Detroit Tigers would fetch princely sum if Ilitch heirs sell

Feb. 19--For a reported $85 million in cash, Mike Ilitch bought the Tigers in 1992 to become owner of his second professional Detroit sports team -- an asset that has since exploded in estimated value by more than 1,000%.

Since his death Feb. 10 at age 87, Ilitch family members have indicated no plans or any intention to sell their Major League Baseball or National Hockey League teams, which are to remain "100% Ilitch-family owned" under a succession plan in which Chris Ilitch -- the sixth of Mike and Marian Ilitch's seven children -- assumed his father's business roles.

Yet should Ilitch's heirs ever wish to cash out their late patriarch's investment in those teams, they could fetch a princely sum.

The Tigers organization was valued at $1.15 billion last year and ranked 14th out of 30 teams by Forbes Magazine, whose annual valuations of Major League teams is considered the best guide that is publicly available.

Forbes valued the Red Wings at $625 million, or eighth out of the 30 NHL teams. The magazine says its valuations use teams' actual revenue figures and its rankings are based on the size of a team's revenue streams rather than the bottom-line profits.

An Ilitch organization spokesman referred to the succession plan's statement on continued family ownership of the sports teams when asked last week about future plans for the Tigers and Red Wings.

Sports business experts say that estimating the price that a sports team could sell for is very different from a general valuation such as Forbes' and requires opening the team's private financial books. The crucial details are in a team's current television broadcast deals and the prospects for their next deal, as TV is where much of the money in baseball and hockey is made today.

Another key factor is other recent transactions of MLB and NHL teams.

"You really have to understand the market and what's going on," said Michael Rapkoch, owner of Texas-based Sports Value Consulting. "None of my clients has ever said 'Here's what we're paying for a team because here's what Forbes has it for.'"

Many have speculated that the Ilitch family has a stronger emotional pull and financial incentive for keeping ownership of the Red Wings well into the future. Mike and Marian Ilitch bought the team for $8 million in 1982 from Bruce Norris, whose family had owned the hockey team for a half century.

The Wings are to relocate this fall from the aging Joe Louis Arena to the new $635-million Little Caesars Arena that is under construction just north of downtown and will also house the Pistons. The Ilitch organization is developing the arena and a planned new entertainment and residential district to surround it.

In the baseball business, Major League teams have generally seen their valuations skyrocket in recent decades, driven largely by lucrative TV deals and higher profitability in their core stadium business through luxury suite sales, corporate sponsorships, naming rights deals and more generous public subsidies and revenue-capture deals, said Donald Erickson, managing director at the Dallas office of Mercer Capital and an expert in sports team valuations.

The Tigers have mirrored this trend. The team's previous owner, Tom Monaghan, the founder of Domino's Pizza, bought the club for $53 million in 1983 from radio and TV executive John Fetzer, who had owned the team since the 1960s and whose reluctance to compete for high-salary players once angered some fans.

Nine years later, Monaghan sold to Ilitch for a reported $85 million, or about $10 million more than the overall inflation rate during that period.

On its own, that $85 million would have been worth $145 million in 2016, according to the U.S. Bureau of Labor Statistics' inflation calculator. Yet the total value of the Tigers last year, per Forbes' calculations, exceeded that inflation-adjusted figure by nearly a billion.

The team's valuation even trumps the return that Mike Ilitch might have gotten by holding on to his $85 million and investing it instead. If such an investment had followed the Standard & Poor's 500 index and all the dividends were reinvested, his rate of return would have been 625% through January 2016, or about $530 million, according to a Free Press analysis using the S&P 500's online calculator.

To be sure, the team's profitability over the last 25 years and the total amount spent by the Ilitches on investments in the team and its facilities is not publicly known. Forbes reported the Tigers getting $11 million in annual income in 2015 off $268 million in revenue. Last year, the team had the league's third-highest payroll at about $215 million, a spending level that might unnerve a more bottom-line-focused owner.

A Tigers front office representative did not return a message last week for comment on Forbes' figures and the team's financials.

Erickson of Mercer Capital said about 80% of the recent valuation surge for Major League teams is from more lucrative TV deals. The rest is from better stadium revenues, including more teams getting to keep 100% of the money generated at new stadiums built with public assistance.

Stadium deals matter

The Miami Marlins new $639- million retractable roof stadium and the favorable terms of the team's revenue-keeping arrangement appear to be big factors in the Marlins' potential $1.6-billion price in a recently reported possible sale. Such a deal would not just dwarf the $158 million that Marlins owner Jeffrey Loria paid for the team in 2002, but also Forbes' $675 million valuation estimate last year.

