Disney Sports Future: Cloudy

The Angels’ attendance has fallen in four consecutive seasons under Walt Disney Co. management, and the team has not appeared in the playoffs since the Reagan administration. Down the street at the Arrowhead Pond, the Ducks, once the darlings of Disney and the NHL, don’t draw, don’t sell, don’t win.

No wonder Disney wants out of the sports business, though its exit strategy became cloudier Thursday when the South Florida Sun-Sentinel reported that the intended buyer of the Angels, John Henry, had reached tentative agreement to sell the Florida Marlins, independent of any talks with Disney.

Baseball Commissioner Bud Selig has worked to broker a complex deal that would result in the elimination of the Minnesota Twins and Montreal Expos this winter, with Montreal owner Jeffrey Loria buying the Florida Marlins and Henry, the Florida owner, buying the Angels.

It is unclear whether the proposed sale of the Marlins would end or accelerate Henry’s negotiations to buy the Angels. Disney executives have met with Henry and are willing to sell to him, but sources this week said a deal was not imminent.

Neither Disney officials nor Henry, who founded his commodities trading firm in Newport Beach and who wants to remain a major league owner, could be reached for comment Thursday.

The Sun-Sentinel reported that an unidentified buyer would pay Henry about $150 million for the Marlins. Disney has told major league officials it would accept $250 million for the Angels, sources said, down from the $300 million at which the company valued the franchise during sale negotiations two years ago.

Disney might ultimately have to accept less for the Angels, valued at $192 million by Forbes magazine, in order to escape a sports business where an eroding fan base can lead to an eroding sale price. The Angels finished a franchise-worst 41 games out of first place last season.

“When you’ve got an attendance that’s dropping, it’s problematic,” said John Moag, managing director of the sports investment banking group at Legg Mason in Baltimore. “When a franchise becomes staid and stale, it’s losing some of its shine and can lose some of its asset value.”

Disney might also have to settle for less to dump the Ducks, which are last in the NHL in attendance. The franchise was valued by the company at $150 million during sale negotiations two years ago. Forbes magazine last year valued the Ducks at $116 million.

The Ducks sold out 51 consecutive games from 1993-95, an era in which they seemingly outfitted every kid in North America in team merchandise. Now, on a good night at the Arrowhead Pond, the Ducks sell two of every three seats, and a few caps, and play to a tie. Chairman Michael Eisner, a frequent fan in the Ducks’ fledgling years, seldom shows up any more.

Disney’s corporate ambivalence about pro sports ownership dates at least to 1998, when the company pulled the plug on its proposed ESPN West cable channel, which would have carried Angel and Duck broadcasts. Fox bought out those rights, at a hefty $140 million over 10 years.

Since then, Disney executives have maintained they would welcome, but not solicit, offers for the teams. Disney has not retained an investment banker, a step typically taken by owners anxious to sell.

However, since Disney lavished $80 million upon slugging first baseman Mo Vaughn on Thanksgiving Eve 1998--a move that backfired horribly and unforeseeably--neither the Angels nor Ducks have signed a marquee free agent.

Disney claimed operating losses on the Ducks for the first time in 1999--and each year since--and has claimed losses on the Angels every year since buying the team in 1996.

“If you’re Disney, you’re not formally contracting, but your fan base is contracting,” said David Carter, who teaches sports business at USC.

“If they’re not committed to the product they’re selling, they can’t expect customers to be excited about buying it.”

Said Moag: “From a fan’s perspective, one of the worst things that can happen to a franchise is if it becomes adrift, if you don’t see an ownership that has a direction, if you don’t see the building of a team. I think fans become very disenchanted with that.”

The suggestion that unsettled ownership leads to poor attendance and diminished fan interest is laughable to Tim Mead, vice president of communications for Anaheim Sports, the Disney division that runs the Angels and Ducks.

“Are people not going to the Pond because there’s a perception Disney is going to sell the Ducks? I don’t think so,” he said.

