The day after Sunday's Super Bowl, the NFL could assume ownership of nearly half of Reebok's football licensing business, but the league would then have to forgo the guaranteed money it is set to receive under its contract with the sneaker and apparel company.
The NFL has a two-month window to make the decision. If it does nothing and continues to receive the guaranteed royalties under the 10-year, $250 million pact that kicked off in 2002, the league would need to wait until after the next Super Bowl before another opportunity arose to change the deal.
If the NFL executes the option, the Reebok ownership stake would become the largest in a public company ever held by a professional sports league.
In fact, the Reebok position would be just the largest of several NFL investments in public companies. America's top sports organization also owns part of SportsLine, an interest that looks to grow considerably this year, and is set to receive options and stock in new sponsor Sirius Satellite Radio. The league also is in line to receive 800,000 Reebok warrants, but not until 2007 at the earliest.
"The NFL's strategy is to have equity only as a kicker in a deal, and not to reflect the full economic value" of a sponsorship, said Marc Ganis, a sports consultant who works with several NFL teams. "That is something they want to avoid." A large shareholding could cloud the league's judgment, he argued, once the sponsorship is ready for renewal.
It is not hard to see why the NFL has so many opportunities to invest. Companies want to make their economic interests the NFL's, thus making it harder for the sport to break relations with them. And, of course, offering stock and options is cheaper than cash.
According to Ganis, the league passed up offers of shares from DirecTV, which has the NFL's out-of-market TV package. The league has an option in two seasons also to sell those games to cable outlets, so its decision to remain economically neutral is an example of why the NFL may choose not to own part of a current partner.
Still, the organization is nearly alone among major sports leagues in owning positions or options in public companies. Major League Baseball and the NBA have no options or stakes in public companies, while the NHL has options in The Hockey Co., a Canadian equipment maker, and says it owns shares in video game maker Electronic Arts.
"We do not have a policy against it and we are always looking to be creative in how we structure deals," Ed Horne, NHL Enterprises president, said in a statement provided by a league spokesman. "Our partnership with The Hockey Co. is a good example of that."
An MLB spokeswoman said that while there is no written policy, it is the league's practice not to invest in public companies.
Unlike the NFL, the NBA, also a Reebok partner, does not have an option to buy part of the company's team licensing business. Sources said that if the NFL executed its option, it would be only for Reebok's football business and not for any of the other sports, like basketball, that now operate out of the same Reebok division, Onfield Apparel Group.
NFL spokesman Brian McCarthy said the league examines every opportunity for equity on a case-by-case basis but generally is not part of the equation.
"We are always exploring ways to craft a deal that will be beneficial long term and short term," he said. "If equity makes sense, we may use it. More often than not, we end up with a straight deal."
He declined to comment further on the Reebok deal.
Sports consultant Ganis predicted the league would execute the option, whether next month or later, assuming Reebok's stock and business were healthy. The team licensing business, which makes jerseys for all 32 NFL teams and most NBA teams, has been a successful one by most accounts for Reebok.
In addition to a two-month window after next year's Super Bowl, there is a third, and final, two-month option window after the 2006 Super Bowl.
The NFL almost certainly this year will see its holdings in SportsLine rise significantly. Under the agreement with the online company that allows it to produce NFL Web sites, the league is due to receive $2.7 million in cash or stock from SportsLine in May.
Given the company's weak financial position, it is likely to come in stock, as a similar payment did last year. The NFL owns 3.7 percent of SportsLine, but if the May payment were to come in stock, that percentage would more than double to nearly 8 percent, based on the company's current stock price and number of shares.
