There is little chance a U.S. equity fund or any financial institution is going to wind up with control of Maple Leaf Sports and Entertainment Ltd., according to an investment banker familiar with the company.
The banker said as long as the Ontario Teachers Pension Plan, which owns almost 80 per cent of the parent company of the Toronto Maple Leafs, wants a premium price for its shares, no equity fund, financial institution and even other corporations, foreign or domestic, is willing to pay it. The banker, who requested anonymity because of his business relationships with various sports companies, called this an "ego premium."
The most desirable sports properties, such as the Maple Leafs, New York Yankees or Boston Red Sox, can have ego premiums because of the belief some buyers will be willing to pay more than market value for the cachet of owning them. However, the banker said, financial institutions or corporations have to answer to clients or shareholders and are interested only in paying market value.
When Teachers put its shares on the market last March, its officials said they would only sell if someone met their price. Sources estimate that price to be as high as $1.8-billion for control of the company that owns the Maple Leafs, the Toronto Raptors of the NBA, Toronto FC of Major League Soccer, the Air Canada Centre and two television stations.
The banker, speaking in the wake of a published report that Providence Equity Partners LLC, an equity fund based in Rhode Island, showed an interest in MLSE, said Morgan Stanley, the investment bank hired by Teachers to market its shares, should be searching out the kind of buyers willing to pay an ego premium. The targets should not be equity funds, corporations or financial institutions but billionaires looking for the buzz of owning an important sports property. The banker said Morgan Stanley would be better off trying its luck with Russian or Middle Eastern billionaires.
Don Cornwell, the Morgan Stanley executive believed to be handling the potential MLSE sale, did not respond to a request for comment.
However, it is doubtful any Russian oligarchs will be taking a look. Sources in the banking community said when a major investment bank decided to canvass some Russian billionaires about investing in the NHL, its officials were told Russian prime minister Vladimir Putin put the word out that they would be wise to restrict their hockey investments to the homegrown Continental Hockey League (KHL).
But when it comes to sports clubs in general, Brad Rangell, managing director and team leader of Citi Private Bank's sports-advisory practice, said that Russian oligarchs, sovereign-wealth funds, and private-equity firms are all showing more of an interest these days.
These sales processes often take between 12 and 18 months, and Rangell said that potential buyers might not be willing to pay as much in the midst of this economic uncertainty.
The anonymous investment banker also said Leafs fans are not likely to be unhappy if their team fell into foreign hands. "As long as they make the team a winner, the fans would be happy with anybody," he said.
Equity funds have held ownership stakes in NHL teams but with mixed results. The problem for a private equity fund is that its purpose is to increase the value of any holding and then sell for a profit, usually after five years.
For example, TowerBrook Capital Partners has been trying to sell its 70-per-cent stake in the St. Louis Blues for more than a year without success. It is now expected to take a hefty loss on a sale to Chicago businessman Matthew Hulsizer.
Providence Partners is no stranger to the sports business but two investment bankers said it makes "no sense" for the equity firm to buy into MLSE. One of the bankers said Providence Partners usually invests in media properties not clubs.
Another obstacle to any sale is MLSE chairman Larry Tanenbaum. He owns the other 20.5 per cent of the company and has the right of first refusal on Teachers' shares. While Tanenbaum has never indicated his plans publicly, those close to him say he would try to buy those shares if another offer were made.
Richard Peddie, president of MLSE, declined to comment as did MLSE board member Dale Lastman. Tanenbaum did not respond to a request for comment. A spokesperson for Teachers said there would be no comment.
With reports from Boyd Erman and Tara Perkins