GAME OF INCHES

Why the boom in NFL team val­ues has slowed to a crawl.

Forbes - - LEADERBOARD -

NA­TIONAL FOOT­BALL LEAGUE team val­ues have plateaued.

The value of an av­er­age fran­chise in­creased 2% over the past year, to $2.57 bil­lion. That was the small­est in­crease since 2011, when the av­er­age fig­ure in­creased 1.4%. When ad­justed for in­fla­tion, val­ues fell by 0.7% this year.

The pri­mary rea­son: the dearth of peo­ple who have the liq­uid wealth to buy 30% of an NFL team. When Jerry Richard­son put the Carolina Pan­thers up for sale af­ter last sea­son, some pun­dits were pre­dict­ing the team could go for $3 bil­lion. Bil­lion­aire David Tep­per got it for $2.3 bil­lion be­cause he was the only per­son at the table with enough cash to sat­isfy the league’s fi­nanc­ing rules.

The NFL has the strictest own­er­ship re­quire­ments among the four ma­jor U.S. leagues. In a team sale, the gen­eral part­ner must own at

least 30%, and the max­i­mum amount of debt at the team level is $350 mil­lion. If a team is sold for $2.3 bil­lion, for ex­am­ple, the min­i­mum GP eq­uity would be $585 mil­lion, as­sum­ing the GP has se­cured the max­i­mum amount of debt for the team.

In other words, it takes much more than be­ing a mem­ber of The Forbes 400, many of whose for­tunes were made via real es­tate or pri­vately run com­pa­nies. It takes liq­uid wealth—lots of it.

One rea­son this has be­come an in­creas­ingly large pill for one in­di­vid­ual to swal­low is the con­trast between the longterm per­for­mance of the stock mar­ket (a key source of liq­uid wealth) and NFL fran­chise val­ues. Dur­ing the past 20 years, team val­ues have climbed al­most nine­fold—an 11.6% an­nual rate—ver­sus just 4.5% for the S&P 500. More­over, the NFL per­mits no cor­po­rate own­er­ship. League rules stip­u­late a max­i­mum of 24 lim­ited part­ners. In the ex­am­ple above, the LPs would have to throw in $1.37 bil­lion—and get no say in how the team is run.

The NFL’s re­quire­ments have been ef­fec­tive. The league has not had a team in fi­nan­cial trou­ble be­cause of too much debt since 1999, when Art Modell agreed to sell the Bal­ti­more Ravens. There have been no Los An­ge­les Dodgers, New Or­leans Hor­nets or Ari­zona Coy­otes fi­as­coes in the NFL.

Al­ready the big­gest and most prof­itable league in the world—the av­er­age team has $427 mil­lion in rev­enue and $95 mil­lion in oper­at­ing in­come—the NFL will soon get even richer. It can opt out of the Sun­day Ticket deal with AT&T’s DirecTV in 2019, four years early. The cur­rent deal, which av­er­ages $1.5 bil­lion a year, is worth 50% more than the prior agree­ment.

Bid­ding for Sun­day Ticket will be hot. Ama­zon and Dis­ney’s ESPN are likely to be in­ter­ested, given their push to­ward stream­ing sports. ForbesÕ best guess: The an­nual av­er­age value of the next Sun­day Ticket deal could be twice this one.

Dal­las Cow­boys owner Jerry Jones re­cently said, “Le­gal­ized gambling is go­ing to in­crease the amount of time peo­ple spend watch­ing the NFL on TV and on­line, and will there­fore have a pos­i­tive im­pact on the value of our con­tent.”

As a re­sult, bar­ring any changes in own­er­ship and fi­nanc­ing rules, the schism between the NFL’s eco­nom­ics and team sale prices will prob­a­bly widen. Which isn’t nec­es­sar­ily a bad thing.

Cash Cow­boy: Dal­las owner Jerry Jones.

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