So this is how it ends. Not with tears and apologies and bowed head, but with more spin than David Beckham could ever put on a penalty kick. In a recent, and rare, media blitz coinciding with the decline and fall of his sports empire, Tom Hicks has made the case that he had always planned to exit the sports business at some point—although, no, he did not expect to sell all three of his teams at the same time—and that the financial failings of the Dallas Stars, Texas Rangers, and Liverpool Football Club will have no bearing on his numerous other businesses. He has made this case in a pair of detailed interviews, one with the Dallas Morning News, where his sons Tommy and Mack sat by his side, and the other with the Sports Business Journal, where Hicks’ personal chef whipped up steaks for lunch at his $41 million, 29,000-square-foot Preston Hollow mansion.

Time for some due diligence.
 
Hicks told the Journal his teams were “never going to be a dynastic asset.” He now contends that the Stars, Rangers, and Liverpool were just an investment. Just another chance to borrow, buy, build, and sell for a profit. Just like the other deals that made Hicks’ reputation as the king of the leveraged buyout. So why, then, did he tell BusinessWeek in 2006 that the Stars’ 1999 Stanley Cup championship had been the high point of his life? Is that what you say when you’re just in the business to flip the team? Some who know Hicks doubt it.

“Tom clearly had a liquidity crisis that forced him into default, and now he’s just trying to Stalinize what happened,” says a Dallas executive who has seen Hicks’ financial books related to his sports teams. “He wants to rewrite history by saying the teams weren’t any different than any other deal. That’s bulls---. Tom always wanted to keep these teams for the long haul. He would tell you that he wanted to pass them on to his kids. This was his legacy.”

But now, because Hicks couldn’t—or wouldn’t—make payments on the $540 million in debt he’d run up on the Stars and Rangers and some related real estate holdings and couldn’t—or wouldn’t—make an equal-size investment in a new stadium for the Liverpool Football Club, that legacy is gone. Which is perhaps why Hicks insisted that the News include his two oldest sons in the photo that ran with the front-page story about his business interests outside sports. “This year, we’re back on offense,” Hicks told the News. The offensive includes the potential buyout of an unnamed consumer services firm, the potential creation of a new investment company, several actual commercial real estate developments in Texas and California, and a pair of potential resort developments in Argentina including “maybe even a winery someday.”

Maybe. Or there may instead be long-term fallout from Hicks’ loan default. Some 40 different financial institutions and investment groups loaned money to prop up the Stars and Rangers. That means dozens of executives vouched for Hicks’ ability and willingness to pay them back—or at least to continue paying the $10 million Hicks owed in quarterly interest. But even though he owns a $41 million house and a $60 million pet food company in Argentina and had a half billion of investors’ money under his management, he still stopped paying in March 2009. He said the banks needed to be more “realistic” about his teams’ finances. How likely is it that any of those banking executives will okay financing when Hicks is ready to build his Patagonian resort?

There’s always private capital. And Hicks has been raising private capital from Dallas’ rich and famous for decades. But his last major initiative to do that came in 2007, the same year he bought half of Liverpool FC. That year, Hicks raised $536.1 million from investors who gave him a two-year window to invest in something worthwhile. In September 2009, days before the window closed, Hicks finalized a merger with Colorado-based Resolute Energy. Hicks’ investors now control 82 percent of that firm, which had a market cap nearing $700 million at press time. But careful reading of the proxy statement on the merger shows that Hicks personally, and the top directors and employees of his Hicks Acquisition Company were required to dilute their stake in the combined firm to make the deal happen.

So time will tell if Hicks is really back on the offensive, but there’s reason to believe that deal-makers are already starting to push him around. It could get tough for Hicks.

Now let’s have a look at the notion advanced in the Journal story that Hicks will make money on the sale of his sports empire­—as writer Bruce Schoenfeld put it, that Hicks will be “richer than ever.”  

