SBJ/November 9 - 15, 1998/No Topic Name

Soaring NFL prices raise questions

With the suggested retail price of an NFL franchise these days hovering near $530 million, the cost has become so steep that some experts now say it could take up to two decades before new owners see any real return on their massive investment.

It used to be that when you bought an NFL franchise, you could bank on a staggeringly profitable investment. Consider that George Halas paid $100 for the Chicago Bears in 1920. Today, the team is worth at least $400 million. Modern examples like the Denver Broncos and the Tampa Bay Buccaneers prove remarkably profitable.

Broncos owner Pat Bowlen paid $70 million in 1984 for the Broncos. In 1995, Malcolm Glazer bought the Bucs for $197 million, plus a $17 million payment owed to the estate of former owner Hugh Culverhouse now that the team's new Raymond James Stadium is built. Today, both teams are said to be worth at least $400 million.

But analysts say that new Cleveland Browns owner Al Lerner, who paid a whopping $530 million, stadium included, and whichever ownership group ends up winning an NFL expansion franchise won't likely see such financial gain — especially within 15 to 20 years of ownership.

"With NFL prices so high, you have to have the expectation that you are not going to receive a return on equity for quite a while," said Marc Ganis, president of Sportscorp Ltd., a Chicago-based sports consulting company. "The way it has been is that you bought a team and had a cash flow relatively soon. Now, you make your money when you sell."

There is also more risk built into buying an NFL franchise than in the past.

The NFL's fat eight-year, $18 billion television contract with four networks has been a windfall to current owners, but experts expect the rates to drop in 2002 when the contract can be renegotiated.

"The NFL television contract may have hit the ceiling, and there may be a retrenchment with the next contract," said Dean Bonham, president of the Bonham Group Inc., a Denver sports marketing consultant. "Regardless, there will be a leveling off of appreciating values that have been around 15 percent annually for the past 30 years. This isn't a sky-falling scenario for the NFL. If someone is looking to get in and sell in three or four years, it's not a good investment. But it's a good investment if you are willing to wait for 20 years. It's now a long-term hold."

Owners who fail to build state-of-the-art stadiums with high-priced luxury suites and club seats — a key revenue stream — are particularly at risk.

That issue is relevant in Los Angeles, from where the Rams and the Raiders fled after failing to drum up enough revenue.

"Los Angeles is a very risky market," Bonham said. "Michael Ovitz [who's leading one Los Angeles ownership group effort] projects $50 million from the sale of personal seat licenses, but that market hasn't been a boon to whomever has been there, including [Rams owner Georgia] Frontiere and [Raiders owner Al] Davis."

There's also this year's flat television ratings, which could signal a downturn in fan interest and ultimately a drop in attendance against the backdrop of increasing player salaries. NFL brass, however, said they still garner the highest sports ratings on TV.

"Ratings are still strong and there has been an explosion of NFL programming," said NFL Commissioner Paul Tagliabue.

Looming larger is the wild-card proposal posed by NBC and Turner Sports to create a new professional football league. Should that ever happen, NFL team values could be threatened.

"That could really affect the value of team," Bonham said. "It could cause a drop in ratings and a subsequent drop in the values of sponsorships and advertising."

Despite the higher stakes, potential new NFL owners are bracing to pay the hefty expansion fee and betting that NFL teams will continue to become more valuable.

Officials with the Houston ownership group led by Robert McNair said they are confident that the expansion price will be a fair one. That means a buy-in price upwards of $500 million.

"Bob's position has been one that he'll pay what the market price is," said Steve Patterson, executive vice president of the McNair-led Houston NFL Holdings Inc. ownership group. "We don't expect to pay a premium, and we don't expect a discount."

But along with the greater risks are bigger rewards.

The NFL does not currently allow corporate ownership of its teams. But that could change, and if it does, it will have a major impact on franchises. Other ways to boost NFL team values include expanding internationally and pushing a pay-per-view television strategy.

"If the league ever changes its ownership rules, the values will skyrocket," Ganis said. "In 10 years, today's prices will seem cheap."

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