Disney Talks to Billionaire About Teams

Walt Disney Co. has approached Orange County technology billionaire Henry T. Nicholas III about making a major investment in its Anaheim professional sports teams, highly placed business sources said.

Against a background of shareholder discontent with Disney’s declining performance, the discussions are the first sign that a possible sale of baseball’s Angels and hockey’s Mighty Ducks has moved beyond internal debate and into the realm of deal making.

Sources said Disney used an intermediary to discuss the matter with Nicholas, rather than hire an investment bank such as Goldman Sachs, which brokered the sale of the Dodgers to Rupert Murdoch.

Nicholas and officials at his company, Broadcom Corp. in Irvine, repeatedly declined to comment on the subject.

It couldn’t be determined if Disney has approached other potential buyers about acquiring or investing in its sports teams. It also was unclear what amount of money or level of ownership Disney was seeking from Nicholas.

But sources said Disney wants the teams to stay in Orange County, and would probably demand a promise from potential buyers not to move them.

Nicholas is chief executive and co-founder of Broadcom, a booming Irvine company that makes computer chips for high-speed communication systems. Since its spectacular Wall Street debut in April 1998, Broadcom has emerged as one of Southern California’s brightest technology stars--and turned Nicholas into an extremely wealthy man and a local society darling.

The 6-foot-6 executive is known for his intense demeanor and passion for extreme sports.

Broadcom’s skyrocketing success contrasts with Disney’s recent stagnant financial performance. Disney profits, which for years increased at a better than 20% clip, have been flat in recent quarters, with disappointing results from such operations as home video, the Disney stores and ABC. The company’s stock price has declined 32% in the last 15 months.

The teams are such a small part of Disney’s global empire, with $20 billion in annual sales, that a sale would have negligible effects on its financial results. But observers said it would signal to shareholders that Chairman Michael D. Eisner is serious about overhauling the company he has run since 1984, since the teams were his pet projects.

Former baseball commissioner and Los Angeles Olympics czar Peter V. Ueberroth negotiated to buy the Angels before the Autry family agreed to sell to Disney in 1995. As a prominent sports figure and Orange County resident, Ueberroth would seem a natural buyer, but “Disney has not called here,” said his business partner, Joel Rubenstein.

Sports teams generally “are a troubled industry. Few people are making any money at it and we certainly haven’t,” said a highly placed Disney executive. He estimated the losses on the Angels and Ducks at $15 million to $20 million a year.

“If the teams were making $10 million or $20 million a year they wouldn’t be looking at [the sale],” he said. “Quite honestly, I don’t understand why [Eisner] didn’t do it a year or two ago.”

Although several Disney directors expressed reservations, the board went along with the pro sports investment because, until recently, the company’s overall business performance has been strong.

The Mighty Ducks, named after Disney’s successful movie about a youth hockey team, brought in millions of dollars in ticket sales, broadcast and merchandise revenues. But the Ducks lost $8 million last year, their first financial loss in their six seasons of operation. And the Angels have lost more than $42 million in three seasons of Disney management.

Now, corporate directors worry that sports has been an unnecessary distraction for Eisner.

But in the end, say sources, the decision to sell the teams will probably be entirely Eisner’s call.

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Locally, Nicholas and Broadcom co-founder Henry Samueli are among the new elite benefiting from the nation’s technology boom. Each owns Broadcom stock worth about $2.3 billion.

They have made several recent, high-profile donations in Orange County. Samueli and his wife gave $3 million to Temple Beth El in Aliso Viejo, $50,000 to Opera Pacific and an undisclosed amount to the Orange County Performing Arts Center.

Nicholas gave $1.3 million to the expansion of South Coast Repertory Theater, and an additional $1.28 million to UC Irvine’s athletic department to support the crew program.

The idea of Nicholas investing in a sports franchise--either on his own, or with other partners--doesn’t surprise some technology industry analysts. After all, John Moores, who made his fortune in a Texas computer software firm, engineered an $85-million deal in 1994 to become the majority owner of the San Diego Padres. Paul Allen, co-founder of Microsoft Corp., used his software billions to buy the Portland Trail Blazers and Seattle Seahawks.

“Sports [teams] are becoming a badge [of prestige] for a lot of technology companies and executives,” said industry analyst Allen Leibovitch, who manages the semiconductor research group at International Data Corp.

Indeed, technology giants have joined the parade of corporations paying millions to slap their name on stadiums, particularly in California. The Padres play in Qualcomm Stadium, the Oakland A’s in Network Associates Coliseum and the San Francisco Giants in 3Com Park.

But companies can use stadiums as product showcases, not simply billboards, particularly in newer ballparks and arenas where corporate customers in luxury boxes and club seats displace traditional fans.

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If Disney does find an outside investor, it is extremely unlikely either team would move. The city of Anaheim owns both Edison Field and the Arrowhead Pond.

Disney and the city signed an agreement in 1996 that committed the Angels to play at Edison Field for 33 years, with an escape clause after 20 years.

Disney can transfer the agreement to a buyer without the approval of the city, so long as the buyer is approved by major league baseball, said Greg Smith, who oversees the stadium and arena for the city.

However, officials at Edison International said that, in the event of a sale, they could demand to keep their name on the stadium for the balance of their 20-year agreement. Or, officials say, Edison could cancel the agreement altogether.

Disney also signed a separate agreement with Ogden Corp., the operator of the Pond, in 1993 for the Ducks to play there for 30 years.

Disney can transfer that agreement to a buyer without the approval of Ogden, so long as the buyer is approved by the NHL.

However, the buyer could lose an estimated $2 million a year in advertising revenue. In the event of a sale, Disney’s right to sell and retain all revenue from hockey-related advertising--on dasher boards surrounding the ice, behind benches and penalty boxes, on Zamboni machines and in the ice itself--reverts to Ogden.

Times staff writers James Bates and Bill Shaikin contributed to this story.