Leonsis, Pollin estate reach agreement on price for Wizards
Friday, March 26, 2010
Washington Capitals owner Ted Leonsis and the estate of sports entrepreneur Abe Pollin have reached agreement on a price for Leonsis to purchase the Washington Wizards and the Verizon Center, overcoming the single biggest obstacle in his path to take ownership, according to several sources familiar with the negotiations.
The total value of the team and arena is pegged near $550 million, according to sources, although the exact cost to Leonsis's group would be far less because it already owns 44 percent of the franchise.
If the agreement is finalized, it would cement Leonsis's status as one of the most powerful figures in Washington business and sports. He would control a mid-Atlantic sports and entertainment empire spanning three professional leagues, and an arena that hosts everyone from presidents to rock bands, as well as performers including the Ringling Bros. and Barnum & Bailey Circus.
The sources cautioned that the deal could fall apart if the sides fail to reach agreement on other, nonfinancial issues such as the operations of the arena in the period before Leonsis takes control. But settling on a price was critical to clearing the way for Leonsis's ownership, sources said.
"The financial terms are tentatively agreed to," said one high-level negotiator for the Pollin side, who spoke on the condition of anonymity for fear of upsetting the talks. "In every complex legal agreement, there are significant nonfinancial terms. The parties are negotiating those in good faith. I certainly hope we will cross the finish line. But no guarantees."
Spokesmen for both sides declined to comment.
The exact cost to Leonsis is clouded by a number of factors, including $250 million in debt on the arena and the Wizards, which Leonsis's group would assume in full. After the debt, the net cost to Leonsis for the rest of Pollin's empire would probably be about $170 million, according to sources who spoke on the condition of anonymity because they were not authorized to discuss the deal. Perhaps $50 million of that would be paid in cash, and the rest would probably be financed, according to sources.
The agreement must receive approval by a three-quarters majority of the NBA's 30 owners, which means 23 votes. Sources said the NBA is aware of the status of the negotiations and timetable for a closing. A deal must also clear an antitrust review by the U.S. Justice Department. If Leonsis closes by June 1, his group would be able to make decisions on the NBA draft and free agency, both of which are critical to the team's success.
Ownership would give Leonsis overall control of a state-of-the-art arena that hosts 220 or so events a year, allowing him to start directing arena revenue to his hockey team, which has been losing money for years despite its recent success. The Capitals received no revenue from the arena's estimated 108 luxury suites and 3,000 club seats, which had been controlled by Pollin's estate.
Leonsis, 53, is expected to reorganize the Pollin empire, which has been known as Washington Sports & Entertainment (WSE), and bring a rebirth to the ailing Wizards, one of the worst teams in the NBA with a record of 21-49.
The tentative deal is the result of a detailed process that Leonsis and Pollin agreed to when Leonsis bought the hockey team, along with a share of the Wizards and the arena, in 1999. It follows three months of negotiations between Leonsis's closely held sports investment group, known as Lincoln Holdings, and the estate of Pollin, who died Nov. 24 at 85.
Both sides hired investment bankers to advise them. Leonsis retained Steve Greenberg of Allen & Co., a New York boutique investment bank. Greenberg previously worked on the sales of baseball's Milwaukee Brewers in 2004 and the NBA's Cleveland Cavaliers in 2005.