Monday, December 01, 2014

Post scoop: AEG offer for Barclays Center below Forest City ask, claimed arena value

The well-sourced New York Post business reporter Josh Kosman has another exclusive today, Barclays Center sale buzz builds, which might be alternatively headlined "Barclays Center bid below claimed arena value."

The Post reports:
Billionaire media mogul Phil Anschutz has held early stage talks to buy Brooklyn’s Barclays Center, The Post has learned.
Anschutz Entertainment Group [AEG], which owns or operates arenas around the world, last month held talks with Forest City Enterprises, which owns 55 percent of the two-year-old arena, sources said.
The No. 2 concert promoter in the country behind Live Nation is expected to make a decision on whether to proceed with talks — or walk away — before Dec. 31, sources said.
A wide gulf currently separates the two sides.
AEG is said to be willing to spend up to $500 million on the 19,000-seat concert and sports arena, or slightly more than 12 times Barclays’ roughly $40 million in expected 2014 operating profits, sources said.
However, Forest City, which last month forecast that profit number would soar 63 percent to $65 million in 2016, is said to be seeking a lot more than $500 million.
Note that $500 million translates to 55% of a $909.1 million value.

[Note: Kosman said on Twitter that the offer was $500 million for the whole arena, but that still doesn't make sense to me.]

By contrast, Forest City most recently valued the arena at $969 million, after slight depreciation from $984.3 million nine months earlier. (In April 2013, it was valued at $998.8 million.)

The Wall Street Journal reported 10/24/14 that Forest City "is expecting any new investor will pay a price that values the arena substantially above its cost," which was reported at approximately $1 billion.

Revenue realistic?

Surely the unnamed sources are posturing for advantage, but one variably surely is whether the $65 million forecast is realistic. After all, Forest City long predicted $70 million, before dialing it back to $65 million. But the price of the arena should reflect not only current revenue but expected revenue.

And while the Barclays Center may have sold more tickets than any other arena in the country in the third quarter, note that cash receipts dropped significantly over one year.

AEG, which operates the non-food operations of the Barclays Center, could push out current arena overseers Bruce Ratner, the chairman of Forest City Ratner, and Brett Yormark, CEO of Brooklyn Events Center.

Kosman reported that "AEG is paying too much to keep the arena booked," as he guaranteed $50 million to the New York Islanders in an unusual reverse deal.

That's another interesting variable. By getting 40-plus events booked, thanks to the Islanders, the Barclays Center ensures a more full calendar, but there's a risk in guaranteeing revenue--and thus aiming to profit from the overage.

The arena faces another potential risk, since the Islanders dates will take potential concert dates off the table. Then again, the concert business is itself variable, and the Barclays Center's ticket sales are a testament to that.

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