Reports started to flood in Tuesday night that billionaire Phil Anschutz was looking to offload AEG, his privately held entertainment and sports conglomerate. The LA Times asked industry experts, who said that the value of the AEG portfolio is around $5 billion. A Reuters article has bidding going up to $6 billion, and that doesn’t include Anchutz’s film studio, Walden Media.
The octopus that is AEG is divided into various overlapping divisions:
- Sports – 50% stake in LA Kings, minority share of LA Lakers, 50% of Houston Dynamo, 3 minor league hockey teams, interests in 3 European football and hockey clubs, a minority stake in Golden Boy Promotions, plus the Bay to Breakers, Tour of California, X Games, and other properties.
- Facilities – Staples Center, Home Depot Center are wholly owned by AEG. The company operates over 100 venues that put on 6,200 events per year, including games for all four major North American pro sports. The list includes major convention centers such as LACC.
- Live – The concert tour promotion division, with offices and venue control from coast to coast. It also oversees the Coachella and New Orleans Jazz festivals.
- China – A self-contained subsidiary of AEG, it operates like a miniature version of the big company, within China.
- Digital Media – Online production and broadcasting for big events
AEG works because it one division can leverage others to lock down deals. Staples Center hosts two teams that AEG owns, benefiting the company by virtue of publicity and revenue. The same model works for live music, where AEG controls booking for many venues and the tours that would fill them up. This sort of vertical integration makes it seem as if the best deal would for the whole shooting match to take advantage of that leverage. Yet there will be many bidders that will find individual pieces extremely attractive, such as the Kings or the venue management contracts. There’s also the issue of finding a single bidder or consortium (in all likelihood) that can put up $6 billion for everything. The bidding process will run well into 2013, and it will be fascinating to observe how all of it works. Some bidders might try to put up a lower overall bid because the transaction could be cleaner and easier to pull off. On the other hand, the total price of all the properties sold separately could eclipse the value of a single complete bid. Even if the whole company was purchased intact, if that bidder were a private equity firm it’s likely that there would be a strategy to part out the divisions in sooner rather than later.
Much of the immediate reaction to the news centered around the prospects of the Downtown LA football stadium. While many felt the stadium deal was in peril, Times columnist T.J. Simers fantasized that a new owner is just what’s needed to bring the Chargers north. LA mayor Antonio Villaraigarosa knew that the sale was coming and kept it quiet. His underlings expressed confidence that the deal would continue without Anschutz, whose purse strings and willingness to accept a minority share of a team were keys to attracting a team. Front man Tim Leiweke is still onboard for the moment, but someone else would have to represent the money needed to fund Farmers Field, which will cost well over $1 billion to construct. If AEG were parted out and sold piecemeal, the strength of the football stadium plan would be severely diminished since there’s no vertical integration to incentivize the effort (the stadium is also meant to be used as an extra large exhibit hall for LACC).
Teams currently in leases with AEG-operated venues are unlikely to see any significant changes. There is at least one other project that could be seriously impacted by an AEG sale: the Coliseum City development. When AEG signed on to manage the Coliseum complex, they also got a contract to provide pre-development services. Oakland Mayor Jean Quan started talking about a convention center and a retractable dome on the Complex, which would be home to an LA Live!-style village. The uncertainty surrounding AEG and Farmers Field creates a very ironic situation in that despite an anti-poaching agreement, AEG would’ve loved to have the Raiders as a tenant at Farmers, yet Oakland could use a successful LA Live! with Farmers as an anchor to help promote a similar plan to its citizens. Without that kind of success under AEG’s belt, the mega-development becomes a harder sell and may force a major change in scope. The alternative could be a normal, outdoor football stadium replacement for the Coliseum, without a neighboring convention center or hotel complex. The problem with that kind of downsizing is that a football stadium and whatever smaller scale ancillary development accompanies it may not be able to generate enough revenue to drive visitors to the complex, and that may be a loser politically. Meanwhile, consider the idea that the 49ers stadium could be completed before studies on Coliseum City are. That’s how deliberative the process is.
Then again, it may be best if Oakland and the East Bay focus on opportunities that are less pie-in-the-sky. Whether they’re talking about a total replacement of the Coliseum or a modernization of the existing Coliseum, it seems much more feasible than a $2 billion convention center and stadium that would have competition not only from other facilities throughout the Bay Area, but also AEG’s own LACC.
The Sacramento Kings could also be affected, since AEG was supposed to be the partner in the Railyard ESC arena plan until the last moment. One of the possible outcomes of a sale is a refocusing and wholesale freeze of development activities, which would hurt both Coliseum City and Sacramento. Other companies could step up, but there is a reason why AEG won bidding in both cities: AEG has a built up an impressive level of experience managing and developing venues over the years. If AEG shifts its focus as the result of a sale, so will many of its clients.
P.S. – One more log to add to the fire: The LA Daily News is reporting that officials that the Angels are talking with Ed Roski’s Majestic Realty about a ballpark at the City of Industry site Roski pitched for his own NFL stadium. Roski partnered with AEG to build Staples Center and buy half of the LA Kings. Surely these talks have gotten the City of Anaheim’s attention. Leverage – that’s how one successfully plays the stadium game.