Ownership of NFL teams is one of the most exclusive clubs in the world, but it just got a little less so.
The league last week took the long-awaited step of allowing private equity firms to take minority stakes in teams. The owners imposed significant restrictions on the deals, among them limiting the positions to no more than 10%, requiring the investment firms to wait at least six years before selling their shares and limiting eligibility to a handful of companies that are household names in the industry or experienced in professional sports deals.
The league also made clear to Wall Street that these will be passive stakes; the firms won’t have much, if any, say, as they do with virtually all their other investments, in how the teams are run, where to cut costs and myriad other areas these active investors often pursue to “add value” to their holdings.
Such indignities won’t keep the lucky select group from leaping at the opportunity. The NFL stands well apart from any other professional sports league in terms of financial success and the ability to call its own shots, whether that’s with television networks or with Wall Street. There’s no obvious end in sight to the annual growth in revenues and team valuations the league has enjoyed. For these investors, plowing hundreds of millions into these franchises — in the absence of some league misstep that’s hard to foresee right now — represents a ride up an escalator, the easiest money they will ever make.
The league’s timing isn’t coincidental. Several teams, led by our own Chicago Bears, have longtime owners facing impending inheritance issues with the potential to result in extraordinarily large estate tax levies that could threaten their continued ownership. Virginia McCaskey, the only living child of Bears founder George Halas, is 101 years old, and that remarkable matriarch won’t live forever. Meaningful equity sales ahead of those wealth transfer events can help reduce those obligations, and the Bears reportedly have plans in place to soften the tax blow.
With team valuations in the stratosphere — the Bears now are worth about $6.4 billion, according to Forbes — it’s more difficult than it used to be to find individual investors with deep enough pockets to take a meaningful position. That’s where private equity comes in. Cash, needless to say, isn’t a problem for an industry swimming in it. And with the league’s guardrails protecting families like the McCaskeys from having to justify their business decisions to these professional investors, there’s little downside for the Bears or most other franchises.
Which brings us to the still-lingering matter of the Bears’ desire to build a domed stadium on the Chicago lakefront near Soldier Field. Bears President Kevin Warren has been told several times by Gov. JB Pritzker and other politicos that the team’s proposal to have the Illinois Sports Facilities Authority float $900 million in 40-year bonds to help finance the $3.2 billion project is a nonstarter. Warren continues to repeat that the lakefront is the only stadium site the team is pursuing despite the fact it owns the former Arlington Park race track property and could build there without state permission.
Lo and behold, hundreds of millions in easily obtained private money now is available to the Bears without having to collect more from existing minority shareholders and other wealthy individuals. If Pritzker’s repeated splashing of cold water on subsidization didn’t do it, the NFL’s welcome mat to private equity should put the kibosh on taxpayer financing of stadium construction once and for all.
That’s not to say there isn’t room for creativity. Chicago Mayor Brandon Johnson has been an enthusiastic supporter of the Bears’ plan from the start. And the city does have a valid interest in keeping the team in town. We’ll leave aside for the present whether the lakefront is the right spot for a new stadium, with all the legal issues that always surround building on that parkland.
But if additional equity is on the table, creative minds could imagine the city possibly offering help, say, via its municipal bonding authority in exchange for a piece of the team. A Bears spokesperson tells us NFL rules don’t allow for partial municipal ownership. But, as with private equity, such barriers can be changed under the right conditions. Given what a good investment NFL ownership has become, equity would be a thing of value that could get public officials to be more open to the Bears’ pleas for taxpayer help.
Warren will address the Economic Club of Chicago on Thursday, making his first public appearance since the spring legislative session ended with inaction on the Bears’ stadium plan. We might know more then about any adjustments the Bears are making to their stadium plans in light of the brick wall they’ve encountered so far. Warren surely will be asked, too, how the potential entry of private equity changes the financial picture for the Bears.
While the McCaskey family’s tax situation likely improved significantly with the league’s change of heart on giving Wall Street a piece of the action, the flip side is that the case for taxpayer support — unconvincing as it was before — just was completely undermined.
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