Newark Bears File for Bankruptcy

From the Newark Star Ledger, October 30, 2008:

Newark Bears File for Bankruptcy
By Jeffery C. Mays

The struggling Newark Bears filed for bankruptcy protection late Tuesday, saying they owe their biggest creditors more than $4.6 million, including $3.4 million to their mortgage company and more than $800,000 to Essex County. . . . The city of Newark and Essex County financed the construction of the $34 million stadium project with the sale of bonds. The city and the county now each pay $1.2 million per year to pay down the debt service, which runs through 2029 and stands at approximately $32 million after several refinancings to lower the interest rate. . . (Click here for the full article.)

First, it is very sad to see the Bears filing for bankruptcy, although not very surprising. It is sad because you never want to see a team file for bankruptcy. On the other hand, it is not very surprising for several reasons. First, being an unaffiliated team, the Bears do not have the allure of enticing fans to follow the minor league player through his career, nor the ability for fans to watch major league players rehabilitate. For example, the Trenton Thunder benefit from their affiliation with the New York Yankees by allowing fans to latch onto a player when he is with the team, and then follow him through to his major league career. Moreover, the Thunder often benefit from major league players rehabbing with the team, such as Derek Jeter and Hideki Matsui. Second, the Bears do not appear to do a good job of marketing its games to Newark businesses with deep pockets. Newark is home to some of New Jersey's largest law firms (Gibbons and McCarter & English to name two) and many large businesses (Prudential and PSE&G to name two). If the Bears were smart, they would tailor their games to the 21-40 year old business men and women in Newark by starting games at 4:00 or 4:30. Starting the games then would allow men and women to leave work, go to the game for an hour or two, and still be home for dinner. Instead of this, the Bears regularly play games with starting times at 7:00 and 7:30. Who wants to go to Newark for minor league baseball at 7:30 on a Thursday night?

Aside from these two thoughts, perhaps the most interesting part of the comments coming out of this article are those made by team owner Marc Berson. Berson stated that "a Chapter 11 filing is not a liquidation, it is a reorganization." Apparently Mr. Berson doesn't know his bankruptcy law that well, nor has he been paying attention to the demise of Lehman Brothers. Chapter 11 does, in fact, allow the debtor to liquidate through a liquidation plan if it is not possible to effectively reorganize the company. Maybe Mr. Berson is attempting to reassure creditors, investors, and/or employees. Maybe he does not know that the Bears could liquidate in Chapter 11. Regardless of what he does and does not know, it is sad to see the Bears in this position. The City of Newark can ill afford to lose the Bears as it would certainly hurt the city's ongoing rebuilding efforts. Hopefully the Bears can successfully emerge from Chapter 11 in a better financial position, a new perspective on how to properly market the team to Newark's business community, and continue to play baseball in the City of Newark.

Credit Crisis Claims Club's Construction Plans

From ESPN, August 29, 2008:

Liverpool fans furious over latest stadium delay

Liverpool fans' groups have launched a savage attack on the club's American owners after yet another delay to the building of their new stadium in Stanley Park. Co-owners Tom Hicks and George Gillett have announced that the £400 million arena will be delayed because of the global cash crisis.... A club statement read: "Our commitment to building a new world-class Liverpool Football Club stadium is undiminished. Like many other major development projects in the UK and overseas we are affected by global market conditions and, as such, work on the project will be delayed in the short term."...Click here for full article.

I had previously posted on the effects of the global credit crisis a little more than two months ago. (Click here.) When Tom Hicks and George Gillett purchased Liverpool in 2007, they financed the entire purchase with a loan of approximately £270 million. Servicing that debt must be a huge task within itself. With the credit crisis taking its toll on interest rates, it is not inconceivable that the club could be having problems meeting its repayment obligations. Add to this the financially arduous task of securing and servicing new debt to finance an ambitious £400 million stadium, and it's no wonder that Liverpool has been forced to re-evaluate and delay its construction plans. But herein lies the real problem for Liverpool: without a new stadium and its consequent additional revenues, the club's revenues will remain somewhat stagnant. Yet, player wages continue to skyrocket in the English Premier League. So Liverpool is left with a problem: higher costs but stagnant revenues (or at least revenues not growing at the same rate). A new stadium would help remedy this situation, provided that the increased revenues from the stadium could cover servicing the debt used to finance the stadium with some left over to cover rising costs. This is model is fairly common in the United States, and is a justification for such projects as the new Yankee Stadium. That is, new stadium equals more revenues, which can cover the cost of construction in the long run plus rising current liabilities such as player wages, while still leaving excess revenues from which a profit is generated. Of course, this only works if the stadium is built in the first place, and Liverpool can't seem to get that far. It seems that the credit crisis has found antoher victim.

(Originally written 09/06/2008)

Sports Illustrated Article on Apartheid and Sports in South Africa

From this week's issue of Sports Illustrated, dated August 18, 2008:

The Full Nelson: How a sports-savvy Nelson Mandela used rugby to unify his troubled land
By John Carlin

Nelson Mandela once said that sports had the power "to change the world ... to inspire ... to unite people." The Chinese seem to have taken Mandela at his word, using the Olympic Games to project an image of their nation as a rising global superpower, while uniting and inspiring their own people around a vision of China as a country triumphantly on the march. Whether China succeeds in these goals, and in acquiring greater international respectability, remains to be seen. But make no mistake: Sports can exercise a powerful force in pulling a country together. Mandela himself showed how at a game he attended—the final of the 1995 Rugby World Cup—a year after he became president of South Africa. He later described it to me as the tensest episode of his entire life....

