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Volume 20 No. 42
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Sale seen as hope, not threat, for Jacksonville

In March 2007, when Wayne Weaver nearly sold his Jacksonville Jaguars, the deal foundered in part because of the owner’s insistence that the potential buyer contractually agree not to move the team, financial and football sources said. The buyer, whom the sources declined to identify, agreed to try to keep the team in Jacksonville but would not put a guarantee in writing.

No such guarantee is included in the team’s pending sale to Illinois auto parts magnate Shahid Khan, who has publicly said he plans to keep the team in the struggling market.

Shahid Khan, with wife Ann, has said he plans to keep the Jaguars in Jacksonville.
“Wayne’s legacy will be lasting, and I will always be grateful for Wayne’s trust and confidence in my commitment to the Jaguars, the NFL and the people of the Jacksonville community,” Khan said in a statement Tuesday, the day the deal was announced.

Weaver echoed that sentiment in a tearful news conference, saying he expected his grandchildren to grow up Jaguars fans.

Nevertheless, with the league eyeing Los Angeles and perhaps London and Toronto as relocation or expansion cities, speculation hit full tilt in the aftermath of last week’s sale announcement on what the Khan deal meant for the Jaguars, who have struggled mightily to sell out EverBank Field.

Sources close to the league, which was instrumental in moving the process along, insisted the sale is a blessing for Jacksonville because Weaver had long talked about stepping down, which to the NFL cast a pall of uncertainty over the franchise.

Jacksonville has struggled because of the city’s hurting economy and relatively small population. At 1.35 million as of 2010, Jacksonville in MSA population ranks ahead of only New Orleans, Buffalo and Green Bay among NFL markets. The city’s unemployment rate of 10 percent in September stood above an 8.8 percent rate for metro areas nationally for the month, according to the Bureau of Labor Statistics.

Financial advisers sit out this NFL acquisition

The Jacksonville Jaguars sale is unique in its structure among recent team acquisitions in having been executed without the assistance of financial advisers. Not using financial advisers, once commonplace, is almost unheard of now, given the escalating price of sports franchises.

The Jacksonville situation is rare in part because the buyer, Shahid Khan, nearly bought the St. Louis Rams last year. As a result, he emerged as a well-known potential acquirer of sports teams, and teams in other leagues made overtures to him in the last 18 months, a source said. In addition, the Jaguars have been floated for sale since at least 2007, meaning word was already out that the team could be bought.

Until the spring, Jaguars owner Wayne Weaver had retained Galatioto Sports Partners, but his agreement with the firm expired at that time. He did not retain another firm and handled the sale talks himself. Those talks with Khan began in earnest a few months ago but became serious only in the weeks leading up to the announcement, sources said.

Khan also did not use a financial adviser, though he retained the law firm Proskauer, which is well-connected in sports.

— Daniel Kaplan
In 2005, the Jaguars put tarps on 9,700 seats in their 76,000-plus-seat stadium so those seats would not have to be counted toward sellouts, which are required for teams to avoid having home games blacked out on local TV. Nevertheless, the Jaguars, who have also struggled on the field in recent years and fired coach Jack Del Rio last week too, have consistently battled blackouts in the last half-decade. While the team has avoided blackouts the past two seasons, it had seven blackouts in 2009 and three in 2007.
Financially, the team should be on firmer financial footing with the league’s new 10-year collective-bargaining agreement, meaning there is little chance of triggering a provision in the team’s lease that would allow the club to leave if there are three straight unprofitable years. The lease runs through 2029 and would currently cost nearly $50 million to break.

That said, financial sources contend that might be a small price for Khan to pay if a much better economic paradigm is offered elsewhere — though all sources agree he will almost certainly try to make it work in Jacksonville for at least the next few years. The price he’s paying, a bit over $750 million, is hardly outlandish when many teams are thought to be worth more than $1 billion. In fact, $750 million was the price Weaver wanted in 2007, but the buyer at the time declined to move up from $725 million, another reason that deal broke off, the sources said.

Khan tried to buy the St. Louis Rams last spring, before then-minority partner Stan Kroenke exercised his right of first refusal and acquired the club. At the time, the league had concerns about Khan in part because of Internal Revenue Service investigations into his tax shelters and how he planned to borrow against his company, Flex-N-Gate, to buy the team.

Sources said the IRS matters are resolved and Khan is borrowing using Flex-N-Gate’s existing lines of credits. The Jaguars have $110 million in debt Khan is assuming (meaning cash paid is a little more than $640 million) and he will add another $40 million of debt against the club.

The NFL hired JPMorgan Chase to review Khan’s financials and present its findings to the NFL finance committee this week, with full ownership expected to vote on the deal Dec. 14. That quick turnaround from announcement to formal vote is unusual and suggests the NFL has been closely involved with the process. Weaver, in fact, said he expected the finance committee to unanimously approve the deal.