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For Sale Soon: Chris Ilitch Looks to a Future Without the Detroit Tigers

 

 

When Mike Ilitch died on February 10, the billionaire Detroit staple left behind a detailed estate plan. For years, his privately stated desire was for the Ilitch properties to remain family owned. This desire was publicly expressed on May 5, 2016, in a statement declaring the family’s succession plan.  

 

In that statement, Mike Ilitch said the entirety of his empire would “remain 100% Ilitch-family owned” after his death. Within months, his heir apparent appears to have made that future negotiable.

 

 

Chris Ilitch Begins to Take the Reins

 

The precise timeline is not entirely clear. It appears that Mike Ilitch’s son and successor, Chris Ilitch, began envisioning a plan to sell the Detroit Tigers sometime in the summer of 2016. His father’s health remained in relative peril throughout this period, and the heir apparent to the Ilitch Empire was at that point already in full control of all Ilitch properties.

 

Although he was appointed president and CEO of Ilitch Holdings in 2004, Chris Ilitch had yielded to his father on all major decisions regarding the Detroit Tigers and Red Wings until early 2016. The one notable (partial) exception occurred when Brad Ausmus was retained as Tigers manager after a disappointing 2015 campaign. An infirmed Mike Ilitch wanted to replace Ausmus with Jim Leyland or Ron Gardenhire. Chris Ilitch and Team President Al Avila advocated for retaining Ausmus. The owner’s son was permitted to make the decision.

 

With Mike Ilitch’s health worsening in early 2016, the owner had decided to fully withdraw from the management of his empire. In the last year of his life, Ilitch spent most of his time under the care of Beaumont doctors. On the better days, he would quietly attend Tigers games from the comfort of his private suite.

 

On June 22, 2016, a meeting took place in that suite that might have changed the future of the sports landscape in Michigan.  

 

“It All Started Very Casually”

 

Detroit Pistons owner Tom Gores had wrapped up a downtown meeting with Chris Ilitch earlier in the day. The purpose of the meeting was to discuss a potential move downtown for Gores’ pro basketball team. Ilitch was hoping to woo Gores with renderings of the still-under construction Little Caesars Arena. After a long discussion regarding the new venue and the surrounding District Detroit project, Ilitch informed Gores that his parents Mike and Marian were attending the Tigers game next door at Comerica Park. Although it had not been on the itinerary, Gores expressed his desire to greet the elder Ilitches in their suite. Moments later, the owners of the Pistons and Tigers were shaking hands and exchanging pleasantries. This meeting was first reported by Vince Ellis in the Detroit Free Press.

 

Those June 22 meetings appear to have planted a seed in Chris Ilitch’s mind.

 

“It all started very casually,” said a source with knowledge of the exchange. “(Chris) went into the day just hoping to find a co-tenant for the new building.”

 

The day ended with Chris Ilitch desirous of partnering with Gores on a grander scale.

 

“Bottom line: Chris wants to sell the Tigers,” the source said. “But there are reasons for pause.”

 

The source said the new controlling owner of the Detroit Tigers has expressed reticence about selling the beloved franchise. There are legacy concerns and the fear of public backlash should the town’s baseball team end up in the wrong hands.

 

“If Chris Ilitch had his way, Tom Gores would make a fair offer for the Tigers tomorrow,” the source said. “It is a natural fit.”

 

Gores, a Flint-native and graduate of Michigan State, does not have a “man of the people” reputation like the late Mike Ilitch. But he grew up merely 70 miles away from his glitzy new home in the District Detroit. Gores also shares the Ilitch family’s fondness for local philanthropic efforts, as evidenced by his $10 million pledge to aid Flint relief efforts during the ongoing water crisis.

 

But does Gores have any interest in buying the Tigers?

 

“That topic was discussed (between Gores and Ilitch) at least twice last summer,” the source said. “And Chris seemed encouraged by the dialogue.”

 

According to another source connected with Chris Ilitch, the hope that Gores will make a bid extends beyond wishful thinking.

 

“Gores is a self-made billionaire who knows better than to show his cards,” the source said. “But there are signs of his interest.”

 

According to the source, Gores has made multiple references to the Tigers being a “treasured asset” in his discussions with Ilitch. Gores has also expressed to Ilitch his commitment to “continued expansion of his interests in the city” of Detroit. This desire is said to extend beyond the soccer franchise Gores is attempting to launch in a partnership with yet another billionaire Michigan local, Dan Gilbert of Quicken Loans.

 

People on the Ilitch side believe Gores is a viable bidder, despite the Tigers’ high price tag –the less desirable Miami Marlins recently rejected a $1.1 billion bid – and Gores’ affinity for acquiring downtrodden assets available at a discount.

 

Chris Ilitch believes that Gores would be a welcomed new steward of the town’s baseball franchise, given his local ties and already established Detroit profile. Selling the franchise to an outsider, or to a multi-pronged investment group, would likely yield scorn from a fan base known for skepticism and provinciality.

 

 

What About the Red Wings?

 

Although it is possible the Ilitch family will fully divest their interest in Olympia Entertainment and all of its subsidiaries, it is believed the family wishes to retain Little Caesars, Fox Theatre, and the NHL’s Detroit Red Wings. Chris Ilitch has told family members that he does not want to extricate from the Detroit scene entirely.

 

“I think (Ilitch) likes being an important person in town,” the source said. “You never say never, but I don’t think he wants to be an invisible billionaire.”

 

According to the source connected with Chris Ilitch, the billionaire favors the Red Wings both sentimentally and as an asset to retain.

 

Although Forbes seldom posits valuations that reflect a team’s ultimate sale price, it is worth noting the Wings were assessed a value of $625 million by the publication in November 2016. Conversely, the Detroit Tigers were assessed a value of $1.2 billion in April of this year.