Hicks paid $84 million for the Dallas Stars in 1995, $250 million for the Texas Rangers in 1998, and was a 50-50 partner with American investor George Gillett in buying Liverpool Football Club in 2007 for $437 million. That’s $552.5 million total. But that wasn’t all his own money. Each of the sports deals was done the way the LBO King has always done his deals: leveraging a small amount of his own money to borrow much more. According to the source familiar with Hicks’ Rangers and Stars investments and according to published reports, it is likely that Hicks (whose net worth Forbes once pegged at $1.4 billion, though it fell to $1 billion last year) put no more than $50 million in cash into the Rangers. He financed the other $200 million with three tiers of debt. Forbes estimates his total Rangers-related debt—after borrowing even more money, some of it from Major League Baseball—at $470 million, and guesses something similar for the Dallas Stars, whose debt it pegs at $200 million, almost equal to the team’s projected market value of $246 million.

Taken together—the debt on the Rangers and Stars and the debt related to his investments in Victory Park and to the land around the Ballpark—it adds up to the $540 million that Hicks defaulted on in the spring of 2009.

But it gets worse. Hicks has admittedly reached into his own pocket to fund his NHL and MLB teams. The Wall Street Journal quotes Hicks’ associates as saying that he has put $275 million into them in recent years. Hicks himself has said $80 million.

Let’s do it this way: $275 million + $540 million + accrued interest of about $30 million = more than the Stars and Rangers are worth. “After 10 years of ownership,” says the source familiar with Hicks’ sports finances, “Hicks will probably lose $100 million on the Stars and Rangers.” Hicks actually told the News in May that he expects to lose $200 million on the Stars and Rangers.

How, then, will he end up “richer than ever”? We have to go to England to find out.

When Hicks and Gillett paid $437 million for Liverpool in 2007, they promised to bring better talent and a new stadium to the club. They have delivered neither. It would be an understatement to say the club’s fans are enraged over how the owners have run the onetime perennial championship contender. But it’s debt, not anger, that is finally running Hicks and Gillett out of Liverpool. The pair have put the team $347 million in the red since they took over. And the Royal Bank of Scotland, which holds most of the team’s financing, plans to call in $144 million of that debt for payment this month. If Hicks and Gillett can’t pay, RBS has hinted that it will foreclose on their loans.

Hicks doesn’t sound too worried. He told the Wall Street Journal this spring that he’ll likely unload Liverpool for $880 million to $1.3 billion. “Liverpool will be the most profitable investment I’ve ever made,” Hicks said.

But there’s good reason to think he’s wrong. There have been two significant offers to buy Liverpool in part and in whole since 2007. In 2008, Dubai International Capital offered to buy all of Liverpool for 400 million pounds—about $780 million at the time but only $574 million today. This year, the Rhone Group, a European investment outfit, offered just $158 million for a 40 percent stake. Hicks rejected that, too.

Suppose the Rhone Group’s most recent offer is an indication of where the market now values Liverpool. That’s bad news for Hicks. It means the team is worth about $400 million. Even Hicks’ lowest guess of $880 million seems optimistic in light of the Rhone Group’s offer and Europe’s credit crunch. A more realistic sum seems somewhere between the Rhone Group valuation and Hicks’ $880 million. Split the difference, and figure the team could fetch $640 million. Hicks first has to retire his Liverpool-related debts with that money. That leaves about $300 million, split two ways. That’s $150 million for Hicks. Subtract the cash Hicks put down to buy the team—he has said it is $80 million—and Hicks walks away from Liverpool with around $70 million in profit.

$70 million in profit on Liverpool - $200 million in losses on the Stars and the Rangers = a total loss of $130 million. “Richer than ever” that is not. It might even mean diverting losses toward Hicks’ leveraged buyout kingdom or the Texas Stars, a minor league team owned by three of his sons. Either way, it doesn’t really matter now.

“The default has finished him,” says the source who has seen Hicks’ books. “No one will personally lend to Tom Hicks again. His career is over.”

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