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John Clayotn's coverage of the ownerhsip issue has been pretty good. Here is his latest.
NFL ownership growing increasingly complicated
By John Clayton
Updated: July 15, 2008
Last week's stunning news that the Rooney family has spent two years grappling with ownership issues and could lose control of the Steelers raises several concerns.
First of all, there aren't enough billionaires available to bail out NFL families who are battling complicated ownership issues. The problem is that the NFL is becoming a victim of its own success and needs to restudy its ownership structure. To keep this business a family affair is going to be difficult.
A great story could have a sad result. In 1933, Art Rooney Sr. bought the Steelers for $2,500, but it was his son, Dan, who took the next step. After decades of struggles, Dan hired Chuck Noll, won four Super Bowls in the '70s and ran what is considered the model NFL franchise. His son, Art, became involved in the past decade and helped put together the deal to give the franchise long-term stability at Heinz Field.
What we found out last week is that Dan and his brothers each own 16 percent of the team. Having covered the team in the 1970s and 1980s, I knew that, but never thought through the long-term issues if there were problems. After all, because the Rooney family owned 80 percent of the team (the family of the late businessman John McGinley Sr. owns the other 20 percent), you figured there wouldn't be a problem. But, the NFL requires a majority owner to control 30 percent individually, though as a long-standing family owner coming into the league in 1933, the Steelers have been exempt..
Dan Rooney, the league's go-to owner for labor peace, hiring diversity and other important issues, tried to buy out his brothers. But here's the problem: The NFL is so successful that the value of franchises is extremely high. Not many individuals can fit in such an ownership structure that dates to the mom-and-pop roots of this league.
What the NFL won't do is go to corporate ownership. That goes against the successful operating style of the NFL. But the league also must be careful and watch how the Steelers and other franchises handle the transition of family ownership, because only members of the Forbes 400's wealthiest list might be eligible for ownership of the 32 franchises.
The issue is twofold. At the moment, five brothers are talking to one member of the Forbes 400, Pittsburgh native Stanley Druckenmiller, whose net worth is reportedly $3.5 billion. The other problem facing other franchises is inheritance. To move a franchise from one generation to another, the government has a 45 percent tax on the value of the shares, forcing the younger generation to borrow millions to preserve the legacy and maintain franchise stability.
The Rams have had issues since the passing of former co-owner Georgia Frontiere this year. A couple of years ago, Jaguars owner Wayne Weaver, who is 73, sought out some minority investors, but the pool of billionaires willing to buy minority shares isn't extensive.
Imagine the panic if you are Dan Rooney and your success in running the business works against you. The $2,500 investment of his father is worth anywhere between $700 million and $1.2 billion. The 16 percent share of each brother is worth between $112 million and $192 million. If Dan Rooney gets the consent of only one brother to sell him his 16 percent, thus gaining control of 32 percent of the franchise, he and his son add a lot of debt to the operation and problems still exist.
Druckenmiller sounds like a good guy. He reportedly used to watch games wearing face paint in Steelers colors. He has already gone on record as saying he wants Dan and Art to run the franchise.
But billionaires don't get to the Forbes 400 list without having control of their investments. Naturally, he wants to buy more than 50 percent of the Steelers, which technically would make Dan and Art owner-employees of the company. After all those years of successful operations, how tough would it be to come into the office and answer to a new boss?
We should have seen things like this coming in light of Wayne Huizenga's sale of the Dolphins in February. Huizenga bailed out the Robbie family years ago and ended up with the Dolphins and the stadium. But he's 70 and decided it's time for a change. After hiring Bill Parcells to run the football operations, he continued a plan to bring in a minority investor and found Stephen Ross, a New York real estate developer.
Though Huizenga promised Parcells he'd stay as majority owner through Parcells' four-year contract, Huizenga sold 50 percent of the Dolphins and the stadium for $550 million. As far as the sale, Ross could take over as early as 2009 if Huizenga decides to step aside as the majority partner. Tuna got blindsided by that one, but the story illustrates that in ownership sales, promises can change.
When Art Modell of the Ravens needed an investor to help his financial structure, he found Steve Bisciotti, who gave Modell space and time to run the team until he was ready to step aside.
It's not a bad thing having 32 NFL franchises heading into the hands of the 400 wealthiest individuals in America, as long as they are good people and care about the football product. But what's clear is that keeping such skyrocketing franchises in the hands of families for generations is becoming an increasing concern.
With inheritance taxes and stock buyouts, NFL ownership is getting more complicated. The success of the NFL is turning the value of the franchises into the billions, but those values aren't easily passed on in the family to the next generation.
Maybe I'm just being optimistic, but I think the Rooney ownership will be worked out in the next month to keep the franchise in the hands of Dan and Art. Druckenmiller is there with the funds. Other investors might surface to make it work. A brother or two might work something out, but the once-simple family-ownership structure in Pittsburgh will change.
NFL franchises should keep rising in value because revenues keep going up. The paper value of franchises is making family owners billionaires and eventually could put them on the Forbes list. But if the billion was made only in football, there is a huge price to pay to keep the NFL in a family.
Those realities have to be included in the future economic model of this league.
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