On Monday it was reported that Jim Crane had agreed to buy the Houston Astros for $680 million, which is $206 million more than Forbes valued the team earlier this year.
If the sale is approved, it will be the second-highest price anyone has paid for an MLB franchise. When current Astros owner Drayton McLane, Jr. bought the club in 1992, he paid $103 million – clearly a nice profit for a franchise that’s among the middle of the pack in MLB team values.
According to Forbes 2011 estimates of MLB team valuations, Houston was valued at $474 million, with 2010 revenues of $197 million and an operating income of $14.4 million.
Some suggest that McLane’s efforts to create a new regional sports network played a major role in Crane’s interest in the Astros. Under the terms of the agreement, the NBA’s Houston Rockets and the Astros will own just under 80 percent of the new network to be called Comcast SportsNet Houston.
However, Crane’s purchase price of $680 million may actually be $773 million after it was reported that McLane will receive an additional $93 million for his stake in the Comcast deal.
Crane apparently believed the Comcast deal could pay handsomely over the course of the contract, otherwise a sale price of nearly $300 million more than the team’s value wouldn’t make any sense.
And it should be noted that Forbes valuation of the Astros is merely an estimate. It could easily differ by 10 to 15 percent depending on how much information they were able to obtain regarding the club’s financial situation.
As we’ve come to learn about most professional sports franchises, what’s being reported isn’t always in tune with their actual financial records. In fact, it’s very likely the Astros had revenues that were much higher than the reported $197 million.
In addition, the Astros’ value could also be much higher based on the club’s federal and state tax benefits and other incentives the franchise may receive through private negotiations with government officials.
But a potential major issue pertaining to Crane’s purchase is the estimated $300 million debt he’ll have to finance, which is greater than MLB’s debt limit of 10 times the club’s earnings before interest, taxes, depreciation and amortization.
Another problem facing Crane if the sale of the club is approved is the fact that Houston is averaging 25,363 fans a game this season, a 12 percent decline from last season.
Houston is headed toward their fifth consecutive season of declining attendance, meaning gate revenues will continue to fall. It’s hard to imagine new ownership having the ability to inject enough excitement to attract more fans to the ballpark for a club that’s in the middle of a rebuilding process.
It’s also difficult to think Crane would be able to substantially increase the Astros’ payroll to draw interest from high-priced free agents who could entice more fans to attend games.
It will be interesting to see what MLB does based on the financial data available, but Crane has put himself squarely on the block by paying what appears to be entirely too much for the Astros.
