ATLANTA -- The National Football League yesterday voted itself the highest franchise fee in history, saying it will charge its next two team owners $140 million each to join the league.
A package of terms and conditions, including a partial loss of television revenue for the fledgling clubs' first three years, effectively raises the cost of NFL membership to more than $170 million.
Five cities are competing for the two franchises to be awarded in October: Baltimore, St. Louis, Charlotte, N.C., Jacksonville, Fla., and Memphis, Tenn.
Several prospective owners groaned at the fee, saying it would hamper the new franchises' ability to hire good players and make money. Some said they would have to study the numbers and suggested it might prompt competitors to drop out -- but none said he planned to.
Joel Glazer, son of prospective Baltimore team owner Malcolm Glazer, said: "It's in the range of what we expected, so there are no surprises. It works."
Baltimore's other prospective team owner, Leonard "Boogie" Weinglass, said: "It's definitely expensive, but I'm still in.
"I didn't get into this to get rich, but I don't want to lose money either."
League officials and owners, who approved the fee at their spring meeting here, called the package a fair valuation for the nation's most popular spectator sport.
"I think it says it's the No. 1 rated sport in the world," said NFL President Neil Austrian. "We've got more television viewers worldwide than any sport in history. We get better ratings on our preseason games than the NBA gets with its playoffs.
"We don't have some of the problems that other sports have. I think the price reflects that," he said.
Robert Tisch, part-owner of the New York Giants, said: "It's very fair to both the league and the expansion teams."
By expanding the league, current team owners are agreeing to divide their joint revenues two more ways -- costing each team several million dollars a year. They will, however, each get $5 million from the fee.
Mr. Tisch bought his share of the Giants in 1991 -- the last ownership change in the NFL -- for a price that valued the Giants at about $150 million. The last time the NFL expanded, in 1974, Seattle paid $17.2 million over 10 years and Tampa Bay $16 million over seven years.
Some say the sheer size of the fee could work to the advantage of Baltimore and St. Louis, the only cities offering new, publicly built stadiums loaded with money-making sky boxes and premium seats.
While most prospective owners said the deal was within the range they expected, several expressed surprise at the large up-front payments and the loss of TV revenues.
Of the $140 million, 30 percent, or $42 million, will have to be paid shortly after the winning franchisees are announced this fall. Another 20 percent, or $28 million, will be due next year -- meaning the owners will pay half the fee before each team begins play in 1995.
The remaining 50 percent would be paid in equal installments over the following four years. The league will charge the teams 6 percent interest on the unpaid balance of the fees, for a total of $16 million over the six years.
For the first three years, the teams will get only half their share of the network television revenues -- up to a maximum of $16.25 million -- that NFL teams split evenly and depend on for survival. This year the 28 teams each received nearly $40 million from the networks, making it their largest source of cash.
With the loss of the television money expressed in today's dollars, the deal amounts to an effective franchise fee of $170 million, according to Paul Much, an expert in franchise values with Houlihan, Lokey, Howard & Zukin in Chicago.
The league also added terms requiring a new team owner to share a portion of his profit it he sells the team within eight years.
"I think it was on the high end of what everybody expected," Max Muhleman, a consultant working on behalf of Charlotte, said of the fee.
With the interest, lost television revenue and start-up costs, fielding an expansion team will cost well in excess of $200 million, he said. Charlotte also is trying to finance a new stadium privately by charging season-ticket holders a special fee.
He said he would not be surprised if one or more cities dropped out of the running as a result.
"I don't think it's so much who has the money, but who is willing to take on these terms," he said.
St. Louis investor Jerry Clinton said: "I think it's probably a workable deal. I think the committee has done its homework and knows we'll be able to operate with a positive cash flow."
Former Chicago Bears running back Walter Payton is also an investor in the St. Louis group. "It's not what we were expecting, but sometimes you are surprised," said Payton, who predicted that the high fee would make it difficult for expansion teams to compete for free agents.
Pepper Rodgers, spokesman for Memphis, said: "I don't see anything that would affect Memphis any differently than anyone else, but Memphis isn't going to do anything that's not a good business deal."
Jacksonville officials were not available for comment.
Mr. Much, the franchise value expert, said the new teams may suffer losses for a few years, meaning the league will favor ownership groups able to sustain red ink. Over the long run, if television revenues remain stable, the owners of the new teams should receive a 14-15 percent return on investment at these prices -- comparable to the stock market, he said. "I think they priced it at the maximum level they could get," Mr. Much said.
Another expert, Michael Megna with American Appraisal Associates in Milwaukee, agreed.
"You have to really run a very bad operation to lose money with an NFL franchise," he said. "You have to make some real bad draft decisions. . . . and have a 10,000-seat stadium.
"Nobody's going to get rich from operations for the first few years, but with appreciation it should be OK."
COST OF PLAYING
Most recent expansion fees in major sports (year indicates when franchises were awarded; amounts in millions):
Year... ... League... ... ... Amount
1974... ... NFL... ... ... .. $17.2*
1989 ... ...NBA... ... ... ... $32.5
1991... ... MLB... ... ... ... $95.0
1992... ... NHL... ... ... ... $50.0
*-For Seattle Seahawks.
An estimated breakdown of the fees the two NFL expansion groups will be facing:
Terms... ... ... ... ...Fee
1993... ... ... $42 million
1994... ... ... $28 million
'95-'98... ... .$70 million
Lost TV rev... $30 million*
Total... ... . $170 million
* Present value