Click here for full article.

Great article from Sports Illustrated this week. The ability of sports to unify societies, cultures, races, and more never ceases to amaze me. Mr. Carlin's article hits on some of the same points I made in a previous essay I wrote on the role of sports in eliminating apartheid in South Africa. (You can read that essay here.) One point that I think Mr. Carlin misses, however, is that Nelson Mandela wouldn't have had the opportunity he had at the 1995 Rugby World Cup if it hadn't been for the efforts of such groups as the African National Congress, the Progressive Federal Party, and South African Council of Sport. Those groups used rugby as a forum for protesting the apartheid rules, even making apartheid and rugby election issues in 1981. International sporting boycotts of the all-white South African rugby team directly led to changes in the South African racial relations establishment, mostly because the Afrikaners (white South Africans) realized that their apartheid rules prevented them from competing on the world stage. In fact, the 1995 World Cup was merely the symbolic culmination of decades of efforts of using sports to end apartheid in South Africa, and even then, problems persisted in the form of social segregation, riots, and the like. Make no mistake - Mr. Carlin's points about Nelson Mandela's efforts are largely correct. He just shouldn't ignore the efforts of others before Nelson Mandela who also contributed to ending apartheid via sports. The 1995 Rugby World Cup was a seminal moment in South African race relations; hopefully the 2010 Football (Soccer) World Cup will have a similar unifying impact on South African society.

(Originally written on 08/17/08)

New Report on English Football Insolvencies

From the Coventry University (England) website, August 1, 2008:

Football: A beautiful game but an ugly business

Relegation, bad management and an inability to cut back on costs like players’ wages are all factors which can lead to insolvency – according to new research published by the Centre for the International Business of Sport (CIBS) at Coventry University.

The research has found that insolvency can also be linked to external events, like the collapse of TV providers. Perhaps more worryingly, it also has demonstrated that cases of insolvency appear to be increasing. In the five seasons from 2001/02 to 2005/06 the 92 clubs in the top four tiers of English football made an aggregated loss of £1,014,000,000.

Click here for full article.

After having read the full report, it appears that the findings of the researchers at Coventry University support my findings (at least implicitly) in my analysis of sport organization bankruptcies in the United States and England (available here). The researchers clearly place a lot of the blame for the financial troubles of English football teams on the relegation system and its effects on club finances. Although the analysis was financial and not legal in nature, it implicitly supports the proposition that reform is needed in the English insolvency system. The report even goes so far to state that entering administration (essentially the equivalent of Chapter 11 in the United States) "has become almost a legitimate tactic in a football club's business strategy." From a legal perspective, this seems almost counter-intuitive. Any system governing bankruptcy and insolvency procedures (be it the United States or England) should strive to discourage filing for bankruptcy protection as it will help ensure that businesses do not seek to avoid their creditors. If entering administration has become a legitimate tactic in a football club's business strategy, then non-payment of all creditors has also become a legitimate tactic in a football club's business strategy. If the structure of the English insolvency system lends itself to football clubs seeing administration as a legitimate business tactic, then the system is in need of reform. Reformation of the system will help eliminate the ability of football clubs from engaging in financially irresponsible and irrational behavior and then be excused from repaying all their creditors in full. As I stated in my previous analysis of sport organization bankruptcies in the United States and England, the high rate of English football club insolvencies will persist as long as these problems exist in the English insolvency system. This new report from the CIBS further confirms this.

(Originally written 08/11/08)

Supreme Court Rejects Atlantic Yards Appeal

(Originally written 06/24/08)

From the New York Times, June 24, 2008:

U.S. Supreme Court Refuses to Hear Atlantic Yards Case
By Sewell Chan

The United States Supreme Court on Monday declined to hear an appeal by about a dozen New York City property owners and tenants whose homes and businesses are scheduled to be taken over by the government and demolished to make way for the $4 billion Atlantic Yards project in Brooklyn. The justices, without comment, refused to hear the plaintiffs’ argument that the seizure of their property would violate the United States Constitution.... Click here for full article.

This is certainly a big win for Bruce Ratner, the principal owner of the New Jersey Nets. After a string of victories in the courts, it would appear that Mr. Ratner will be able to keep moving forward with his Atlantic Yards project, which includes a new arena for the New Jersey Nets. Although the article indicates that the opponents of the project will continue their fight in state court, the real problems facing Mr. Ratner are more likely financial than legal in nature. As it stands right now, the Atlantic Yards project is projected to cost $4 billion. However, given the turmoil in the credit markets over the past nine to twelve months, it is not inconceivable that the project could top that mark. Indeed, the credit crunch has already affected the financing of stadium projects for the New York Giants and Jets in East Rutherford, NJ, Liverpool FC in England, and the 2012 London Olympics. Without knowing the structure of any financing deals in place (if any actually are in place), it is practically impossible to know the depth of financial situation facing the Atlantic Yards project. One thing that is for certain is that if auction rate securities are a primary source of financing for the Atlantic Yards project, the $4 billion estimated cost may increase significantly. (See here and here for more on auction rate securities.)