Disney Had Less Than It Thought

As a baseball team, the Angels are pretty good.

As the linchpin of an interactive entertainment empire, a foundation for a cable sports channel, a spur for urban development, or a promotional vehicle for theme parks, movies and shows, the Angels have not been particularly useful.

The inability to take advantage of Angel ownership for other business purposes helps explain why Disney agreed in principle this week to sell the World Series champions for $180 million, far less than the company originally asked.

With a surplus of sports franchises for sale -- but a dearth of bidders -- and with player contracts that all but ensure an incoming owner cannot turn a profit until at least 2005, Disney got a decent offer and got out of baseball.

“They did a good job of getting a fair price,” said former Angel president Richard Brown, a consultant to Alabama businessman Donald Watkins, one of the unsuccessful bidders.

The winning bidder is Arturo Moreno, 56, an Arizona advertising entrepreneur with a passion for baseball. The winning bid, which could be worth as much as $190 million depending on details of still-to-be-finalized sale documents, nonetheless subjects Moreno to a projected $15 million in losses through this season and next.

“I think they’re getting the market price,” said Robert Caporale, chairman of Game Plan LLC, a Boston sports investment firm that represented another unsuccessful bidder, developer Frank McCourt. “I do not believe you were going to get substantially more, given current economic conditions and given projections of team financial performance.”

Disney valued the Angels at $300 million during sale negotiations in 1999, when Henry T. Nicholas III and Henry Samueli envisioned that ownership of sports teams could drive demand for their company’s interactive technology.

The thinking was that with the merger of your computer and TV set into one device you could watch the game, select and view replays from various angles, order tickets and merchandise and fire off an e-mail to the manager, all with one remote device and without getting up from your recliner.

Nicholas and Samueli also backed businessman Marvin Winkler’s plan to erect a massive indoor park for artificial surfing, skiing and snowboarding in the Edison Field parking lot, with a surrounding entertainment center that would bridge the gap between the stadium and the Arrowhead Pond.

But Nicholas and Samueli dropped their bid, and bankers refused to finance Winkler’s dream. The stadium parking lot remains largely undeveloped, much to the chagrin of Anaheim city officials who anticipated millions in tax revenue from any of several proposed developments.

And, in the years since that bid, major league owners have agreed to share revenue generated by Internet ventures, so an Angel owner could no longer reap a windfall even if he could implement the Nicholas-Samueli vision.

Disney also planned to leverage ownership of the Angels. In a press release issued when owners approved the company’s purchase of the Angels in 1996, Disney sports chief Tony Tavares said, “We will create promotional tie-in programs linking the Angels, Mighty Ducks and Disneyland.”

That buzzword was “synergy,” but those programs were all but invisible. The primary synergy Disney wished to create was ESPN West, a proposed cable sports channel that would have been anchored by broadcasts of Angel and Mighty Duck games.

But the plan collapsed -- after Disney had put up an Edison Field billboard that proclaimed “ESPN West: Coming Fall 1998” -- and the value of ads promoting Disney movies and television shows to fans in attendance and viewers at home paled in comparison to the wildly escalating losses of operating the Angels.

“You’re not going to find $20 million or $30 million a year in synergy benefits,” Tavares told The Times in 1998.

That year, Fox bought the Dodgers for $311 million, checkmating Disney’s ESPN West aspirations at a price that included the team, Dodger Stadium and surrounding real estate and two training complexes. Two years ago, the Boston Red Sox sold for $660 million, which included the team, Fenway Park and control of a cable network.

Although the ESPN West flop and the Angels’ persistent financial losses prompted Disney to no longer need or want ownership, the team was all Disney could offer for sale.

And by the time Disney hired an investment bank to handle offers, the Angels joined the Dodgers, Atlanta Braves, Minnesota Twins and Montreal Expos in a crowded baseball market.

Analysts typically determine franchise value as a multiple of revenues, but the widely cited figures of $225 million to $250 million are based on unprecedented revenue -- including record ticket sales -- that may not be sustainable if the Angels fail to return to the playoffs and fan enthusiasm wanes.

New owners commonly generate money by raising ticket prices and renegotiating cable contracts, but neither avenue appears available to Moreno. The Angels hiked the average ticket price 25% last winter, and their contract with Fox extends through 2008, escalating from an $8.5 million rights fee this year to $20 million in the final year.

Caporale said he could not imagine a new owner generating much more revenue than Disney had.

“Not in any substantial amount,” he said.

“They’ve done a great job on the revenue side.”

The Angels also have saddled Moreno with long-term player contracts that make significant payroll cuts a near-impossible option until after the 2004 season, when the contracts of pitcher Kevin Appier ($12 million), third baseman Troy Glaus ($9 million), pitcher Aaron Sele ($8.5 million), pitcher Troy Percival ($7.5 million), outfielder Garret Anderson ($5.85 million), pitcher Ramon Ortiz ($3.1 million) and catcher Bengie Molina ($1.9 million) all expire.

“The payroll hamstrings the new ownership,” said David Carter, a Los Angeles sports business consultant and instructor. “It certainly diminishes his ability to make money in the short term.”

Moreno has yet to discuss his plans for the Angels, so this doesn’t mean he will slash payroll or refuse to absorb operating losses. What it does mean is that no one was willing to pay Disney a premium price to make those choices.

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Recent Sales

The prices realized in some recent sales of major league baseball teams:

1996, 1998 -- In 1996, Disney buys 25% of the Angels from Gene Autry for $30 million. When Autry dies in 1998, Disney buys rest of team for another $100 million.

1997 -- News Corp. buys the Dodgers from Peter O’Malley for $310 million.

April 1998 -- Group headed by John Henry buys the Florida Marlins for $150 million.

Nov. 2000 -- Group headed by Larry Dolan pays $323 million to purchase Cleveland Indians.

Dec. 2001-Jan. 2002 -- Major League Baseball buys the Montreal Expos from Jeffrey Loria for $120 million, who then buys the Florida Marlins for $155 million

Dec, 2001 -- A group headed by former Florida Marlin owner John Henry and former San Diego Padre owner Tom Werner, and including former U.S. Senate Majority Leader George Mitchell and the New York Times Co., buys the Boston Red Sox, Fenway Park and an 80% interest in the New England Sports Network for $660 million.