The Marlins' stadium was heavily subsidized by the City of Miami and especially Miami-Dade County, which took on more than $2 billion in debt. The baseball team reportedly covered a quarter of the construction costs, yet got to keep all revenues generated at the new stadium, including tickets, concessions and parking.

The Tigers' own stadium situation has improved since the team last changed hands. The club was said to be barely breaking even at Michigan and Trumbull in the early 1990s when Ilitch bought the team.

Old Tiger Stadium was owned by the City of Detroit in its final decades and, for years, the Tigers paid $150,000 in rent plus a 90-cent ticket surcharge to finance renovations. However, rent was waived during the team's last decade in the now-demolished stadium.

Today the Tigers keep all revenues generated at Comerica Park, which opened in 2000 and cost at least $361 million to build. The public's share of that cost was $135 million, with the Ilitch organization covering the rest. The stadium is owned by the Detroit-Wayne County Stadium Authority and the Tigers are not charged rent.

The Tigers' key deal for TV broadcasting rights is with Fox Sports Detroit, which also has contracts with the Lions and Pistons. Crain's Detroit has reported that the Tigers are paid $50 million a year under a 10-year contract with Fox set to expire in 2018.

Greg Hammaren, general manager of Fox Sports Detroit, declined to confirm or comment on any details of its Tigers contract. "We simply do not comment on our rights deals," he said last week.

The crucial number for determining the Tigers' potential resale value is the size of the next local TV contract, Erickson said. "The real question will be, in today's market, what can they renew it for in the next several year?" he said.

There has been speculation that the Tigers, Red Wings and Pistons might seek to join forces and combine team media rights by forming a regional sports network, similar to the successful New York-based YES Network. Such a network could also include new teams, such as a Major League Soccer franchise that Pistons' owner Tom Gores and Quicken Loans founder Dan Gilbert hope to land in downtown Detroit.

A team-owned regional sports network could potentially generate more money for the teams through greater advertising dollars and leverage in negotiations with cable companies.

Taxes

Estate taxes have, in the past, compelled the heirs of some professional sports teams to sell after an owner's death. The top federal estate tax and gift tax rate is currently 40%.

"So if you have a billion dollar gain, then you could conceivably pay $400 million tax," Erickson said. "The estate tax can be huge."

The Internal Revenue Service allows a spouse to inherit estates without having to pay those taxes. However, MLB rules prohibit Marian Ilitch from owning the Tigers so long as she continues to own MotorCity Casino Hotel.

Erickson said there are various and complex arrangements that families can use to shield the inheritance of a sports team from a massive tax bill, such as trusts and minority ownership stakes. The Ilitches haven't publicly disclosed their precise estate-planning strategies for the Tigers or Red Wings.

"There are some strategies you can use tax-wise, but all they do is mitigate the taxes -- they don't eliminate them," Erickson said.

The family will no doubt want to avoid the sort of unpleasant surprise that hit heirs of the late billionaire William Davidson in 2013, when the IRS claimed they still owed $2.7 billion because of underpayments in estate taxes, gifts taxes, penalties and more. Davidson, who died age 86 in March 2009, had owned the Detroit Pistons, the WNBA's Detroit Shock and the NHL's Tampa Bay Lightning.

That figure was reportedly more than 10 times what the estate's accounting firm initially calculated and paid. His family disputed the claim and the IRS ultimately settled with Davidson's estate for an additional tax payment of about $457 million.

Davidson's heirs sold the Pistons to Tom Gores in 2011.

From buyer to buyers

If the Tigers ever are sold, the buyer would likely not be another individual such as Mike Ilitch. That is because the price tags on professional sports teams have shot up so high, they're beyond the reach of all but the upper echelons of the top 1%.

Rapkoch of Sports Value Consulting said the more common buyer of teams these days is a small group of people who take various ownership stakes. The group is typically fronted by a person or persons with majority stakes.

"The day of having one individual owner is probably gone -- unless they have really deep pockets," Rapkoch said.

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

What if there was a sale of the Tigers?

* Major League Baseball ultimately would need to approve any sale of the Tigers.

* Potential bidders and their investors would be vetted by the league.

* A finalist would then need the recommendation of MLB's ownership committee.

* The final step would be an affirmative vote from three-quarters of the 30 clubs.

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