(Reprint From The Orange County Register)
October 31, 2002

WINNING WAYS ASIDE, NEW OWNERSHIP IS LIKELY
By MICHELE HIMMELBERG

The Anaheim Angels just won their first World Series, captured the hearts of Orange County and went to Disneyland to celebrate. Now what are they going to do?

Get a new owner.

Despite the glory of a world championship, the Walt Disney Co. is trying to sell the Angels or take on a significant partner by the end of the year. It's a move that could appease Disney's disgruntled shareholders even as it rankles baseball fans.

While the Angels were wildly successful on the field this year, they didn't produce the profit expected of a Disney franchise. Even with extra income from the postseason, the team could lose $8 million for the year, club officials said, and that follows other years with losses reported as high as $16 million.

Those losses are a Mickey Mouse eyelash in the Disney entertainment and media empire. So are the $100 million in sales the team generated in a world championship season. The Angels make up a tiny portion of Disney's $25 billion in annual revenue.

But they are a highly visible asset. With Disney and CEO Michael Eisner under pressure to produce better earnings companywide, the Angels could simply be too big a reminder of the company's sagging profit. Disney stock closed at $16.83 on Wednesday, down from a 52-week high of $25.17.

``A public company must show return on investment, and sports is not the place to do it,'' said Andy Dolich, former executive at Tickets.com and now head of business operations for the Memphis Grizzlies basketball team.

Another big factor in the sale is that sports teams no longer play a strategic role in the company's future. Disney bought the Angels and the Mighty Ducks hockey team largely to secure Anaheim's future as a resort destination, and that was accomplished last year.

``There is so much shareholder scrutiny today that they may look at (sports) as negative for their earnings,'' said Jeff Phillips, senior vice president at investment firm Houlihan, Lokey, Howard & Zukin. ``But those economics get lost on the fans.''

What are they worth?

Like Disney stock, the prime time to sell the Angels was nearly three years ago. That's when reports had Disney asking $300 million for the club. More recent valuations have suggested the Angels could fetch about $175 million to $250 million. And Phillips said the Angels and Ducks together could go for as much as $450 million.

Disney bought the Angels for $140 million, completing the sale in 1998, and then renovated Edison Field for an estimated $100 million.

But the true value, said Stephen Shmanske, an economist at California State University, Hayward, is ``whatever some rich person is willing to pay'' for a toy.

Among those lining up to bid for the Angels are former baseball commissioner Peter Ueberroth, chairman of an investment-management company in Newport Beach; the Nederlander Organization of New York, which has ties to baseball, Disney and Anaheim; Alabama businessman Donald Watkins, bidding to become the first black majority owner in baseball; and Mexican billionaire Carlos Peralta, who wants to expand baseball's ethnic appeal.

As those buyers study the Angels' finances, they're discovering some of the same problems Disney has seen.

Though most key playersare signed through 2004, the team's payroll is expected to jump to roughly $80 million next year from $61 million. That means even bigger potential losses in 2003, even with a boost in revenue sharing from Major League Baseball. That gives the new owner a fast dilemma: Do you suffer as much as $20 million in losses or do you dismantle a championship team to lower payroll?

Still, Disney will attract buyers because baseball teams are scarce.

``It's more like acquiring art,'' Phillips said. ``Typically, owners recoup their investment by selling the franchise. So it comes down to this: Does somebody have the wherewithal to survive financially and go into it knowing they won't have that annual cash flow to live off of?''

saving anaheim

A former Disney executive once said Disney is a very fussy company when it comes to acquisitions. It has exceptionally high requirements for return on investment.

Disney took some risks then, buying into baseball, but figured there could be substantial upside if it managed the stadium. In 1996, when Disney first bought in, baseball had just reached a new labor agreement, fans were coming back to the parks, and Disney envisioned some of the same synergies for baseball and entertainment that it had used with the Ducks.

But the real motivator was the deteriorating conditions down Katella Avenue, near Disney's theme parks. At an investors conference this month, Eisner explained how the sports franchises helped stabilize the future for all of Disney's assets in Anaheim.

Inside Disneyland, everything was fine, but outside, Eisner said, ``... the area was going downhill. If something was not done, our flagship would be floating in a sea of urban decay. So we brought a hockey team to Anaheim, kept the Angels from moving to another city and renovated the stadium in order to help the overall Anaheim economy and strengthen our relationship with the local community, which allowed us to expand the resort with a new theme park, new hotel, new shopping area.

``It was a comprehensive solution which is now in place and will allow the Disneyland Resort to thrive for as close to forever as we can foresee.''

Disney also planned to use the Angels as programming for its ESPN sports network. That never materialized, and now the question is the same one Eisner posed after the Angels won in the first round of the playoffs: Does it make sense for Disney to own both a sports team and a sports network? It might be better off buying broadcast rights, not the whole team.

``They were pushing for a cable setup that would have been like an ESPN West, and Fox beat them to it,'' Phillips said. ``The market said enough was enough.''

winning and Losing

Most baseball owners say they lose money, and most sports economists don't believe them. Skeptics say it's part of the funny game owners play. They claim they are losing money for tax purposes and to reap more in baseball's revenue sharing. But they probably don't claim poverty when they're talking to prospective owners.

``There are ways of hiding or shifting revenues, and inflating costs so they come up with one figure of profit or loss,'' Shmanske said, questioning items such as depreciation, cross-marketing and subsidization for other business units. ``You need a consolidated income loss for everything else the owner does to see where it all goes.''

Losses or not, some owner will find value in the Angels.

``They will find somebody with a deep pocket who does it for a hobby, to have a high profile in the community,'' Shmanske said. ``And it'll be worth it to them.''