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Thomas O. Hicks, who amassed a fortune in the 1990s with a series of lucrative leveraged buyouts, is departing the sports world with a mixed record. "Sports has never been my primary business," says Hicks. "We are systematically selling our sports assets to focus on our core businesses like private equity and real estate."
Last week the Texas Rangers filed for bankruptcy, about a year after its parent, HSG Sports Group, defaulted on $525 million of debt. The filing comes nearly 10 years after Hicks started the Rangers down the path to bankruptcy court by signing Alex Rodriguez to a record-smashing 10-year, $252 million contract. Rodriguez is the team's top unsecured creditor, owed about $25 million in deferred compensation, according to court documents. Hicks' proposal to sell the team for $575 million to a group headed by team president and Hall of Fame pitcher Nolan Ryan is being challenged by creditors. "We have a plan in place now for the Rangers that's very solid, and the club is positioned to be a contender," says Hicks.
Another HSG property, the Dallas Stars of the National Hockey League, is up for sale. And just over three years after agreeing to buy 18-time English soccer championship team Liverpool, Hicks and co-owner George Gillett Jr., mired in $341 million of debt, put it on the block. Hicks says he may lose a few hundred million dollars on the Texas Rangers and Dallas Stars; he expects to make that up when he sells his Liverpool stake.
Hicks, 64, built the Dallas firm eventually known as Hicks, Muse, Tate & Furst into a private equity powerhouse in the 1990s, before losses in telecommunications and media stocks dimmed its luster. In 2004, Hicks announced that he was leaving the firm, which was renamed HM Capital.
Hicks moved into sports independently of Hicks Muse. He bought the Dallas Stars for $84 million in 1995 and the Texas Rangers for $250 million in 1998. The ventures got off to a good start, riding a wave of growth for major league sports franchises. HSG Sports struck a 15-year deal in 1998 with the regional Fox Sports network that tripled the Stars' TV rights fees and doubled those of the Rangers. Fans flocked to the teams' new facilities—the Rangers' Ballpark at Arlington, opened in 1994, and the Stars' American Airlines Center in 2001.
Hicks personally courted Rodriguez in November 2000, negotiating the blockbuster contract with his agent, Scott Boras. With A-Rod on the roster, Texas finished last in its division three times. Texas traded him to the New York Yankees in 2004. It remained on the hook for part of his salary while also continuing to pay expensive free-agent signees like pitcher Chan Ho Park, pushing the team's payroll over $100 million. "When I signed A-Rod, that got a lot of attention and it didn't work out well for us," says Hicks. "With the Rangers I've clearly done some smart things and some things I would like to do over again."
One mistake was piling up debt as the Rangers were sinking in the American League West. During the boom years, that might not have been a problem. After the financial crisis hit, the cost of financing soared, and the pool of potential buyers shrank—as Hicks found when he put the Rangers on the market in 2009. "The universe of potential buyers was always small, and that universe has contracted with the economy," says Michael J. Cramer, a former president of the Rangers and the Stars who teaches sports business management at New York University. Says Hicks: "Clearly HSG got into excess leverage during the credit bubble."
Buyout skills may not have helped Hicks run big-league teams. "Success in the sports sector is about operational engineering," says Steven N. Kaplan, a finance professor at the University of Chicago Booth School of Business. "There's too much volatility in a team's performance and attendance for financial engineering, which is what Hicks was known for."
Having every move scrutinized is something Hicks will not miss. "The lack of privacy in sports is something that my family and I aren't willing to undertake any longer," he says. "We'll always be big fans, but we want our privacy back."
The bottom line: In many respects, sports teams are like any other company. Load them with too much debt and they will run aground when credit dries up.