In 1997, the year beloved owner Peter O’Malley put the Dodgers up for sale, the team drew 3.3 million fans, the most in six years, spurred by playoff appearances in 1995 and ’96.

But the Angels last participated in the playoffs in 1986, and a September collapse is a franchise tradition.

The Ducks finished in last place in their division in each of the past two seasons and are stumbling again this season.

Disney believes fans will turn out to watch a winning team, Mead said, and he insists the Angels and Ducks are sticking to blueprints to develop young talent rather than spend freely on free agents. The opening day player payroll dipped slightly from last year to this year for each team; the Ducks, at $37 million, ranked 16th among the 30 NHL teams and the Angels, at $43 million, ranked 21st among the 30 major league teams.

“The commitment of trying to keep a core group of players in place has not changed. The philosophy in hockey and baseball has not changed,” Mead said. “Nobody has any intent of cutting into the product.”

Although a potential buyer might find a team with fewer long-term contract liabilities more attractive, Mead said the Angels and Ducks are “absolutely not” under a corporate edict to stay away from free agents and limit spending to prepare the teams for sale.

In August, the Angels extended the contract of Manager Mike Scioscia through 2005. They have guaranteed $126 million to five players through 2005, with three of those players signing long-term contracts this year. The Ducks have guaranteed $19 million to seven players beyond this season, and they will assuredly guarantee more to superstar Paul Kariya after his $30-million contract expires at season’s end; the Ducks have the right to match any offer to Kariya, a restricted free agent.

Disney’s reluctance to spend millions on free agents from other teams does not necessarily mean the company is trying to make the Angels and Ducks a better buy, said Robert Caporale, chairman of Game Plan LLC, a Boston-based sports investment company.

“I think it’s more a function of the current financial performance of the teams,” Caporale said. “I suspect they’re a cash drain, so the financial performance of the team doesn’t justify them taking on a major new liability, because that’s coming straight out of the bottom line.”

Still, at a time Anaheim Sports President Tony Tavares stands outside a meeting of major league owners and calls the Angels “no longer a strategic asset” to Disney, the company might well have to slash its asking price if Henry does not buy the team and no other buyer immediately emerges.

Former baseball commissioner Peter Ueberroth, whose investment group was outbid by Disney when the Angels were last sold, said he has not talked recently with Disney officials but said his partnership remains interested in buying the team.

“It would be a matter of price,” he said.

“They know we’d be interested if the price is more realistic.”

Disney could hear the same refrain from potential buyers of the Ducks. Before Vancouver Grizzly owner Michael Heisley selected Memphis as the new home for his NBA team, he considered moving the team into the Pond. Disney was willing to sell the Ducks to Heisley too but “there was no fire sale,” Anaheim Mayor Tom Daly said.

Short of a fire sale, the Ducks might not sell. While winter negotiations could lead to a new baseball labor agreement that could enable owners to share more revenues and perhaps better control player costs--”I’m fairly bullish on baseball,” Moag said--NHL owners might lock out players again when that league’s labor agreement expires in 2004.

Spiraling salaries are far less tolerable to NHL owners, since each team receives $4 million per season from national television contracts, compared to the $18.5 million each baseball team receives each season.

That disparity makes gate revenue far more important to NHL teams, deflating the Ducks’ value because their attendance is the worst in the league. The disparity also amplifies whatever effects the national economic slump might have on corporations that support teams through sponsorships, season tickets and luxury suite rentals.

Ultimately, Disney might have to spruce up the teams in order to sell them. Conventional wisdom says an owner on the verge of selling a team would not spend millions to sign new players, just as a homeowner on the verge of selling a house would not pay to renovate the kitchen.

“If you feel you can sell now, there’s no reason to make substantial capital expenditures,” said former Angel president Richard Brown.

“If you can’t, then you have to sit there and say, how can we make this more attractive?

“If you’re selling your house, and no one’s buying, and the comments from the realtor are that no one finds it attractive, maybe you slap a coat of paint on it.”