Private Equity Gets The Blues

Who says money won’t give you the blues?

A team of investors, led by Soros Private Equity spin-out team TowerBrook Capital Partners, has signed a deal to become the seventh owner of struggling National Hockey League franchise, the St. Louis Blues.

The consortium purchased the team from owners Bill and Nancy Laurie and Paige Sports Entertainment for a reported $150 million. TowerBrook is the majority owner and other investors include Dave Checketts, and his firm, Sports Capital Partners. The Lauries bought the team in 1999 for $100 million.

Asked about why he’d made an investment in the sports industry—notorious for being unprofitable—and, even worse, in the NHL, whose star has waned considerably over the years, TowerBrook partner Jonathan Bilzin said, “We’re always looking at out of favor industries.” He noted this is the first transaction after the new collective bargaining agreement. “We think this will be viewed as the right time to make the investment.”

Indeed, if buying at the bottom and selling at the top is important—you certainly can’t buy more at the bottom. At press time, the Blues were slumped at last place in the Western Conference, with a record of 20 wins, 38 losses and 12 overtime losses. This will be the first year the team hasn’t made the playoffs in a quarter century, which had been the longest active streak in the NHL. The team has never won a Stanley Cup.

“A good labor agreement is key to making money in sports. In the NHL, we’ve been looking at this for three years. The players and the owners can make a lot of money,” said Bilzin. Tack on the media opportunity, the real estate and sponsorships, and the purchase becomes even more attractive. The arena itself is as high as the fifth most trafficked arena in the country and “in number of events it is certainly in the top 10,” said Bilzin.

The auction was run by sports investment banking specialist Game Plan LLC, a firm founded last year by former New England Patriots receiver Randel Vataha and former attorney to the Hartford Whalers and Pittsburgh Penguins (another team that is now up for sale), Robert Caporale.

Game Plan ran a nine-month process, and Bilzin said he was aware of at least one other private equity firm that showed interest at the tail end of it. The TowerBrook team made an offer that it decreased after due diligence and which was initially rejected, but the consortium ultimately was able to purchase at the same level as its original offer. Capital for the deal came out of the $1.3 billion, recently raised TowerBrook Capital Partners II.

There has been some other private equity interest in sports. Last year, Bain Capital tried to buy the NHL for $3.5 billion and ABRY Partners made a bid to buy the Washington Nationals. Bain chief Stephen Pagliuca also owns the Boston Celtics. Other firms that have investments in the sports industry are Teachers’ Private Capital, Chartwell Investments and Seaport Capital.

Checketts is the former president of Madison Square Garden, where he oversaw the Knicks and the Rangers. He also, at 28, became the youngest general manager of an NBA team ever when he took over at the Utah Jazz. Checketts is on TowerBrook’s advisory board and has served on the boards of other TowerBrook assets such as Jet Blue and Cablecom.

Checketts said in a statement he is “unabashedly ambitious” about getting results from the Blues and the arena, and also claimed that St. Louis is “the best sports city in the nation, hands down.”

Checketts founded Sports Capital Partners, which also has investments in Major League Soccer team Real Salt Lake and college sports broadcaster SportsWest Production.

Speculation is that Checketts will bring a well known figure in as new president to help run the organization. Questions also abounded about whether Checketts would bring an NBA team to the city, the way previous owner Bill Laurie had. Although Checketts, who hired Pat Riley to coach the Knicks, has a long resume in the NBA, he reportedly denied any interest in bringing a basketball team there.

Past investments from TowerBrook include online data room operator IntraLinks, managed care services provider WellCare Health Plans, Spheris, which is a combination of the nation’s two and three medical transcription providers, and PolymerLatex, the third largest latex producer in Europe. TowerBrook invests equally in Europe and the U.S. —M.C.