These are salad days for NFL owners.
They are in the opening years of media contracts spanning 11 years and worth a combined $110 billion, a figure that will continue to rise when they likely opt out of those deals in 2029.
They are less than halfway through a team-friendly collective bargaining agreement that now has a player salary cap of $255 million, almost $150 million less than the $400 million distribution to each owner or national revenues alone.
And even more impressive than those two markers is the stunning escalation of franchise prices. Six years ago, the Carolina Panthers sold for $2.275 billion, a record at the time. Three years ago, the Denver Broncos doubled that price, selling for $4.65 billion. And last year, the Washington Commanders sold for a staggering $6.05 billion.
With this escalation, there’s a need and an opportunity. The need is for additional sources of funding for these franchises other than the traditional individual ownership. That need was answered earlier this year, with the NFL’s long-awaited decision to allow its teams to pursue private equity funding, albeit only with pre-approved firms and only up to 10% of the franchise price.
As for the opportunity, owners are starting to realize large financial windfalls by selling off small portions of their franchises for amounts that, in a time not long ago, would have bought all or most of a franchise. In the past month or so, four franchises have pursued such windfalls, with likely approval by NFL full ownership coming this month. Let’s examine.
Buffalo Bills
Bills owners Terry and Kim Pegula have a team flourishing on the field and off it. Adjacent to the stadium where the Bills are having so much success now, there is a new stadium being built, funded with $850 million of public money—from the state of New York and Erie County—and a $200 million loan from the NFL. Thus, the Pegulas’ contribution to that new stadium is quite limited, although they are responsible for cost overruns, which can be significant. But now they have found plenty of funds to cover those costs.
The Pegulas have sold 20% of the team, pending league approval, in two 10% tranches. They are among the first teams to take advantage of the new allowance for private equity investment selling off the maximum 10% stake to one of the NFL’s pre-approved firms, Arctos Partners.
Another 10% is being sold to a variety of individuals (including former NBA stars Vince Carter and Tracy McGrady) with varying stakes that collectively equal 10%.
With a $5.35 billion valuation (according to CNBC), the Pegulas are generating over $1 billion by liquidating 20% of the franchise. And here’s the key: they are not giving up any control of the team.
The Pegulas bought the Bills for $1.4 billion in 2014. They are now almost making a full return on that investment by selling 20%.
Miami Dolphins
Dolphins owner Steve Ross is selling 13% of the team. Like the Bills, the Dolphins are also selling the maximum allowable 10% to another pre-approved private equity firm, Ares Management. The other 3% will primarily go to Joe Tsai, the owner of the NBA’s Brooklyn Nets and WNBA’s New York Liberty.
With a $7.1 billion valuation (per CNBC), Ross is generating roughly $900 million by liquidating 13% of the franchise value. And again, not giving up any control of the team.
Ross bought the Dolphins in 2009 for $1.1 billion. He is almost making a full return on that investment by selling 13%.
Philadelphia Eagles
Eagles owner Jeffrey Lurie is selling 8% of the team. There is no private equity firm involved here, only a couple of family trusts: of Ed Peskowitz, former co-owner of the NBA’s Atlanta Hawks, and of Susan Kim, the CEO of Amkor Technology.
With a $7 billion valuation (according to CNBC), Lurie is generating roughly $560 million in liquidating 8% of the team while, again, retaining full control.
Lurie purchased the Eagles in 1994 for $185 million. He just made three times that investment by selling a tiny fraction of the team.
Las Vegas Raiders
We knew about the sale of 5% of the franchise to Tom Brady, with another 5% going to his partner Tom Wagner (and a 0.5% share going to Richard Seymour). We also know that Brady and Wagner are receiving a steep discount in valuation of their purchase, although it’s unclear what the exact level of that discount is.
Raiders owner Mark Davis, however, is selling much more than the small piece to Brady. He is also selling an additional 15% of the team, in two 7.5% tranches, one to businessman Michael Meldman and one to Egon Durban, the co-CEO of private equity firm Silver Lake.
With a $7.8 billion valuation (per CNBC), it is safe to assume that by selling off a total of 25% of the franchise, even with the Brady discounted shares, Davis is bringing in well more than $1.5 billion while, of course, retaining full control.
Al Davis purchased a 10% stake in the Raiders in 1966 for—wait for it—$18,500.
Why the investments?
None of the investors above (except, of course, Brady) will have any input on: hiring or firing coaches; selecting, retaining or signing players; managing the salary cap, scouting college players, setting the roster, negotiating with agents, etc. These investors are passive, providing cash infusions to the principal owners for their small shares of ownership.
So then, why are they doing it?
As for the private equity firms, whose money is not even their own, it is simply a smart investment, with better returns than most. It appears to be recession-proof with all metrics pointing north and valuations that continue to rise.
As for the individual investors, the investments are, at a minimum, nice additions to their portfolio. And, while giving them no input to the inner workings of these teams, there is some psychosocial value in owning any stake in the scarce resource of an NFL team.
As I’ve recounted here before, a friend of mine received a prospectus last year to invest roughly $200 million into the Washington Commanders. He called me and asked: “Andrew, do I have this right? I give them $200 million and all I get is a parking pass and some good tickets?” I said that yes, that sounded about right. But if investors like him truly cared about getting more than that—this person did—that is fine. There is a long line of investors that are happy with that or even less (even no parking pass). They just want to own a piece of an NFL team, no matter how tiny. And to NFL owners like those of the four teams above, it is welcome cash to use for the team, the stadium or, of course, any other use they desire.
The skyrocketing NFL franchise valuations, combined with new rules allowing for private equity funding, have made the business of owning an NFL franchise even more lucrative.
No matter how they are doing on the field, NFL owners are winning in a landslide off of it.
This article was originally published on www.si.com as Business of Football: NFL Owners Fully Embrace Private Equity Funding.
