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Major leagues, major prices; Redskins sale sets another record for team at $800 million

THE BALTIMORE SUN

The sale of the Redskins for $800 million yesterday caps off a breathtaking 12 months of new highs for the sale of franchises in all four major-league sports.

And with each mega-dollar deal, fans accustomed to pleas of poverty from the home team are left scratching their heads.

Critics say the bidding wars for teams reveal an underlying profitability that sports leagues are loath to acknowledge. To do so would endanger the millions of tax dollars that can be won to build new arenas, or weaken the teams in negotiations with players unions. Or anger fans when ticket prices go up.

"Both the resale prices of existing teams and the entrance fees to get into the leagues are really the Achilles' heels of owners who claim they are losing money," said Allen Sanderson, an economist at the University of Chicago.

Sports leagues and supporters say some teams are prospering, and are sharing the wealth with the communities that are host to them. But not every team can, or does, draw top dollar. The pacesetters enjoy rich markets and innovative stadiums. The Redskins, for example, play in a 2-year-old park that is brimming with pricey seating for the populous region's corporate class.

Rick Horrow, a visiting expert at Harvard Law School and a stadium consultant for the National Football League, said public support for sports teams, in the form of attendance and tax-financed stadium building, is running at a record rate.

"These businesses are doing extremely well because of the entrepreneurship of the ownership groups, the economic circumstances of the public in being able to afford sports and the strong public-private partnerships for the infrastructure of stadiums," Horrow said.

Yet many team owners complain about their plight. Officials with the NFL's Denver Broncos and baseball's San Diego Padres won stadium funding referendums last year after complaining about an inability to compete and perhaps survive in their current homes. The National Basketball Association owners demanded concessions from their players, as their baseball counterparts did a few years ago, by saying many teams were losing money.

But the prices being paid for the teams provide solid evidence to the contrary, Sanderson said. "People with this much money aren't stupid," he said.

Big returns

Investors invest based on what they expect to earn. Judging by recent team sales, at least some team owners plan to earn plenty. The National Hockey League's New York Islanders sold last February for $195 million, including an arena and lucrative cable deal. An 80 percent interest in the NBA's New Jersey Nets sold in June for $120 million, a transaction that was valued at more than $150 million when debt and other factors were counted.

In the case of baseball and football, the records shattered old ones that barely lasted a season. The Redskins' purchase price tops the $530 million expansion fee paid for the Cleveland Browns in September. The Los Angeles Dodgers' $350 million transaction -- which included a stadium and substantial real estate in California, Florida and the Dominican Republic -- last March topped the $250 million Texas Rangers sale three months earlier. (Previously, the Orioles' $173 million sale in 1993 held the record.)

The football prices were driven largely by a lush network television rights package signed last year. The basketball, baseball and hockey deals were aided by the unusual coincidence of having teams in some of the biggest television markets sell in the same year.

But the leagues, which often tout even minor player records with news conferences, haven't been as boastful of these records.

"The league has always had a philosophy of keeping the focus on the players and the games. We're not selling franchise values and return on equity. The fans don't care about that stuff," said NFL spokesman Greg Aiello.

There's good reason for sports leagues to be modest, Sanderson said. Like nonprofits and a handful of other organizations that depend on the largess of the public, it behooves them to keep the champagne out of sight. That is one reason only a handful of sports teams disclose their earnings to the public.

"If you really were to show you were making a profit, then it's hard to go to Washington and say you need a break on tax-deductible bonds or antitrust exemption or go to the mayor and say you need $200 million to renovate your stadium or even to the fans when you increase the price of tickets," Sanderson said.

Horrow, the NFL consultant, said the high transaction prices do reflect high profitability. But the cities and states that have teams gain from the success, too, in economic spinoff and more competitive teams to root for, he said.

Some teams struggle

Moreover, high prices notwithstanding, some teams are barely getting by each year, said Marc Ganis, a financial consultant to team owners and president of the Chicago-based SportsCorp Ltd.

"On an operating basis, many of these franchises are just making it. The only way they can make money is if they sell," Ganis said.

The new Redskins owners, New York banker Howard Milstein and Bethesda businessman Daniel Snyder, could probably earn more for their money in the stock market, said Ganis, who advised Orioles owner Peter Angelos in his unsuccessful bid for the team.

The price, which equates to $750 million including some cash accounts that come with the team, was financed with $350 million in cash from the investors and $400 million in debt, Ganis said.

The team owns its own stadium, and is among the NFL's most profitable teams. With some new skyboxes, the sale of the stadium name to a corporate sponsor and enhanced marketing, annual pretax profits could be pushed to $50 million to $60 million, Ganis said.

Up to $40 million of that might be needed to finance the $400 million in debt. The remaining $20 million funds a return on investment of about 6 percent a year. "You can do better with T-bills," he said.

The investors may be able to sell for a profit later, but it will require holding the investment for a number of years, he said.

Mark S. Rosentraub, director of the Center for Urban Policy and the Environment, Indiana University, and a frequent critic of publicly financed stadiums, said the Redskins sale points to another truth: Teams can pay for their own playing facilities.

The Redskins financed their park through bank loans, and have managed to achieve both high profitability and resale price. (Maryland did pay for $70 million worth of infrastructure costs.) This, he said, should cause public leaders -- such as those who just lured the Patriots to Hartford, Conn., with a $350 million stadium -- to rethink their offers.

"We ought to recall the entire legislature in Connecticut," he said.

Pub Date: 1/12/99

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