What Private Money Means for America's Biggest Game

Your future as an armchair quarterback… Published By Money & Markets, LLC. September 04, 2024 Published By Money & Markets, LLC. September 04, 2024 [Turn Your Images On] [Turn Your Images On] From The Desk of [Matt Clark, CMSA®]( Chief Research Analyst, [Money & Markets Daily]( What Private Money Means for America's Biggest Game Money & Markets Daily, Let’s imagine you’re researching a company. The average salary for employees at this company is $2.7 million, and there are 53 employees, not counting supporting staff. That puts the payroll of this company — core employees only — at $143 million per year. This does not include other operational expenses (marketing, administrative costs, facility upkeep, rent, etc.). In this example, let’s say the business spends about $700 million per year in operating expenses. It has various streams of income from selling licensing rights for different products. Ownership makes money, but growth is limited to specific channels of revenue. Have you guessed the company I'm talking about here? It's your average NFL franchise. And now that owners have approved a deal to allow private equity funds to buy stakes in teams, you may be wondering… Are private investors going to change America's biggest game? I’ll examine why this decision was made after decades of forbidding private equity in the league and consider what’s next. That’s a Lot of Cheese According to Forbes, the Cincinnati Bengals have the lowest valuation of the 32 teams at $3.5 billion, while the Dallas Cowboys are valued at $9 billion. Every franchise increased its valuation in 2023 — from as little as 7% (the Los Angeles Chargers) to as much as 26% (the Tennessee Titans). When you tear open the books of these franchises, you realize two things: - These teams don’t make nearly as much money as you might think. - It’s expensive to be an NFL team owner. Take, for example, the Green Bay Packers. In 2023, the team generated $577 million in revenue from all sources but only $69 million in operational income — the money left over after paying all the bills. So, after paying nearly all of its expenses, only 12% of the Packers’ revenue remained. You might think that teams in larger sports markets make more money. That’s kind of true. The New England Patriots (valued at $7 billion) generated $684 million in revenue and ended the year with $206 million (30%) in operating income. [Turn Your Images On] The Dallas Cowboys are the most valuable franchise in the NFL — valued at $9 billion. It brought in $1.1 billion in 2023 but spent nearly half of it on expenses. This is a good margin. But the Cowboys are the exception, not the rule. Don’t get me wrong … I’m not shedding any tears for NFL team owners. They are still raking in money every year thanks to huge media rights deals, ticket sales and even concessions. Now, owners are looking for more. They've set aside a rule in place for decades to increase their cash flow. --------------------------------------------------------------- [Turn Your Images On]( [Look Who Fired the World’s Richest Man]( When it comes to making money, the “Titan of Tech” doesn’t mess around.  Known to his friends as Pete, the eccentric billionaire ousted a young Elon Musk from the company they co-founded and took his job… while Musk was away on honeymoon.  Under Pete’s leadership, the company grew exponentially, turning his small $1,700 investment in the company into $55 million – a 3,250,000% gain in just 3 years.  Now, he’s about to eat Elon’s lunch again… only this time, it’s with [a company on the cutting edge of the $200 TRILLION AI revolution.](  Today, you can snap up shares for just $30 a piece. [Get the full story here.]( --------------------------------------------------------------- The Private Equity Bounty Since the inception of the NFL, ownership consisted of limited partners but never allowed institutional investment — money pooled from a group of investors. Until now. Last week, NFL owners voted to lessen the restriction of ownership to allow private equity money into franchises. Now, majority owners can sell small stakes in teams, giving those owners access to hundreds of millions of dollars in cash. The new rule allows a select list of private equity funds to buy no less than 3% and no more than 10% of a team. A fund cannot hold ownership stakes in any more than six different teams. Additionally, a firm must hold that stake for at least six years before it can sell. These private equity firms have stored up a lot of uncommitted cash (aka dry powder) for events just like this: [Turn Your Images On] In 2000, private equity firms had $157.4 billion in dry powder, which grew to $2.6 trillion in 2024. Allowing private capital does two things for owners: - Gives them an infusion of cash to use for things like stadium and facility upgrades. - It makes it easier for ownership groups to raise money to buy an NFL franchise … even with soaring valuations. Because the buy-in is capped at 10%, any private equity firm that jumps into a franchise will be a “silent” partner and not likely to be in any decision-making capacity. I expect some team owners to start taking advantage of this rule change very soon. The good news is that fans like us won’t likely see any changes as a result of private equity money infused into the league. In fact, stadium upgrades may become more frequent and robust as a result. Does this open the door to public investment like we've seen in other sports leagues? Time will tell… For now, we'll just enjoy the on-field action, which kicks off with Kansas City hosting Baltimore on Thursday night. Until next time… Safe trading, [Matt Clark, CMSA®]( Chief Research Analyst, [Money & Markets Daily]( --------------------------------------------------------------- Check Out More From Money & Markets Daily: - [A PAGE FROM BUFFETT'S VALUE PLAYBOOK]( - [THESE 2 FACTORS HAVE TKO STOCK IN A HEADLOCK]( - [INNOVATION WITH A SIDE OF BACON]( --------------------------------------------------------------- [Turn Your Images On]( Privacy Policy The Money & Markets, 702 Cathedral Street, Baltimore, MD 21201. To ensure that you receive future issues of Money & Markets, please add info@mb.moneyandmarkets.com to your address book or [whitelist]( within your spam settings. For customer service questions or issues, please contact us for assistance. The mailbox associated with this email address is not monitored, so please do not reply. 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Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don't trade in these markets with money you can't afford to lose. Money & Markets permits editors of a publication to recommend a security to subscribers that they own themselves. However, in no circumstance may an editor sell a security before our subscribers have a fair opportunity to exit. Any exit after a buy recommendation is made and prior to issuing a sell notification is forbidden. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. (c) 2024 Money & Markets, LLC. All Rights Reserved. Protected by copyright laws of the United States and treaties. This Newsletter may only be used pursuant to the subscription agreement. 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