Tom Hicks and the Texas Rangers: How will the Dallas Stars be affected?

Ever since news broke a few months back that Hicks Sports Group, who own the Dallas Stars and Texas Rangers, had defaulted on $525 million in loans there has been an air of uncertainty hanging over both franchises. We learned that Tom Hicks and his company had voluntarily not made the payments on these loans, with the hopes that a long term plan would be worked out and he would have more time to pay the debts. What was not clear however, was just how the Rangers and Stars would be affected long-term and just what the future of each team would hold financially.

So far, the Texas Rangers have been the franchise affected the most. They've been forced to cut organizational payroll, which included layoffs and jobs lost in the front office, and were unable to pursue any free agents or big trade due to the financial constraints laid upon them by the owner. Rangers G.M. Jon Daniels stated that any move had the be approved by Tom Hicks personally, this coming after the news broke that Major League Baseball had to step in and "bail out" the Rangers somewhat so that the team could meet it's monthly payroll obligation.

It's unfortunate that this has come for the Rangers when it has, with the team on the cusp of building something truly special that promises to continue growing over the coming years. The team has been built through trade and prospect development, a testament to the league's top farm system that Daniels has pieced together the past few years. Many think that the team is on the edge of being great and they are just one or two key free agents away from really taking the step to being a powerhouse team. Unfortunately, those big-name acquisitions didn't come but the team has continued on strong as ever.

When it became known just how bad the Rangers were and how much debt Tom Hicks had accumulated, almost immediately the news came that Hicks was looking to sell a minority stake in both the Rangers and Dallas Stars. This would help alleviate the financial stress HSG is under, while keeping Hicks as the majority owner and still in control of the franchises. Yet with the money situation growing worse, Hicks finally let it be known that he is looking to sell the Texas Rangers franchise entirely.

For Dallas Stars fans, we've had to sit and watch what has happened with our baseball brethren and hold our breath as to what exactly will change with the hockey organization. The company line all along has been that the Stars will not be affected by what is happening with the Rangers, but fans are worried nonetheless that their team will start to suffer in the same ways that the Rangers have as well.

After the jump, we look at a few news articles printed today that shed new light on the situation, as well as examine the financial outlook of the Dallas Stars, both past and future.

The first, and most troubling article, comes courtesy of Randy Galloway of the Fort Worth Star-Telegram. The article focuses solely on the Texas Rangers dire financial situation and how it affected the signing of their top draft choice from this year, Matthew Purke. With the Rangers floundering financially and the MLB having to help out with the payroll, Galloway suggests that the Rangers were vetoed on how much they were willing to pay the young draft pick.

The Rangers haven’t been this financially wrecked since the late 80s, when a guy named Bush was among a group recruited by the commissioner’s office to rescue the Rangers from what was a bottom-line bust.

Don’t know anything about how bad it is for Tom Hicks in all other business ventures, but baseball isn’t his money pit. Two decades later, however, and another commissioner is looking for another owner in Arlington. And this is much worse than 20 years ago.

As was learned Monday, with the failed attempt to sign the No. 1 draft pick — Matt Purke, the high school pitcher from the Houston area — Hicks is no longer in control of the Rangers, which is a first for the franchise.

This is a team being bankrolled by Major League Baseball (that didn’t happen here, even in the dark days of the late 80s) while a buyer is being sought, and finding a buyer has become a slow process due to MLB and Hicks insisting on a $600 million price.

If this is true (and there are some that are a bit skeptical), then the situation has grown worse that anyone has anticipated.

There are many reasons that the Rangers were chosen as the franchise to be sold instead of the Stars, but the big factor has to do with the difficulty anyone has had lately in selling an NHL franchise. The MLB and it's teams are much more valuable at this moment than hockey teams, and the selling of the Rangers would immediately alleviate nearly all of the debt HSG has in it's loans covering the Stars and Rangers. But selling the team has become a much tougher task than first thought; the MLB and Hicks have an asking price of $600 million, when the estimated value of the franchise is most likely in the $400-$450 million range. But there is no way the league nor Hicks can settle for anything else, since anything lower would make selling the team useless to HSG.

Under Tom Hicks, the Rangers have never been a money making machine. In the early days of his ownership, and with the MLB operating without a salary cap, the team went on a spending spree. Insanely large contracts to players no longer with the team (such as Alex Rodriguez), left the franchise with nothing but losing seasons and an inflated payroll. Under G.M. Jon Daniels the team has fought to regain their footing without having to pay for big free agents and the rebuilding process is just now starting to pay off. Despite the large contracts and losing seasons the Rangers have grown in value and are popular among fans (ever visit Lone Star Ball?). Right now selling the baseball team will be much easier than trying to sell an NHL franchise.

