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Thursday, August 5, 2010
Cuban blogs about bidding on Rangers

By Richard Durrett

SEATTLE -- Mavericks owner Mark Cuban has a new blog entry up (it's a long one) about why he decided to go after the Rangers and his thoughts on the process. Cuban said he looked into the purchase for a while. Here's some of that:
This wasn’t a spur of the moment thing. More than a year ago, before the current parties were involved (or at least I was told there weren’t others involved), I was contacted by someone the team owed a lot of money to and asked if I would be interested in buying the team side by side with them. I said yes. Got information. Did some very preliminary homework and told the group I was interested. That fell through. They decided not to go forward.

Then I was contacted by the departing owner of the Rangers and asked if I would be interested in investing in the team . I said no, but to get in touch if there was the opportunity to buy the team. Not long after that, I was contacted and started the process of discussing a purchase of the team. We had a few meetings and quite a few options were discussed. Most of the options required that I also purchase and take on expenses and assets/liabilities that I believed were not core to the operation of the team and could in fact make things more difficult. I was not willing to do that.

What I was willing to do was to make a significant enough of an investment that would catch the team up on all of their debt and provide some working capital (it would require the creditors to make some adjustments, but early discussions suggested that it would not be a problem). I was willing to go forward if i got control of the team. I want to win Championships and in my mind there was hope of winning a World Series with the Rangers.

Later in the post, he talks about how things changed and the possbility of a TV network or forcing FSN to pay a high price to keep the games:
Around the 2nd week in July, I got asked by someone who was considering bidding in the auction if i wanted to partner with them. I told them that i doubted it , but I would take a look. From that first look, it appeared to me that all those obligations that I didn’t like were still in the deal. But I was soon informed that because of the bankruptcy auction, they could be removed. That got my attention.

In my opinion if those operational issues could be removed, there would be more operating cash flow for the team. That’s a good thing. In addition, as everyone told me time and again, the Rangers TV deal ran out in 4 years. Combine that with the Mavs TV deal running out just a few years later and it could either form a foundation for a new sports network, or preferably cause Fox to pay an ungodly amount of money to keep the teams on FSN. Fox had more to lose from a competitive sports network being formed, particularly in Texas, than a new network had to gain from being created. So the leverage of owning both teams was enormous.

Cuban said he contacted Greenberg about joining his group once the auction looked like it was going to happen and that Greenberg decided to stick with his current group, something Cuban said he understood. But he looked at the financials themselves and saw an opportunity, which he describes more fully in the entry.

So why couldn't Cuban go it alone? He explains:
As it turns out , I wasn’t in a position to go after this myself. Why ? Two reasons. First, despite what people think, I don’t keep hundreds of millions of dollars in a checking account. I prefer that it earn money doing things for me. It is not easy to get liquid to the point of $400mm dollars or more in just a few weeks. And in those few short weeks, its not easy to go to the banks and get a loan for a baseball team. Lots of reasons. Some I don’t like, but it’s not. Second, I didn’t have enough time to do all the due diligence my folks needed to do. You don’t read every contract and get people to run numbers and advise you on what all the implications of a bankruptcy auction are in a couple weeks. I was paying people to work round the clock. I was killing my General Counsel Robert Hart to the point of exhaustion. There wasn’t enough time.

So a meeting was set up with Jim Crane. I liked him. He had been working on the Rangers for several years. He had all the due diligence in place. His people had scoured the contracts , etc. He had smart people around him and he had his money ready to go as well. Plus he had a relationship with the existing creditors who were willing to loan us money in order to facilitate a competitive auction. Of course the creditors were very self serving. If lending us money helped us, it helped them potentially earn more money from the auction. Together we could put together a bid. As it turns out we could afford a purchase price up to about $600mm dollars. (Right where we left the bidding last night/this morning.)

And one more thing...Cuban responds about how many bonds he purchased and what the auction means to him financially.
Finally lets talk about finances. Lets talk about the bonds I own. I have been getting a bunch of emails from reporters asking how much money I made on the bonds I own. Suggesting that I bid up the price of the Rangers in order to increase the value of the $2mm i spent on bonds. To all of you I offer a lesson in economics.

It is NEVER a good idea to risk hundreds of millions of dollars on the purchase of a team AND to spend what could come to more than a $1million in professional fees in order to increase the value of the $2mm you bought in bonds. I know its something for the media to talk about. But if any of you out there think it through, I dont want you to think i was stupid enough to do something that stupid.

I'll leave it at that because this entry is already long. But it's worth your time to read the entry and get Cuban's thoughts.