In the spring of 1979 Jerry Buss had a serious problem. As he flew over the Las Vegas desert thoughts of his meeting with Jack Cooke raced through his mind. Cooke had set a deadline and the escrow company had put in a final call for $3 million to close the deal on buying the Los Angeles Lakers.
Dr. Buss’s problem was that he was completely tapped, and his meeting with Cooke to work out a deal for the remaining $3 million had not gone well. He had less than 24 hours to come up with $3 million or watch his dream of owning an NBA team evaporate.
We can only speculate on what he was thinking on the flight back to LA, but the 1 hour flight must have seemed like an eternity. Like most winners in life, he exited the plane and immediately began to work.
His business partner Frank Mariani was able to secure a $2 million loan and Buss was able to secure the remaining $1 million from another investor. Then, with only a few hours left, Buss’ investor dropped out leaving him and his partner $1 million short.
With time continuing to work against him, Buss was forced to turn to an unlikely ally who many did not want to be indebted to... Donald Sterling (future owner of the Clippers).
While Jerry Buss became ridiculed for paying a record price for any sports franchise at the time, and being leveraged to the hilt, Buss was able to see not just a price tag of $67.5 million dollars for the transaction, but 3-4 separate assets within the purchase that if broken up could produce significantly more value than one asset alone. He would go on to prove his critics wrong.
Similar to the Lakers transaction, we advise our investors to look beyond the initial price tag or cap rate in order to see value where other investors do not. We look at three simple parameters when valuing any parking asset. These parameters are very similar to Dr. Buss’s investment model and help investors determine their own cap rate.
1) Are there other income producing assets that can be broken off and sold separately?
In the summer of 1979, after closing the Lakers deal, Dr. Buss embarked on a similar model to that we use for parking.
Rule #1 (Look for additional or increasing sources of Revenue)
Or as Chick Hearn, the long-time voice of the Lakers used to say, “The game’s in the refrigerator! The door is closed, the lights are out, the eggs are cooling, the butter is getting hard, and the Jello-O is jiggling”
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