The Dallas Stars have consistently been near the top of the NHL in generated revenue, and have made a profit over the years. The Stars have always spent right up against the salary cap, and in fact had one of the highest payrolls in the NHL before the lockout. Yet the team has always been popular and has never failed to turn a profit in any operating year. Not once would a Stars fan have contemplated that a financial crisis was on the horizon.

But this summer, we finally started to see the ramifications of having on owner that has his toes dipped in three franchises in three different sports.

After last year's disastrous free agent contract given to Sean Avery, Tom Hicks was going to be careful about where the team's money went. With Joe Nieuwendyk instituting a change throughout the organization, the team found itself being held to an extremely tight internal budget that is well under the salary cap. This is unfamiliar ground for Stars fans, and it's frustrating for a team that is perhaps one big free agent defensemen away from truly being special (sound familiar?). After last season, when the Stars spent well over the salary cap due to a number of injuries, Hicks and his new General Manager are going to be careful not to allow the same thing to happen again. They've adhered to their budget and have allowed room to operate under the salary cap should something come up.

This tight budget and inability to spend on the open market has frustrated fans and has led some to think that perhaps the same situation the Rangers are in could move on over the Dallas Stars. Yet so far we've seen no changes in the way the Stars run things, other than the lower budget and the decision to not hold a prospect camp. There have been fears that the Stars are desperate to drop payroll at any cost and with the team cutting back a bit this summer, fears are perhaps a bit justified that more widespread change is on it's way.

Yet Mike Heika of the Dallas Morning News has a great article up today that should help clear things up on just where the Stars stand financially, and how the Texas Rangers' situation will affect the hockey team.

While pressure builds on Tom Hicks, owner of the Texas Rangers and Dallas Stars, to sell one of his teams to satisfy his creditors, a source close to the Hicks Sports Group said Tuesday that the hockey team will not be affected.

HSG has until August 2010 to satisfy debt payments before creditors could initiate any kind of takeover, the source said, adding that the deadline is 10 months later than some creditors had initially assumed. HSG owns and manages both franchises.

"There is a plan in place, and we're following the plan," the source said.

Perhaps the biggest fear in all these talks in that while the day-to-day operations of the hockey team are said to remain unaffected, the fact remains that the Hicks Sports Group has defaulted on the loans used to purchase both the Rangers and the Stars. The initial fear was that since HSG has until October 1 to pay off the debts, the Stars would in takeover by the lenders. Once that happens, and it would happen immediately, the future of the franchise would be in doubt.

Yet Heika clears up these rumors, saying it's not as bad as some are making it out to be.

The league and the lenders have an agreement that says if a default occurs six months before the start of the season, lenders must wait the length of that season plus 60 days before attempting takeover.

The NHL season begins Oct. 1, and the Stars start play on Oct. 3. That should give the Hicks Sports Group until August 2010 to settle the loans while receiving protection from the NHL, the source said.

[....]

"It's business as usual," Hicks said at the news conference to announce the hiring of Nieuwendyk. "Just as always, each team will have to stand on its own and will have a budget of its own. The Stars will spend money based on the revenue the team generates."

The Texas Rangers and Dallas Stars, despite being owned by the same business group, operate independent of each other financially. The only thing tying the two together is the loans used to purchase the teams. The Stars have grown in value over the years under Hicks, and are sixth in the NHL in overall value at $273 million.

Currently, we have reports that the daily operations of the Stars will remain unaffected and that Hicks has until next August to pay off his loans. That leaves plenty of time for MLB and Hicks to find an owner willing to overpay for a baseball franchise that has never won a playoff game and is just now starting to realize it's potential as a long-term winner. The future of both the Rangers and Stars is up in the air and it's unfortunate that such loyal fans are being forced to suffer through this uncertainty.

The best news to come out lately is that the Stars have stated they are nowhere near the situation that have some have suggested would lead to a massive "fire sale", where the team is forced to dump salary in order to meet internal budgetry constraints. But with Hicks and Nieuwendyk both stating that the team will operate with a budget based on the team's revenue, then that bodes well for the immediate future. The Stars can keep the players already on payroll without the pressure to dump salary, a thought that has fueled the recent Brad Richards trade rumors.

But what is completely uncertain is what these budgetary concerns will mean for the team next summer. As of right now, the Stars only have eight players under NHL contract after this season with up to $31 million in salary cap space to work with. The Stars will have six restricted free agents and eight unrestricted free agents to make decisions on next summer including James Neal, Fabian Brunnstrom, Loui Eriksson and Steve Ott. Currently the company line is that the Stars are operating with a budget that is based on the revenue generated by the team. If this line holds true and we see about the same payroll next summer that we have now ($8-$10 million under the salary cap), then the Stars will have a tough time holding onto the talented young players currently on the team.

The good news is that aside from a tighter budget and lower operating costs, the Stars should not be affected much short term. But it's what could happen next year that has fans worried, and despite what officials say, perhaps they should be.

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