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Q&A: What role is the Blackstone Group playing in AEG sale?

Blackstone Group CEO Stephen Schwarzman at the World Economic Forum in Davos. Blackstone has been hired by AEG to explore a sale of the sports and entertainment giant.
Blackstone Group CEO Stephen Schwarzman at the World Economic Forum in Davos. Blackstone has been hired by AEG to explore a sale of the sports and entertainment giant.
AFP/AFP/Getty Images

Anschutz Entertainment Group (AEG) — the huge L.A.-based media, events, and sports company owned by reclusive Colorado billionaire Phil Anschutz — is looking at selling itself. In whole? In parts? What does this all mean for an AEG-backed Downtown L.A. NFL stadium? It's unclear. Buyers are already being talked about, with the richest man in L.A., biotech billionaire Patrick Soon-Shiong, already nominated as a bidder. Makes sense, as he was a late arrival to the bidding war for the L.A. Dodgers, losing out to the eventual new owners, Magic Johnson and Guggenheim Baseball Management.

He's worth around $7 billion. Phil Anschutz is worth around $8 billion. It would be a match of lucky $7 billionaire and the billionaire who has a billion more. 

But I'm getting ahead of myself. AEG has hired Blackstone, an investment bank that managed the Dodgers sale, to work on a potential AEG deal. This isn't as easy as selling the Dodgers, which both had to be sold (former owner Frank McCourt put the team in bankruptcy over a dispute with Major League Baseball and also had to contend with paying his divorce settlement to his ex-wife) and was more concentrated in its assets. AEG is a far-flung holding company that owns pieces of L.A. sports teams, international sports teams, entertainment venues, live events, theaters, and even hotels. 

Blackstone has plenty if work ahead of it. 

So what will Blackstone be doing for AEG? Glad you asked...

Q: When did Blackstone become such a player in big-time pro sports deals?

A: Quite recently. Blackstone — or more accurately, it's M&A arm, the Blackstone Advisory Group — had never sold a sports team until the Dodgers came along. At more than $2 billion, that was a pretty good first shot! Frank McCourt initially hired the investment bank to handle the sale of the Dodgers' broadcast rights and kept them on to manage the sale of the entire team (as well as a side deal on the parking lots). A better-known name in sports deals, Allen & Co and its legendary sports dealmaker Steve Greenberg, ran the more low-key recent sale of the San Diego Padres for $800 million by owner John Moores.

Q: What will Blackstone be doing for AEG?

A: First, determining it market value, in whole and in part. For example, AEG's ownership stake in the three L.A. sports teams — Kings, Lakers, Galaxy — could be worth $500 million. But it could be worth more. The Dodgers sold for a billion more than expected. The entire AEG package has been pegged at something like $1-2 billion, but that's based on outside speculation rather than an examination of AEG's actual books. In 2008, analyst Richard Greenfield, now of investment firm BTIG, assessed the value of the group at $400 million, based on a $200 million valuation for a 49-percent stake that Cablevision and Ticketmaster were thinking about buying. How does something worth $400 million become worth three or four times that in four years? That's just businesses, not real estate holdings. Blackstone will fill in that blank. (I checked in with Greenfield earlier today and he had no comment on the latest AEG news). And it could be a big blank. Forbes' Christopher Helman reports that AEG brings in $3 billion, while L.A. Live and Staples could add up to $2 billion.

Second, Blackstone will be lining up bidders. These could include major players, such as Madison Square Garden, which could attempt to gobble up all of AEG. Or it could entail selling off pieces of AEG, like the sports teams. It could also entail setting up a deal whereby all of AEG is bought and then pieces are sold off to private-equity firms. We've already heard about Soon-Shiong, who may ultimate only be interested in the Lakers (he already owns 4 percent). We may soon hear about Tom Barrack and Colony Capital, an L.A. private-equity firm that dropped out of the Dodgers race but has been doing sports deals worldwide. Colony recently bought and sold a French soccer team. The Galaxy, with an estimated value of $100 million in 2008, could be attractive to them.

And this morning, Marketplace reported that Guggenheim Partners, whose CEO Mark Walter formed a group to buy the Dodgers, could be an AEG buyer — with Soon-Shiong as an investor.

Q: How important are deals like this for Blackstone?

A: Very. The company has endured a rocky ride since its initially successful, later disappointing IPO in 2007. That said, it still has a market cap around $18 billion and is very much the house that co-founders Steve Schwartzman (the flamboyant one) and Pete Peterson (the sober one) built up into a private-equity colossus. Marquee deals like the Dodgers and AEG bring prestige (and buzz) to the firm and make it more likely that it will be tapped to manage future mega-sales — and collect the substantial fees that go along with the business. They also enable it to leverage is private-equity expertise in ways that can push up prices, making sellers happy and setting records for buyers.

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