Suffering a dearth of bidders amid skyrocketing franchise values, the National Football League is mulling ownership rule changes designed to attract buyers outside of the richest of the rich.
While the league regularly reviews its policies and procedures, the move to reexamine the strictest ownership guidelines in major U.S. sports took on new urgency after last year's $2.3 billion sale of the Carolina Panthers to hedge fund titan David Tepper.
Even though the NFL is the richest and most-watched U.S. sports league - with the average team worth $2.9 billion, according to Forbes - the Panthers auction drew only a handful of bidders. One outbid the multibillionaire Tepper but couldn't come up with a financing plan that complied with league mandates.
"The universe of potential team buyers is limited by the rules the leagues have in place to assure the stability of franchises and the leagues," said Marc Ganis, president of consulting firm Sportscorp Ltd. and a consultant to the NFL and its owners. "The NFL, like other major sports leagues, is looking at options that would open up ownership to a larger pool of buyers while retaining that stability."
NFL guidelines require that the principal owner put up at least 30% of the purchase price in cash. Moreover, each team has a debt limit of $350 million. That means that, at current valuations, a would-be buyer would have to shell out at least $600 million (and usually more) and then pursue limited partners for much of the rest. It's difficult to find people willing to fork over tens or hundreds of millions of dollars for a noncontrolling stake in a franchise.
The rules make buying an NFL team difficult even for billionaires like Ben Navarro, who founded Sherman Financial Group, and Alan Kestenbaum, who made his fortune turning around metals and mining companies.
Both unsuccessfully pursued the Panthers, which according to the latest Forbes rankings are worth $2.4 billion. There are only so many people like Tepper, who can cut the check, as sports bankers like to say. Tepper has a net worth of $11.4 billion, according to the Bloomberg Billionaires Index.
The NFL sought input on possible changes from a quartet of firms that have in various capacities participated in its franchise sales: Allen & Co., Inner Circle Sports, PJT Partners and Proskauer Rose.
The league's owners last year bandied about many ideas, including a bump in the amount of debt a would-be buyer could take on, but they made only one significant alteration: the elimination of the cross-ownership rule that banned owning non-NFL teams in markets containing other NFL teams.
The change, for instance, would allow Los Angeles Clippers owner and former Microsoft Corp. Chief Executive Officer Steve Ballmer to buy the Seattle Seahawks should the estate of Paul Allen decide to sell. Ballmer has a net worth of $51.1 billion, according to the Bloomberg Billionaires Index.
There's also some discussion about loosening the prohibition against NFL owners also holding stakes in gambling companies. That alteration might clear the path for Frank and Lorenzo Fertitta, who sold UFC for $4 billion and have talked openly of their desire to pursue an NFL team.
"The ownership policy is something we evaluate on a consistent basis," NFL Commissioner Roger Goodell said in an interview, declining to discuss specifics. He said the league has made changes to its policy at least once a year for the past 20 years.
"They usually are reflecting changes in the environment," he said.
Some of the other ideas under consideration have to do with procedure, not policy. For instance, one suggestion calls for would-be buyers to be given time to move money around before any bid deadlines are given or any official bid process begins.
A process like that would help someone like, say, Navarro to compete in an auction against a deeper-pocketed adversary by giving him more time to free up cash.
Navarro didn't return a message left at his office seeking comment on NFL ownership rules.
The NFL, as the consultant Ganis intimated, isn't the only league examining ownership issues brought on, in part, by the boom in valuations. The NBA, for example, is mulling the creation of an investment vehicle that would buy minority shares of individual teams. When limited partners, or LPs, want to sell their stakes, it can be hard to find takers - especially since the holdings usually come without much say in governance.
"As the value of franchises in the NFL and four other U.S. major leagues continues to escalate faster than the pool of qualified individual investors, it makes good sense for each of the leagues to consider ownership requirements and alternative sources of liquidity for both existing and prospective controlling owners," said Chuck Baker, co-chairman of the sports-industry practice of law firm O'Melveny & Myers and lead counsel on recent major pro-sports transactions.