Go Rangers!

Regarding Tom’s finances, I surely don’t have first hand knowledge of his situation and am not one of his lawyers (the good folks at Weil Gotshal would have that info), but this is how PE funds work and I have heard second hand that he does have a guaranty on the clawback (and you have to assume, based on this market that the clawback payments have been triggered). I just don’t want Mr. Hicks people to read this and think I’m saying this is the case. It is just a VERY likely explanation as to his financial situation (and it definitely wouldn’t be unique to him, by any stretch). It also doesn’t mean he’s lost money on these investments – it just means he has to pay back money it turns out he shouldn’t have received in the first instance – something that is happening at PE and debt funds all over the country.

I hate it, because I fear what a change in ownership could do to our long-term plan. To Tom’s credit, he as stuck to this vision and plan over the last few days.

As for Blalock, I’ve been asked today by Boston area media how interested the Rangers would be in moving Blalock. My answer: They’d be willing to talk. They could play Andruw Jones full-time at DH and keep an above average defensive option like Brandon Boggs on the team.

I’m just not sure the Red Sox are as desperate as they appear to be. That could all change by the All-Star break, but I’m not sure they are desperate to replace Ortiz just yet. I’m sure they are worried something fierce, but gut tells me they’d probably be willing to give him a couple more weeks to break out of the season-long slump.

I like your trade proposals also.

The way private equity funds are structured, the General Partner gets 20% of every dollar of net income as a “carry” and the limited partners get 80%, with the payments computed on an investment-by-investment basis (in other words, after each deal is “realized” payments are divied up). However, most of these funds have a “clawback” which corrects the situation where the Fund had gains or returns on early investments that were exited or sold at the front end of the Fund’s life, followed by losses later in the Fund’s life. In other words, Hicks Muse had some early home runs where the GP (some entity controlled by Mr. Hicks) received large sums of money (its 20%). However, the recent investment exits have been losses (most likely, some total flushes). The clawback works to recoup those early payments back from the GP (it looks to what the GP SHOULD have received if you examined the total performance of the Fund at the end of the fund, and not on an investment-by-investment basis).

For example, lets say deal #1 was a huge home run (e.g. when they sold 7UP) and the GP (controlled by Tom) was paid $20MM on a $100MM gain. Now let’s assume the next 5 deals all lost money so that overall, the fund only earned $10MM. Well, the GP would be entitled to $2MM (this ignores things like return of capital and preference returns, etc.). But it was paid $20MM from the 7UP sale. So, it owes $18MM under the clawback.

Of course the GP doesn’t have that money – it distributed that money away to its own investors (i.e., Tom and his various trusts). If Mr. Hicks has personally guaranteed that clawback obligation of the GP (which is typical and, again, I understand to be the case), he has to come up with the liquidity to pay it back. Thus the Rangers are for sale.

Clear as mud?

So, Tom isn’t broke, he just has a major liquidity crisis. Like all of us that lost a boat load of money in our 401ks, he surely had a significant portion of his wealth or investments in stocks and probably lost 20-50%. So he needs to come up with cash and the Rangers are probably his most liquid investment that hasn’t lost a significant amount of the original invested capital (I have no idea what his personal wealth is tied up in – I know he has a really large house and probably a pretty impressive tie collection).