NEW YORK (CNN/Money) -
Can you picture the following ad in the Classifieds of your local newspaper?
For sale: three Atlanta-based sports franchises. Mint condition. Baseball team on track to make playoffs again -- uh, assuming they aren't canceled. If interested, e-mail AOL Time Warner CEO Richard Parsons at...
Parsons opened up a can of worms during a conference call with investors on Wednesday when he said that the company would consider selling "non-core assets" if it was unable to successfully complete an initial public offering of its cable unit. AOL agreed to take the cable unit public as part of a deal this week to buy out AT&T's stake in its Time Warner Entertainment partnership. (For more about that deal, click here.) AOL Time Warner is the corporate parent of CNN/Money.
True, the thought of AOL Time Warner selling its sports teams may seem a bit farfetched. But Parsons' statement raises an obvious question: What are non-core assets for a company with a market value of $63 billion that owns an Internet service provider, a publishing house, several cable networks and a movie and music studio?
Getting rid of baseballs, laugh tracks and gavels?
Sports teams would seem to be at the top of the list. To be sure, the three franchises are reliable in-house sources of content for AOL's TBS and Turner South networks.
But Andrew Zimbalist, a professor of economics at Smith University who focuses on sports business, says that if AOL ran into serious cash problems, it could likely find buyers willing to pay a premium for the teams. During the past few years, bidding wars have erupted several times for sports franchises, including the Cleveland Indians and Boston Red Sox baseball teams.
According to the latest compilation of sports franchise valuations by Forbes magazine, the Atlanta Braves baseball team, Atlanta Hawks basketball team and Atlanta Thrashers hockey franchise have a cumulative value of about $760 million. Forbes estimates that the Braves alone are worth nearly $425 million. Zimbalist has a more conservative estimate of about $350 million for the Braves.
AOL Assets for Sale?
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|Estimated value of some "non-core" AOL assets
|Comedy Central: $1.5 to $2 billion
|Court TV: $1.5 to $2 billion
|Atlanta Braves: $424 million
|Atlanta Hawks: $199 million
|Atlanta Thrashers: $134 million
|Sources: Forbes, Kaufman Brothers
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Kaufman Brothers analyst Paul Kim notes that sports is such a small piece of AOL's overall revenue that a sale would not really impact AOL's top line that much. The revenue from AOL's sports business is not even large enough to note a line item in its earnings report.
Contrast that with New York-based Cablevision, which owns the New York Knicks basketball team, New York Rangers hockey team and New York Liberty women's basketball franchise. Revenue from Cablevision's Madison Square Garden division, which includes these teams as well as Radio City Music Hall, accounted for 14.4 percent of the cable company's overall revenue in the second quarter.
Still, if AOL wanted to sell something, Kim thinks a sale of its 50 percent stake in the Comedy Central and Court TV networks is more likely -- and would be more lucrative. (Kim does not own AOL stock and his firm has no investment banking relationship with AOL)
Viacom owns the other half of the two networks and has shown a willingness to pony up for programming. Last year, for example, Viacom spent more than $3 billion on the Black Entertainment Network (BET). Kim says, based on this deal, he thinks that the remainder of Comedy Central and Court TV could be worth between $3 and $4 billion.
AOL garage sale not likely
So using these estimates, AOL could possibly make as much $4.8 billion by selling some networks and its sports teams. There's plenty of other small assets that possibly could get sold which it's tougher to assign a value to, such as DC Comics, a minority interest in record club Columbia House and Ivy Hill, a printing and packaging company.
Sales of non-core assets could go a long way towards cutting the company's massive $28 billion debt load. That said, don't expect an AOL Time Warner fire sale any time soon.
Major credit rating agencies, such as Standard & Poor's and Moody's, are watching AOL's financial situation carefully, but its bonds are still investment-grade rated. Only $87 million of the company's debt is due within one year and AOL does have $1.7 billion in cash on hand. Kim thinks that selling assets just to please Wall Street in the short term would be a big mistake since he thinks many of AOL's media-related properties, particularly its magazine division, cable networks and film studio, will be worth substantially more once the economy picks up.
Plus, some money managers say that the asset mix isn't the problem for AOL. It's just that the wrong people were in charge. Andrew Pratt, manager of the Montgomery U.S. Focus fund, says he sold his stake in AOL earlier this year when the stock was trading in the high teens because he was worried about in-fighting between many AOL executives that are no longer with the company. In addition, Pratt says he was tired of the company failing to deliver on its lofty promises.
But now that there is a new management team in place, Pratt says he is starting to get interested in AOL again. Pratt even says that AOL's valuation is starting to look compelling. The stock closed on Thursday at about $14. "Clearly there are some compelling businesses there," he says.