Investor sees long life for new AAF
Do the math. After receiving a recent $250 million commitment, the new Alliance of American Football isn’t going away for a while, if it ever leaves.
Just ask the guy who is making that investment, Tom Dundon, the billionaire investor and owner of the NHL’s Carolina Hurricanes. Even with the expected bumps that come with a startup pro football league, how much time does that buy?
“Five years, something like that,” Dundon told USA TODAY last week.
That’s more like a worst-case scenario.
Because so many other minor league pro football ventures have collapsed financially, the dark cloud of history still follows the AAF, whose business model is different from other sports leagues. A recent hiccup with payroll added to the perception the league was in trouble a week after it started.
To clarify the long-term outlook of this league, USA TODAY addresses some of these issues, based on recent interviews. The eight-team AAF has played three weekends, with games televised on CBS, CBS Sports Network and NFL Network.
Was Dundon’s investment a bailout to “meet payroll”?
If the league was in trouble and Dundon merely was trying to keep it operational this year, he wouldn’t have invested as much as he did. His $250 million is enough to meet roughly seven years of player payroll. AAF players make an average of $83,333 a year at a minimum. Multiply that by 416 players a year, and the league has about $35 million a year in minimum player payroll expenses. If Dundon’s goal only was to fund the league for a year, that’s not a very smart investment because he’d be throwing away money.
“It’s going to cost money to get it there, but it’s a better investment than most in terms of venture capital,” Dundon said.
About that payroll lapse?
The league gave this response to USA TODAY: “We had an administrative issue with the transitioning of our players and coaches to a new payroll system last week,” league co-founder Charlie Ebersol said in a written response. “Paychecks were processed on Friday (Feb. 15), and due to the President’s Day holiday (Feb. 18), funds were not available in many player accounts until (Feb. 19).”
Citing unnamed sources, The Athletic reported last week that the league was running short on cash, threatening its ability to meet payroll Feb. 15. It said Dundon’s commitment enabled the AAF to meet its obligations. Dundon said he gave the AAF money on Feb. 14.
It’s possible the league could have hit a funding crunch and payroll might have suffered an administrative delay. The AAF is a private startup venture that relies on seed money from investors to build a ramp for a planned takeoff to profit.
USA TODAY asked the AAF if planned investors had dropped out. Ebersol didn’t directly answer that but responded in writing, noting startups traditionally raise money in a series of investment rounds. With Dundon’s commitment, Ebersol said the league is in a position to eliminate the need for fundraising and now “can solely focus on accelerating our growth.”
Said Dundon, “We have the capital to do whatever we need to do to make this thing successful, and I strongly believe it’s going to be successful.”
What is Dundon thinking?
Dundon is a billionaire investor with a firm in Dallas that has funded companies in various industries, including Topgolf, the sports entertainment company. He is now chairman of the AAF and its biggest investor.
Why would he commit so much to a league that so far has drawn some crowds of about 11,000 in stadiums that seat more than 60,000? For one, the venture’s business model is based on more than traditional sports revenue sources such as ticket sales or TV ratings. He’s still been impressed by the latter, led by an average 3.25 million viewers for its debut games on CBS Feb. 9, when the AAF beat an NBA game at the same time, according to Nielsen data. Games on the NFL Network the second weekend drew about 425,000 average viewers each.
Dundon said even if the league got half the TV ratings it is getting now “it would still be a pretty solid league.”
“Other than if no one watches, there’s not a scenario where I don’t have enough money to build the league.”
Investors also are banking on the league as a technology business. The AAF hired a former software engineer from Tesla and Lockheed Martin to develop proprietary technology that intends to process and deliver vast amounts of data in real time, something that could be transformative for sports gambling applications and other fields.
That’s why MGM Resorts International, the giant casino company, is an investor. MGM sees a big future in in-game sports gambling, using a mobile phone application to bet on the next play or current possession in a game, for example. The faster this technology works, with more and better data processed, the more this tech product appeals to MGM and others that might want to buy it or license it.
Ebersol previously named other notable investors such as the Founders Fund and the Chernin Group.
“It was the technology that we liked,” said Scott Butera, MGM’s president of interactive of gaming. “(Dundon) very much likes the football side of it. It’s a good marriage.”
What does this technology have to do with a startup football league?
They are intertwined. The AAF is using football to develop and experiment with this technology. Players wear sensors in games to provide useful gaming data about who’s on the field, what just happened and scores of other statistics. “You need the games to scale the technology,” Dundon said.
What’s the potential risk and reward?
Costs will remain high and might not be covered any time soon by conventional sports league revenue such as ticket sales and TV rights. One theory among armchair observers is that the NFL might buy the tech and the league as legalized sports gambling expands into more states. It’s also possible a competitor develops better tech, or the tech doesn’t pay off as planned. The seed money won’t last forever if something doesn’t sprout.