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Business: The Great Pretender

David McDavid made a fortune selling cars—but that wasn’t high-profile enough. Now, more than anything, he wants to be a sports-team owner. Why can’t he pull it off?
By Adam McGill |

The woman in the sparsely furnished office sounds almost apologetic when she answers the phone. “D-M-C,” she says. No, David McDavid isn’t in. Neither is his business partner and brother-in-law, Stephen Dieb.

Before September, the North Dallas office on the Tollway was a much happier place. When the woman answered the phone, she proudly announced, “McDavid Sports Group.” Framed jerseys hung on the walls like totems. But that was before the deal to buy the Atlanta Hawks, Atlanta Thrashers, and operating rights to Atlanta’s Philips Arena blew up. After nearly a year’s worth of negotiating with Time Warner, the previous owner, months of offers and counteroffers and even a letter of intent, McDavid is exactly where he was back in January 2000: a car salesman in search of a sports team.

McDavid, you may remember, got rich selling cars, turning one Oldsmobile outpost in Irving into a car empire of 17 dealerships across the state. In the process, McDavid approached celebrity status. He—aside his dog Widetrack—was already a ubiquitous television presence with his car commercials, but in 1996 he became an owner of the Dallas Mavericks under the Ross Perot Jr. regime. McDavid was the largest minority owner of the team, and he and Junior had an understanding that McDavid would run the day-to-day operations of the basketball club. But the agreement was never put in writing, so it didn’t happen. McDavid was shut out from his own team—an owner but not at all in charge.

When Mark Cuban bought the Mavs in 2000 for $280 million, McDavid’s 12.5 percent stake earned him roughly $35 million. Not bad for an original investment of $15.6 million. But the sale was more than just a handsome payoff; it was the first step in McDavid’s quest to get back into the owner’s box—somewhere, anywhere—and this time feel like he belonged. In three years, McDavid hasn’t had much luck.

The failed bid to buy the Atlanta teams and their arena is only the latest in a series of failed bids by McDavid to buy basketball and hockey teams across the country. He even started a company, DMc Group, with the express purpose of purchasing a sports team. McDavid has made national and local headlines each time he tried to make a move, and during the past three years, his name has been mentioned as a potential suitor for the Denver Nuggets, Colorado Avalanche, Vancouver Grizzlies, Charlotte Hornets, Orlando Magic, Dallas Stars, and, most recently, the Atlanta Hawks and Thrashers. (Interestingly, McDavid was in concurrent negotiations for the Atlanta teams and the Stars.)

And the gallons of ink spent on press coverage may have contributed to his undoing. In March, D Magazine reported that Stars owner Tom Hicks refused to negotiate further with McDavid after the car salesman was caught “grandstanding like Antonio Bryant,” as one insider described him. McDavid arguably violated the confidentiality agreement governing his conduct, and Hicks consequently left McDavid stranded outside the auction process.

But an ability and affection for getting his name in print aren’t the only reasons McDavid is still without a team. In the case of the recent stillborn Atlanta deal, headlines didn’t get him in trouble. The bottom line did. According to sources and in-formed speculation, McDavid didn’t have enough money.

Let’s pause for a bit of back-of-the-envelope figuring. McDavid is undoubtedly rich, but he’s not mega-rich. In 1997, Asbury Automotive Group bought 70 percent of McDavid’s operations, by some reports for $400 million. But a closer look suggests that figure is inflated. After all, the entire market-equity capitalization of Asbury Automotive Group has never exceeded $600 million; the present enterprise value of Asbury (the equity value plus the debt) is now about $1.1 billion; and McDavid has never held much more than 20 percent of the shares. One press report put the sale to Asbury at more than $100 million, which is probably a lot closer to the truth.

So when McDavid approached Time Warner with an offer of an estimated $370 million, he was shopping well beyond his means. He would have to finance the deal, which is what he tried to do.

