act for Peter Angelos, who still owns a majority of the team. She is very, very unlikely to sell while Peter Angelos is alive, since the sale would trigger an enormous capital gains tax that Peter would have to pay, diminishing the size of his estate. Maybe some event could induce her to sell and take the tax hit, but I can't imagine what it would be.

When Peter Angelos dies, that capital gains exposure will disappear. But upon Peter's death, there will be hundreds of millions in federal estate taxes and Maryland taxes to be paid by his estate, perhaps over time. (That estate tax liability could be deferred if Peter's will or trust leaves the team to Georgia, but it's pretty clear from Louis's lawsuit that the team is being left to his sons.) Again, the available information is limited, but in my view unlikely that the Angeloses will be able to pay those taxes without selling their interest in the Orioles. The higher the value of the team is, the worse the problem becomes -- higher estate taxes with no more cash to pay them, unless the Angeloses sell off part of their interests to raise cash. The Angeloses  presumably have income from their investments and real estate holdings, but they have no source of ongoing business income other than the Orioles.

Even if they could scrape together the cash needed to pay these taxes, the Angeloses and the Orioles would be left in a financially weak position, unable to spend competitively (or to withstand losses from another disaster like the pandemic). That's exactly the kind of economically marginal ownership that MLB wants to avoid. In addition, the Commissioner and many of the owners loathe Peter Angelos, don't care for John's politics, are very angry over the lawsuit that Peter began and John now has pursued for several years, and have enough sense to realize that John and Lou are a couple of nitwits with no real business experience who've never succeeded at anything. It's inconceivable to me that the owners would approve of John and Lou as long-term owners of the Orioles, though I recognize that that word may not mean what I think it it does. In fact, I believe MLB and the Angeloses have already reached a deal in which MLB has agreed to permit the current peculiar ownership situation to remain in place (rather than force a sale that would cause the Angeloses to incur the capital gains hit) and the Angeloses have agreed to sell their interests shortly after Peter's death. That would explain why the Angeloses have prepared for a near-future sale of the team by engaging investment bankers and avoiding long-term contracts.

One other thing. Most prospective buyers of businesses make offers determined largely by their estimates of what cash flows (after expenses are met) the business will generate under their ownership (that is, after getting rid of managers they don't think much of, making other improvements and cost savings, and  exploiting opportunities to combine the business with others) and the assessment of the current value of those estimated future cash flows. It's more complicated than that, but that is usually the core factor.

For most professional sports teams -- I'm not aware of any exceptions, but there may be some -- the bidder's value of future cash flows serves as a sort of baseline but typically gets overwhelmed by other factors. Very wealthy people, or groups of them, offer to pay prices for sports franchises that far exceed what a normal business valuation would lead them to pay. Why are they willing to pay so much? 

The wealthy people or groups that succeed in buying pro sports franchises are looking for more than a financial return. They also are looking to buy all kinds of financial rewards: sitting in the owner's box, being interviewed by the media and quoted in the newspapers even if they have nothing to say, going to owners' meetings, being regarded as civic heroes for moving or not moving, proving to the world how much they know about the sport, hoisting a trophy on national TV. etc., etc. There's a limited number of opportunities to buy assets that  provide these rewards, and an unsuccessful bidder may wait years before getting another opportunity -- at which point the prices are likely to be much higher. It's true that most of these rich people don't want to think they're throwing hundreds of millions of dollars away by spending much more than they think a franchise's expected cash flows are worth. Historry gives them comfort about that. While my information is out of date by a decade or so, I'm pretty sure this hasn't changed. Buyers of sports franchises depend on what's called the One More Schmuck assumption -- that is, when it's time to sell, there will be aggressive buyers eager to become sports franchise owners, and they'll pay plenty for that privilege. To make up the numbers, suppose a bidder believes a franchise will generate cash flows with a value of $900 million. That bidder might be willing to offer $1.6 billion in part because he believes that in five years, if the team has a good stadium to play in and hasn't been a complete financial or on-field disaster, he (or his heirs) will be able to sell for $2 billion or more to another guy (or group) that really wants to own a pro sports team. 

Great post.  I can't imagine the league not trying to pressure the Angelos family to sell right after the inevitable passing of the patriarch.  There's too much bad blood between the league and the family.

[OriolesMagic83]

Owners of major sports franchise are larger than life figures.  I think about it this way, I can name far more sports franchise owners than I can name mayors of major cities.  Before Cohen bought the Mets, I doubt 2% of the country knew who he was.  Now every sports fan knows who he is.  Buying a sports franchise is a way of buying fame, or if it goes wrong infamy.  Tell me that all the ego stroking an owner like Jerry Jones receives is not up there in importance with all the money he has made off the Cowboys.

[spiritof66]

15 hours ago, EddeeEddee said:

Great post.  I can't imagine the league not trying to pressure the Angelos family to sell right after the inevitable passing of the patriarch.  There's too much bad blood between the league and the family.

MLB doesn't have to pressure anybody. I believe there's already a deal requiring the Angeloses to sell upon Peter's death. Even if I'm wrong, if Peter will pass his interest in the Orioles to his sons (as appears to be the case), that transfer will require a majority vote of the MLB owners. Without that approval, they would have to sell. (They could remain as minority owners.)