The New York Times reported this week that at least three groups submitted offers to the Tribune Company on Monday in the latest round of bidding to purchase the Chicago Cubs baseball team. This is good news for the Tribune because the odds usually favor the seller in auction-style negotiations.
First, auctions with at least two bidders strengthens sellers’ leverage as sellers usually end up with a decent Plan B, or alternative to a deal with the other bidder. Multiple potential buyers allow sellers to play each buyer against the others to obtain the best deal.
Second, auctions – especially live ones – often stoke potential buyers’ egos, competitive spirit and emotions. The result is often bids not based solely on rational, reasoned analysis. Dallas Mavericks’ owner, Mark Cuban, who reportedly had the highest bid in an earlier round but has since dropped out, has a reputation for being extremely competitive. This may partly explain his high bid.
Third, sellers generally have the most information about the items being sold. Here, the Tribune has more complete information about the baseball team than the potential buyers – even if the buyers did great due diligence.
Finally, it’s tough in this economically challenged time to really ensure you get the highest price when selling an asset. After all, if you’re selling you might appear a bit desperate. So to counteract this, and if maximizing your price is your only goal, auctions are a good way to go.