The big news this past week has been the sale of the Washington Commanders. This is the second sale of an NFL team in the past year, which is quite uncommon among owners. So, today we’re going to talk about NFL teams as an investment, deal structures, and why people ever sell them.
Now that I told you how much I make from the ads, we know that I only need to write 125 million more newsletters until I can finally buy a team of my own.
Why buy a team?
Nowadays, buying a team is a lot like buying a toy for some billionaires, with Bezos and others expressing interest in owning their own teams. And I must admit, it does have its perks: access to all the facilities and relationships with the players sounds pretty awesome to me.
In some cases, it even aligns with the business these buyers are already in. For example, part of the reason Polish real estate developer Zygi Wilf purchased the Minnesota Vikings was because they needed to build a new stadium. Something well within his wheelhouse and interests.
But on top of all these so called “perks” many people think it’s a good investment. So, is it?
It kinda depends.
The two most important factors? Market and brand. The market helps drive licensing deals, ads, and merch sales. The best markets are obviously the biggest cities (the New York’s, Los Angeles’, etc.). And the best brands are also obviously going to be some of the winningest, like the Cowboys or the Patriots.
Another factor that plays into this is how long you plan to own the team for. The longer you own it, the longer ~compounding~ can take place, and the longer you have to build a brand. Look at the Chicago Bears for example, they were bought in 1920 for $100. Fast forward 100 years and they’re worth nearly $5 billion.
Bigger gains are realized the longer you own a team for, which is probably why you see owners hard pressed to give them up.
Looking at a few other examples:
- The Dallas Cowboys (most expensive sports team) were purchased for $150 million in 1989 and are valued at $8 billion. A 153.9% annualized return.
- The Washington Commanders were purchased for $800 million in 1999 and just sold for $5.6 billion. A 26.9% yearly return.
- The Denver Broncos were bought for $78 million in 1984 and just sold in 2019 for $4.6 billion. An 11.35% return.
- The Los Angeles Chargers were purchased for $72 million in 1984 and are valued at $3.88 billion. A 10.27% yearly return.
I guess the bottom line here is they never decrease in value, ever. Especially if you win.
How does it work?
The price of these professional sports teams has ballooned at a rate much faster than most people’s individual wealth. So, unlike the old days where one person could buy the franchise outright, many buyers form a syndicate, and the group will buy the team.
The Commanders were purchased by a group including 76er’s owner and Magic Johnson, as well as other limited partners.
In most cases, these deals will operate similarly to buying a house and owning a mortgage. The group will finance the whole amount (in this case $5.6 billion) and then use the team’s revenue to make the payments.
When Dan Snyder bought the Commanders for $750 million, he borrowed $350 million, making his yearly payment on the debt around $24 million. But the team makes $544 million in revenue from merchandise, licensing, sponsors, and TV deals; so, they can use that to cover the payments and chalk the rest up to coving the operating cost (stadium upkeep, facilities, paying players).
Given that Snyder has been paying the loan for the past 25 years, he probably owns almost 100% of the team. Meaning he turned $750 million into $5.6 billion. A $5 billion payday.
Why sell a team?
Well, most of the times it’s not because you want to.
Since it is a decent investment and a lot of fun to be around, most people try to hold onto their franchises if they can, and when they do sell it’s because they’re forced to.
Dan Snyder was forced to sell the Commanders over sexual harassment allegations, the Bowden family sold the Denver Broncos because Pat Bowden got Alzheimer’s and died, and then you have owners like Virginia Halas McCaskey of the Chicago Bears, who fans claim “knows nothing about football, won’t spend money, and should sell the team.”
You also have the rare occasion of the owners’ descendants not being able to afford the team. You may be wondering “how”?
When the old Oakland Raiders owner died, his family had to pay a 35% gift tax on the estate, which can be a lot of you’re a billionaire. The only problem? They didn’t have enough liquid cash to pay them. All their money was tied up in the assets of their father, like the Raiders. They were not independently wealthy, so there were a lot of rumors that they’d have to sell the Raiders in order to pay the gift tax.
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Speaking of football
There just so happens to be a success story involving the other kind of football and Ryan Reynolds (hit after hit with this guy) across the pond.
Reynolds and Always Sunny in Philadelphia start Rob McElhenney bought the struggling club in 2020 for $2.5 million and have already doubled its value after just 3 years.
This increase in value is in large part due to increased merchandise sales, bringing their own name and reputations to the club, and of course, winning. Wrexham is set to be promoted during the offseason.
So, all this goes to show that investing and buying sports teams can be good investments. And they can be great investments if the owners get involved and the team starts winning.