The National Football League changes its rulebook from time to time, sometimes to clarify rules, such as pass interference (whatever that is, really), or to make the game safer or more exciting.
But last week, NFL owners made a rule change about themselves: The league will now allow private equity firms to buy a 10 percent stake in NFL franchises. The most exclusive club in sports will now allow the vulture class to own a small stake in the most valuable franchises in sports. And that could set a new game plan in motion.
Private equity firms pool funds from limited partners and then go out and buy or invest in businesses. Theoretically, at least, they then overhaul them, unlocking value, and then sell them at a profit, typically within five years. In practice, these firms can load their acquisitions with debt, charge exorbitant management fees and, on occasion, ruin what were functioning businesses. Case in point: the now bankrupt Red Lobster.
That’s not going to happen to an NFL team because of a 10 percent limit on minority owners and other guardrails that the league has placed on outside investors. Which are: You have no rights, you aren’t getting into the team huddle, and you have to hold the investment for at least six years. It’s not even clear that season tickets come with the package.
Ownership of NFL teams has historically been a rich boys’ game, first by custom, then by rule. Some owners are benevolent; others can turn out like Daniel Snyder. Before Commissioner Pete Rozelle put the NFL on broadcasting’s magic carpet in the 1960s, the league was an oddball collection of family businesses. Owners such as the Mara and Rooney families (Giants and Steelers, respectively) ran their teams as though they were neighborhood shops, only with very large employees. This is the league that vehemently opposed legalizing sports gambling outside Vegas — until it didn’t. Gambling now runs so deep into the NFL’s backfield that you are encouraged by the league’s bookies to be during the game.
But with every NFL franchise now worth north of $4 billion, the economics have become too tempting for most owners. “If you have owned a team for a long time and have a low cost basis, [meaning, you didn’t pay much for it] you might be looking for an exit,” says Michael Rueda, who heads the U.S. sports and entertainment practice at the law firm Withers Bergman. As some of these owner-families now span three generations, issues arise over estates — and cash flow. Witness the family feud over the Denver Broncos when longtime owner Pat Bowlen died. Bowlen had seven children but didn’t designate a successor; teams of lawyers then took the field. The Broncos were finally bought by members of the Walton family for $4.65 billion, but the number of people able to write that kind of check isn’t as extensive as you might think. And the next time a team turns over? That figure could easily double.
Selling 10 percent of the franchise to a collection of muzzled partners allows owners to monetize a franchise’s value without surrendering any operating control. To ease the way, the NFL has carefully vetted private equity firms and drafted a few as worthy players: Arctos Partners, Ares Management, Sixth Street Partners and a consortium of Blackstone, CVC Capital Partners, Carlyle, Dynasty Equity and Ludis — outfits that are already invested in other sports such as soccer, ice hockey and basketball.
It seems unrealistic to think that investors such as these, who are used to owning and running things, wouldn’t want a bigger stake in an NFL team someday. And likewise that some NFL owners wouldn’t want to monetize an even bigger chunk of their ballooning franchise values. These are the same owners, after all, who have pledged undying fealty to their hometowns until they get a better offer to move to Phoenix or Los Angeles or Las Vegas — or threaten to move unless the taxpayers build them a new downtown stadium.
(This is also the same league that vehemently opposed legalizing sports gambling outside Vegas — until it didn’t. Gambling now runs so deep into the NFL’s backfield that you are encouraged by the league’s bookies to bet during the game.)
And I’d be willing to bet that it’s just a matter of time before the NFL welcomes investments from sovereign wealth funds. These are vast pools of foreign-government-controlled money looking for a place to play. The Qatar sovereign wealth fund, with $500 billion in assets, already owns a piece of D.C.’s Capitals, Wizards and Mystics. The Public Investment Fund of Saudi Arabia ($925 billion in assets) has rocked the sports world with its purported $2 billion investment in LIV Golf and a merger with the PGA. From Saudi Arabia’s point of view, any moral issues related to the murder of Washington Post columnist Jamal Khashoggi in 2018 can be sports-washed away.
Saudi Arabia is also hosting the 2034 World Cup in part because no other nation was foolish enough to bid against it and FIFA, soccer’s ruling body, has a history of selling its soul. Now think about the NFL holding a game in Riyadh in 2035 in one of the nine new stadiums being built in that country. Just as international soccer has boomed in the United States, globalization will come to the NFL and then it’s literally anybody’s game.
The record on private equity and sovereign wealth funds owning teams is at best mixed. Private equity owners decimated FC Bordeaux, one of France’s legendary soccer teams. (Imagine the Red Sox being driven into bankruptcy.) Nor could Qatari money turn Paris Saint-Germain in into a Champions League winner.
Elsewhere, such as Manchester City in the Premier League, championships simply followed the money. That can’t happen in the NFL, with its salary cap and teams’ sharing equally in TV rights and the like. No new investment or owner can get a competitive advantage by simply applying more capital.
But not maximizing the value of an asset seems genuinely un-American. And for NFL owners, unlikely in the long run.
