With the Walton-Penner Group entering into an agreement to purchase the Denver Broncos at a price tag of $4.65 billion, The 33rd Team took the opportunity to explore some of the inner workings of what such a deal might entail on our most recent Wednesday Huddle.
Former Philadelphia Eagles president and Cleveland Browns CEO Joe Banner took the lead and broke down what he saw in relation to the details of the deal.
“I think that the time of the year that these transactions take place is actually very important to the transactions,” Banner said. “For example, when we came into Philly we basically closed on the deal in late June.
“So, there was really nothing we could do for that year, which I actually think was very fortuitous for us because it allows us to sit back as observers and get to know everybody and get a chance to build some relationships around the league.
“We paid $185 million to buy the team. And if you google it, you’ll see we were ripped to shreds for overpaying by a ridiculous amount of money. It seems funny now, almost surreal, as we talk about a $4.5 billion price. The last two transactions have basically doubled the value of teams in similar categories. You just don’t see that in business and we’ve never seen that in sports.”
Moving on to his time in Cleveland, Banner said, “We took over the team in the middle of the season, and frankly it was almost not enough time to get to know what we needed to and get everybody on the same page by the time we got to January and needed to start taking some steps.
“In both cases we tried to reassure the existing employees as much as we could, while also being very honest with them. We did not go in and say, ‘Everybody is good here there’s going to be no changes, you should all relax and take a deep breath.’
“What we did say was we were committed to building a first-class organization that has a chance to compete each year with the best teams in the league. That we were going to go through a period of observing, and we were going to be very aggressive in regard to the people we thought needed to be a part of that in terms of re-signing them or extending them and making them feel like we really believed in them. We also had to make some decisions in some areas where we didn’t have the strength to allow the organization to consistently be in the top four to eight teams in the league.”
In regard to how he thinks people felt about that, Banner said, “I think people appreciated the honesty of that, but the unnerving effect was there in some form knowing the basic reorganization of the entire operation was coming. We tried to make it as stress free as possible, but there’s no one who has done this and will say you can do it completely stress free.
“You’ve got to find the right balance of not moving too fast, so people don’t feel like they aren’t getting a chance to prove themselves and not waiting too long so people feel like the time spent waiting is hurting them too much.”
Moving on to the deal itself, Banner said, “Negotiating one of these deals is just as interesting, fascinating, and challenging as one might expect. These are multi-billion dollars deals and have a lot of moving prices going into them. It’s not like a normal business, it’s much more complicated. One aspect that is consistently misreported is that transactions are between teams and future owners.
“The league has a role in approving the owner, researching the owner, making sure the owner will fit, and that their character and their agenda are all positive. Plenty of people think that being friends with Jerry Jones, Robert Kraft, Roger Goodell, etc. will help them to gain ownership of a team. It may get them some introductions or get them someone who can be an advocate and a recommendation, but the transaction is between them and the party that is selling the business.
“You get a review of it by the league, but I think in the past 50 years there’s only been one rejection by the league. Everything is between the seller and the buyer. No one else really gets involved.”
When asked what kind of profits new owners might expect after paying such a hefty price for a team, Banner replied:
“Most people invest in a business hoping that at absolute minimum, if there are no other benefits, that they get at least an 8% return on their investment. Wealthier people have access to things where making 12%, 15%, 18% returns isn’t crazy. But what’s a little different about this situation is how much of it can be depreciated, and how large the numbers are that can be depreciated.
“But for sports teams I think they take the combination of the cash flow of the team, their purchase price, plus the value of what they can depreciate from their overall income and that’s what creates the value for them and accelerated the price like we’ve seen recently.”
When asked about how the dynamics within the league might change due to one owner now having a vastly superior amount of wealth at their disposal when compared to the others, banner said:
“This is where it really gets interesting when mixing football and business. I would generally say no because once you’re wealthy enough to own one of these teams there’s really nothing that’s big enough to differentiate them. Now if we start seeing massive $150 million, $200 million, $300 million guaranteed contracts that have to be funded, that’s going to create a significant advantage for the wealthiest owners. I would be shocked if the league wasn’t working aggressively, anticipating the possibility that what happened with the Deshaun Watson contract isn’t going to be an exception going forward, and working to determine what needs to be done to maintain competitive balance that is so important to the league. I’d be shocked if there wasn’t a group of people working on that right now, unless the Deshaun Watson deal is a complete aberration, and they don’t think that’s what’s going to end up happening.”