Buying sports franchises with some cash and a lot of debt has been fairly common until recently. For example, Tom Hicks and his partners bought the Stars in 1995 for $84 million. The acquisition was structured as a leveraged buyout of sorts, with roughly 70 percent of the purchase price being borrowed funds from lenders who, in turn, were granted a secured interest in the team. In laymen’s terms, such debt financing looks like a homeowner’s mortgage loan—with a sports team, not a house, as collateral. Sources say McDavid was putting up between $90 million and $97 million of his own money and planned to borrow the rest. Except there were problems.

Problem No. 1: A lot of hockey, baseball, and basketball teams have been losing a lot of money lately, so banks aren’t as eager to loan hundreds of millions of dollars to prospective owners. The Hawks and Thrashers, in particular, have lost $40 million to $50 million a year. We could bore you with the technical details, but the upshot is that any buyer who planned to finance the deal could not borrow more than $175 million using the teams as collateral.

Problem No. 2: McDavid could not use the teams as collateral. The Atlanta Hawks were already collateralized with the city as part of the bond package that the Atlanta City Council approved in 1997 to build Philips Arena, and the Thrashers weren’t worth enough. Any prospective buyer would have to put up something of comparable value, roughly $60 million. So now a buyer could expect to borrow only about $100-$125 million in senior loans.

Problem No. 3: Hockey is headed for a lockout. Unless NHL owners and the players union can come to an agreement about salary caps, the 2004-5 season will likely be canceled. Of course, sad as it may be, in the Thrashers’ case, not playing may end up saving their new owner money. That new owner would appreciate the savings, be-cause the rest of the organization was liable to be a money pit through 2006.

Informed speculation and 10th-grade math suggest that David McDavid was never going to be that new owner. Again, he anticipated spending only about $100 million of his own money, and he could realistically borrow only about $125 million in senior loans. Even if he were to convince a third party to give him another $50 million in unsecured mezzanine debt (trust us), he’s still about $100 million shy of his bid price. McDavid could call up some rich friends to put together a group bid—like the eight-man consortium who eventually bought the teams—but then he’d run the risk of repeating his Mavs mistake with Perot Jr. Too many chefs spoil the fun of being a team owner.

So why, if he knew he wasn’t going to be able to follow through with his exorbitant bid, did McDavid negotiate with Time Warner for almost a year? The “why” may be easier to answer than the “how.”

McDavid loves seeing his name in print, and not just in the society columns. The first time McDavid was rumored to be shopping for a team post-Mavs was a deal similar to the situation in Atlanta. The Denver Nuggets, Colorado Avalanche, and Pepsi Center were on the auction block, and McDavid was one of a half-dozen rich people supposedly interested. Wal-Mart heir Stan Kroenke eventually bought the sports package for $450 million. McDavid is no Stan Kroenke, but the association did wonders for his cachet.

During the several months of negotiations with Time Warner, Atlanta Journal-Constitution scribe Tim Tucker and others wrote numerous stories about McDavid. In June, Tucker recalled a conversation he had with the prospective incoming owner. McDavid told him, “Nellie called the other day and said out of the blue, ’I love your team.’” That’s Mavs coach Don “Nellie” Nelson, commenting on the Hawks, which wasn’t McDavid’s team yet. If your name’s in the paper, your phone’s going to ring.

According to press reports during a series of months, the deal was going to happen “any day.” At the end of April, both sides signed a letter of intent providing for an exclusive negotiating period. The letter of intent expired sometime in June, but both sides remained confident that the last few details would get ironed out. Stories often cited “inside sources,” and it’s easy to imagine that McDavid or his business partner Dieb were often those sources. But the collateral issue and lack of equity were insurmountable details. That deal—like so many other McDavid bids—was never going to get done.

On September 16, a group of eight owners calling themselves the Atlanta Spirit held a press conference in Philips Arena to announce their purchase of the Thrashers, Hawks, and operating rights for the arena for $250 million—significantly less than McDavid’s proposal. The troublesome collateral issue wasn’t a problem because the group wasn’t financing the deal. And negotiations from start to finish took about three weeks.

The woman who answers the phone at DMc headquarters in North Dallas says she’ll give David McDavid the message that a reporter is curious about what went wrong in Atlanta. But we already have a good idea. And we’re pretty sure that this is one instance in which McDavid won’t like seeing his name in print. Then again, we’re just speculating.

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