 

According to Forbes, the Tigers lost money for the 6th time in 9 years during the 2016 campaign. Their operating income yielded losses of $34.6 million, worst in all of Major League Baseball. The Red Wings, on the other hand, had a positive operating income of $6.1 million.

 

In short, the Tigers are a more valuable asset on the market, but have been a relative money pit for the Ilitch family since 2008. Unlike the salary-cap restricted NHL, the MLB is a relative free-for-all with a high luxury tax threshold. There is significantly more cost certainty for an owner in a salary cap league. And far less outside pressure to spend money to remain competitive.

 

Would Chris Ilitch be content operating the Tigers at a loss?

 

“No chance,” said a Tigers employee working in the business offices of Comerica Park. “Chris is constantly asking our staff how we can tighten (the budget).”

 

 

Tax Implications

 

The documents containing the estate and succession plan of the Ilitch family remain confidential. It is known, however, that Mike Ilitch placed the Detroit Tigers in a trust and named Chris Ilitch sole trustee. The family has spent years in their estate planning to mitigate the tax implications upon succession, but it is not known to what extent their exposure was limited.

 

The current federal tax on estates at the top bracket is 40%. Given the Tigers’ $1.2 billion estimated valuation, the tax bill would come in at roughly $480 million. That is a significant sum to pay simply to retain any asset, let alone one that has been operating at a loss for nearly a decade.

 

According to both of the sources connected to Chris Ilitch and his family, there has been significant family pressure on the new owner to sell the family’s various holdings to the highest bidder. There are dozens of family members across 4 generations dependent on the empire for their livelihood, and they each stand to benefit financially from a total dissolution of the empire.

 

“There are family members that get a nice check every month,” one source said. “But they’d rather get one big one with a few more zeroes.”

 

Any valuation of the entire Ilitch Holdings empire is a complicated equation. The two sports franchises alone have a combined estimated value of nearly $2 billion, and that is before Little Caesars, Fox Theatre, Motor City Casino, and several other properties are accounted for. While the sale of the Tigers alone would enrich the family, a rarefied air of wealth would be achieved by a total sale of all properties and interests.

 

An estate attorney in Michigan sees the perspective of the Ilitch family members.

 

“If you are in that family, of course you want Chris Ilitch to sell,” the attorney said, speaking on the condition of anonymity to avoid a conflict of interest with Ilitch Holdings.

 

All of the family pressure in the world cannot force Ilitch’s hand.

 

“If the trust establishes Chris as both the trustee and the primary beneficiary, as it appears, nobody can make him do anything,” the attorney said. “He is operating both components of the equation.”

 

Luckily for those family members seeking a financial windfall, Chris Ilitch appears eager to sell at least one of the family’s golden properties.

 

 

Impact on the Tigers

 

The Detroit Tigers have been significantly hampered by the transition of leadership in the Ilitch family. According to one source, the organization is on a budgetary lockdown.

 

“Morale has not been this low since 2008,” the source said, referring to the last place Tigers team that had been favored in Las Vegas to win the World Series during Spring Training.

 

In May, Chris Ilitch told the front office that they could add additional payroll via trade, but only to acquire low-salaried personnel. When Joaquin Benoit was suggested as a potential target to fix an ailing bullpen, his $7.5 million contract was deemed too expensive to absorb.

 

“The good old days are over,” the source said. “We would be back in the 90s already if this team didn’t have so many players with unmovable contracts.”

 

The entire operation of the Tigers has been based in a newly adopted, cost-conscious mentality. This stands in stark contrast to the free wheeling days of Mike Ilitch, whom often pestered former Team President David Dombrowski with ways he could spend his money.

 

“Mr. I called Dave Dombrowski and told him to go sign Pudge (Rodriguez) and trade for Miguel Cabrera,” the source said. “Chris would never make those calls.”

 

The team’s unwillingness to move on from lame duck manager Brad Ausmus is another sign of the organization’s holding pattern. The team is stuck in neutral, unwilling to add talent and reticent to make any staff changes. The Tigers are in an effective freeze, owned by an heir lacking the passion of his predecessor.

 

 

What Happens Next?

 

The future of the Detroit Tigers remains murky. There will be no hometown discount for Tom Gores or anybody else. Our investigation focused largely on Dan Gilbert as a potential alternative to Gores, but none of our sources have once heard his name mentioned by Chris Ilitch or anyone associated with him regarding the future ownership of the Tigers. Gilbert checks many of the same boxes as Gores, a philanthropic native of Metro Detroit, Michigan State graduate, and the requisite wealth to make an enticing bid. He also has an established relationship with Gores, given their efforts to bring professional soccer to the area. It is theoretically possible for the two billionaires to partner up again and make a shared bid on the Tigers, softening the financial blow for each.

 

Sports teams are rarely sold to individual bidders anymore, as demonstrated by the top 3 bids for the Marlins all coming from groups of investors. Gores ($3.3 billion) and Gilbert ($5.9 billion) appear to have the capital necessary to make individual bids.

 

What we have concluded is that Chris Ilitch intends to sell the Detroit Tigers, has effectively frozen the organization’s movements, and is particularly desirous of a Tom Gores bid. Like any other billion dollar transaction, it will take the right partner to make Ilitch’s desire come to fruition.

 

Until that day arrives, the Detroit Tigers remain in limbo, the custody of a guardian who does not really want them.  

 

 

Editor’s Note: Spiro Avenue contacted Tom Gores’ Platinum Equity and Ilitch Holdings seeking comment on this report. At the time of publication, neither party had responded to these inquiries.

 

 

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