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