As club sales go in Major League Baseball, the prospective sale of the Astros to Jim Crane could be one of the more controversial in the last decade. For all we know, Crane could wind up taking the reins of the club, and take them to the postseason promise land. He could also become a shining beacon for the Houston community, and a pillar of MLB’s ownership ranks. If so, everything outlined below will be forgotten.
But, when looking over the deal, if there’s a name that comes to mind, it’s Frank McCourt. And no, it’s not about divorce.
A Debt-Laden Deal: Is Crane Heading Down the McCourt Path?
The similarities between McCourt and Crane cover two areas. For lack of a better term, they were both bridesmaids in club sales. For McCourt, it was the Red Sox. For Crane, it was the Cubs and Rangers (and technically, the Astros once prior). Baseball has a tendency to bring in owners that truly want in, if they meet the financial muster.
Which brings us to what will likely be the most concerning aspect of any approval by the league’s 30 owners. Crane’s purchase, like McCourts’, is heavily debt-laden.
Of the $680 million purchase, just under half ($300 million) is going to be financed with debt. According to Mike Ozanian of Forbes, “In 2010 the Astros had operating income of $14 million, so if Crane parks $300 million of debt on the team the franchise would be in technical default of the league’s debt limit, which is 10 times earnings before interest, taxes, depreciation and amortization.”
That’s Forbes, not MLB’s numbers. But, there are other aspects of the sale that are concerning from a debt perspective.
Whether it’s to keep partial ownership or get around MLB’s debt rules, Drayton McLane will reportedly keep a $65 million minority stake in the club. Crane will have just $70 million and $125 million skin in the game. Crane’s partners are pitching in $300 million, and believe it or not, the rest will be a loan out of Major League Baseball.
You have to ask yourself this: The sale of the Astros will be the highest after only the Cubs sale to the Ricketts. Is McLane and MLB more concerned about setting market value than possibly setting themselves up for another debacle, such as McCourt wound up in?
Who’s Coming Along for the Ride?
As for the principle investors that are part of Crane’s group, they are:
John Havens, Bill Morgan, Doug Bauer, John Hauck & TSI Holding Company, Greg Allen & family, Neil Kelley & Partners, Will Galtney & Jeff Hines, John Eddie Williams & Cary Patterson and Milton Carroll & Partners.
The Issue of Minorities and Women: The NAACP Will Be Watching
I didn’t make the story up, I simply dug through the archives. But, when I wrote Are Jim Crane's Past Comments on Blacks and Women Blocking Ownership of the Astros? the comments that came forth showed that fans (and possibly one or more with direct interest in the deal) were upset.
In 1997, complaints were filed with the Equal Employment Opportunity Commission regarding Crane’s Eagle USA Airfreight and its position on hiring blacks and women of child-bearing age. The EEOC finalized a scathing 104 page report (most EEOC reports are said to run 3-5 pages), found that to be true, and added that Crane’s company conducted a practice of paying “female and minority employees less than white men who do similar work; did not investigate employee complaints of sexual harassment; and destroyed evidence that the company was instructed to retain as part of the two-year EEOC investigation,” according to a Houston Chronicle article from 2000.
That resulted in a $9 million settlement, with $8.5 million going to back pay and damages that were allocated to the class members, which consist of African-Americans, Hispanics, and female employees employed by Eagle at any time between December 1, 1995 and December 30, 2000, and former applicants who sought employment at Eagle during the period December 1, 1995 to December 31, 2000. In addition, Eagle paid $500,000 to establish a Leadership Development Program, a program intended by Eagle and EEOC to benefit minorities and women by preparing them for leadership roles in employment at Eagle.
But, in fairness, that’s not all entirely true.
In 2005, U.S. District Judge Lynn Hughes ruled that approx. $6 million be credited to Eagle. A review found that 203 of 2,073 claims had merit. About $900,000 was paid to applicants or employees, according to the court, according to a report that ran in the Houston Chronicle yesterday.
The issue of Crane’s past intersecting with the Astros purchase isn’t likely to be going away anytime soon.
Crane was asked about the matter yesterday by ABC 13 in Houston.
"If you've done your homework on that, there really wasn't a problem there," Crane told ABC 13. "We can address that later. But I don't think it's going to be a problem whatsoever."
If the sale is approved, the NAACP in Houston will be watching.
"We are deeply concerned that someone, that has a broad reach throughout the community and across the country regarding employment ... has such a dismal record in the area of discrimination. As such this is someone that should be monitored very closely in the area of employment discrimination as it relates to minorities and woman," the group said in a statement."
This isn’t to pick on Crane, but as press releases go, the one yesterday from the Astros has some details in it that are, well… a bit interesting.
The details out of the release, rightfully, tout Crane’s business acumen. That he is CEO and President of Crane Capital Group, Inc., and is the owner of Champion Energy Services, which ranks in the top five of nonutility-affiliated retail electric providers in the United States and among the top 20 retail electricity companies in the nation. In August of 2008, Crane formed Crane Worldwide Logistics (CWL), a premier provider of customized transportation and logistics services. CWL has and continues to grow rapidly with experienced members of Crane’s management team and sales force at the helm. The three-year-old company will do in excess of $400 million in sales in 2011.
That’s information you want. It tells you how your new owner is going to run the Astros.
But, then Crane’s PR group added this:
In addition to his love of baseball, Crane is an avid golfer. In 2006, his .08 handicap earned him the number one CEO Golfer ranking by Golf Digest. Crane acquired the Floridian, a private golf resort in Palm City, FL, in 2010.
Either Crane is bragging, or somehow golf is going to be how sponsorship deals might get done… on the golf course.
The golf info was an odd add in. It’s a personal interest thing, but one would be hard to remember such fluff in a press release touting a new potential owner in MLB in a long, long time.
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