The Washington Post reported on July 5 that Robert Rothman, Dwight Schar and Frederick W. Smith are all looking to sell their limited partnership stakes in the Washington NFL franchise (Pro Football Talk had previously reported two of the names). Combined, Daniel Snyder’s non-familial partners own roughly 40% of the NFC East club. One might assume there would be heavy investor interest in a significant piece of a celebrated NFL franchise, and thus the limited stakes would be easy assets for the triumvirate to unload. But a pair of prominent sports bankers, including Bob Caporale (Founder, Game Plan), say that’s not the case. The price tag associated with the cumulative interest makes it “difficult to find a single buyer—particularly as an L.P., where there really isn’t all that much involvement”—and finding multiple buyers (if permitted within the operating agreement) is always “tough.”
Our Take: Both of the bankers we spoke to doubted that a single buyer could be found at the price Rothman, Schar and Smith are seeking for the +/- 40% stake. As one said, “$800 million is a large check. What additional benefits—aside from more equity in the team—does a buyer get for the next $800 million?” The answer: not many. They still won’t have a controlling interest, and tying up nearly one billion dollars’ worth of additional liquid assets isn’t going to be an attractive option to most investors. In fact, Caporale wondered if the anticipated difficulties associated with the “sale of L.P. interests in the Washington franchise could push the NFL to embrace funds as investors” (as several of the other pro leagues including the NBA and MLB have done). If that becomes the case, it would be ironic considering John Moag (the banker hired by the L.P.s) has been banging that drum for the last 2 years.
It’s been suggested that team valuations have declined since the beginning of the sports hiatus. While that may be true, sale price expectations remain the same—“particularly in the NFL with [lucrative] new media deals on the horizon” Caporale said. So, unless one of the three Washington L.P.s is experiencing a personal hardship, don’t expect the +/- 40% stake to be sold at a discount (beyond the standard non-control discount). Sportico’s resident valuation expert Peter J. Schwartz suggested, “the [Washington] team, including its ownership of the stadium, is worth more than $3.5 billion.”
If Snyder controlled one-hundred percent of the franchise and wanted to bring in a forty percent partner (as opposed to 3 limited partners selling out), it would probably be easier to get a deal done. While the pool of prospective buyers might not be any larger, the controlling owner could entice interested investors by offering extra board seats, votes or tickets that would make the position more attractive. But that’s not the case in Washington. Not only is Snyder not the seller of the limited partnership interests, he seemingly wouldn’t be inclined to help the L.P.s move them either.
The Post article suggested that Rothman, Schar and Smith hired an investment banking firm because they’re not happy being Snyder’s partners. If that’s true, it’s hard to imagine the owner extending himself to help them get a deal done (think: additional benefits, buyer protections). On the surface, it might seem as if there’s little for Synder to gain by helping to facilitate a transaction—he’s going to get a portion of the proceeds, and it’s not as if new partners will impact his ability to continue running the franchise as he sees fit—but Caporale insists it’s in his best long-term interests. “[Controlling owners] should to be concerned about what valuation [L.P.] interests ultimately sell for because it could potentially impact the value of their stakes,” he said. “It certainly impacts people’s views on the enterprise value of the team.”
It’s been suggested that Snyder’s reputation—this is the second time he’s cycled through partners—is another hurdle the three L.P.s will need to overcome to sell their interests. As one banker said, “Most of the guys [investing in pro sports team] are doing it for fun. They don’t need the aggravation. If it’s not fun, they might as well keep their money in their core business.” While hard to argue that point, Caporale suggests looking at it from strictly an investment perspective. He says +/- 40% is “still a significant stake in an NFL team and the [league’s] economic model has been very successful.” In other words, he believes the potential ROI still outweighs any downside that may be associated with the majority owner.
It remains to be seen if the franchise’s pending rebrand increases interest in the L.P. stakes (the three exiting partners were all vocal about their desire for change). While it certainly won’t hurt to be on the right side of history, it’s not clear Wednesday’s news is about to drive a line of buyers, either. Caporale said he’s “never felt that a fan buys a ticket—or doesn’t buy a ticket—because of the team name.”
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