The issues in this circumstance apply for the Vancouver based True North Sports Entertainment Group (TNSEG), a three party partnership entered into for the expressed purpose of seeking ownership of a Major League Baseball (MLB) team franchise, a lifelong dream for the three partners. Business Issue
True North Sports Entertainment Group has been actively pursuing ownership of a Major League Baseball team franchise for three years. Although a viable market exists in Vancouver, MLB has not granted a new franchise since 1998, and in fact actively pursued a contraction of the league by two teams in 2001. TNSEG realistically understands that the purchase of an existing franchise is the only viable option available.
An existing franchise in California has been suffering losses in the millions of dollars annually for many years and has been pursuing a plan since 2009 to build a new stadium that will return the team to profitability. The lease agreement with their current stadium location expired in 2013 and is being extended on an annual basis. They hold options on property in an adjacent county, but have been unable to move forward with stadium construction and plans to move because the property is located in what is considered by MLB to be the territory controlled by another MLB franchise. The competing franchise has refused to agree to the move and is supported in its position by the MLB Constitution. Under both federal and state antitrust legislation, this resistance would normally be viewed as anticompetitive and therefore a violation of the law subject to remedial action.
However, since a 1922 US Supreme Court ruling that found baseball to be an “amusement” and not “commerce” and therefore not subject to federal regulation, MLB has been exempted from the provisions of American antitrust legislation. It is the only major professional sports league to have this advantage. The ruling has since been unsuccessfully challenged on a number of occasions, although related more to the team control of players and their compensation. The municipality involved has a huge interest in having the relocation move forward and has filed suit against MLB challenging the antitrust exemption. The challenge has been dismissed by both the district court and the US Court of Appeals, citing that only the US Congress or Supreme Court is empowered to rule or amend the antitrust exemption. The case has been appealed to the US Supreme Court for hearing. A Congressional review is unlikely. The only other option to resolve the dispute is through internal MLB negotiation and would likely result in compensatory payments to the resisting franchise to end the dispute. Under the existing circumstances and ongoing delays, the current ownership can no longer afford the losses and have put the franchise up for sale. TNSEG has entered into a one month option to purchase the team at an advantageous cost ($400m) compared to the most recent team sales. It is unlikely any changes in the relocation issues will occur within that timeframe. Strategic Importance
Ownership of a MLB franchise has been the lifelong dream of the partners in TNSEG. MLB has not granted a new franchise since 1998 and in 2001 actively pursued league contraction. The franchise is ranked 28th of the 30 franchises in value and has a competitive on field product. Existing franchises are seldom available for purchase, the two available since the existence of TNSEG being sold in 2012 for $800m and $2.15b, TNSEG being unsuccessful with their bids. This may represent the only real opportunity for TNSEG to achieve its goal of MLB franchise ownership for the foreseeable future.
Timeframe
TNSEG holds a one month option to purchase the franchise. The franchise ownership has indicated they are unwilling to extend the option and will entertain other sales offers should it be allowed to lapse. A decision needs to be made within the month as to whether to proceed with the purchase or let the option lapse. Opportunity or Threat
Opportunity: Purchase the franchise, realizing the goal of TNSEG, and address current location issues as owners
Threat: Let the option lapse and renegotiate subject to a Supreme Court review, opening the purchase up to other suitors or, in the event of a favourable Supreme Court ruling, have the asking price rise substantially or have ownership evacuate the plan to sell Business / Economic Issues
Potential Impacts of Purchase: * TNSEG would assume continued losses in franchise revenue pending the move to a new stadium. These losses are a known commodity and, with the reduced franchise purchase price, TNSEG is financially capable and willing to assume them until a new stadium can be built. * A favourable Supreme Court ruling would remove the current impediments and allow the new stadium to be built within two years, resulting in a return to profitability. * A favourable Supreme Court ruling would allow TNSEG a further option, to allow the current land purchase option to expire and relocate the franchise to Vancouver where a new stadium and a viable market exist. This would result in financial savings and an almost immediate return to profitability, but likely result in a lawsuit by the current potential stadium site municipality. * An unfavourable Supreme Court ruling would allow MLB to continue to control any future moves by the franchise. * With an unfavourable Supreme Court ruling, TNSEG could enter into internal MLB negotiations to arrive at a fair compensatory agreement in exchange for allowing the new stadium to be built. The financial implications would result in an extended period before TNSEG franchise operations would return to a profitable position. * With an unfavourable Supreme Court ruling, TNSEG could let the current land purchase option expire and enter into negotiations with MLB to relocate the franchise to Vancouver. MLB is reluctant to support relocation and would also likely lead to a lawsuit by the current potential stadium site municipality.
Legal Underpinning
TNSEG is in a position where it must make a decision to purchase without knowing all of the impacts that might affect operations after the sale. At the heart of the matter is the historic exemption to US antitrust legislation enjoyed by MLB. Although it is obvious that MLB is no longer an amusement but is now a huge business cartel operating across interstate lines, the exemption and MLB control of its franchises has not been successfully challenged before the US Supreme Court or in Congress. An appeal is currently before the court for consideration. Should TNSEG decide to purchase, a decision by the court to remove the exemption would provide immediate options for relocation and result in significant financial savings. But at present, TNSEG must decide if its current financial resources are capable of supporting the various contingency options available to it should an unfavourable court decision occur. Strategic Assessment and Recommendations
TNSEG must choose one of the following options: * Let the purchase option expire and renegotiate subject to a Supreme Court ruling should the opportunity to purchase continue to exist * Purchase the team and accept the potential costs of pursuing franchise and stadium location issues as owners
