NFL wannabes to learn price of dreams Expansion fees to be set Tuesday PRO FOOTBALL

May 23, 1993|By Jon Morgan | Jon Morgan,Staff Writer

Members get no special golf privileges, pay for most of their meals, but are guaranteed premium seats at pro football games. And at Super Bowl time you won't see them standing in line for a ticket or beer.

Best of all, their club -- one of America's most exclusive fraternities -- has a few openings.

On Tuesday, the world will find out just how costly the initiation fee will be to join the NFL. The owners of the existing 28 teams will meet in Atlanta and set the fee for the two franchises they will award this fall.

Officials in the five cities hoping to gain one of the teams -- Baltimore, St. Louis, Charlotte, N.C., Memphis, Tenn., and Jacksonville, Fla. -- will be watching anxiously. A franchise fee too high could prompt some to drop out; a price too low could help competitors with weaker applications.

"They will go for the highest price they can get their hands on while showing some fiscal responsibility," said Michael Megna, an expert on franchise values with American Appraisal Associates in Milwaukee.

Committees of owners have established a number of potential price and term packages, ranging from $125 million to $175 million with payments stretched over three to seven years, according to NFL sources. Most observers expect the price to be on the high end.

That would make it the most expensive expansion in history. Hockey charged $50 million last year, baseball $95 million in 1991, and basketball $32.5 million in 1989.

The last time the NFL voted to expand, in 1974, the Seattle Seahawks paid $17.2 million over 10 years and the Tampa Bay Buccaneers paid $16 million over seven years.

"I think the NFL understands that they want their teams to be financially sound," said Joe Washington, an investor in the prospective own ership group led by Leonard "Boogie" Weinglass. "They have been in their business a long time, and they aren't going to do anything to jeopardize that."

Tom Clancy, who ended his NFL bid last week, said the franchise fees being discussed were much higher than a team is worth. "We ran the numbers about 12 ways, and there was no way they would work," Clancy said.

But others say the numbers can work if the terms are right. And they hope the league remembers the experiences of financially troubled franchises -- especially the New England Patriots, which, if James Busch Orthwein hadn't bought them, might have required an infusion of cash from the other owners.

When league officials met with ownership groups over the past year, they estimated revenues and costs based on three different fees: $125 million, $150 million and $175 million with a variety of payment terms.

League officials publicly and privately have assured the groups that they will not demand a payment so high that it cannot be supported by expected revenues.

There are some owners pushing for a high fee, and no wonder: The money will be split between the existing teams. At $125 million, each team will get $8.9 million; at $175 million, it will be $12.5 million.

But the 28 existing teams also will pay for the expansion. NFL owners share equally in the proceeds from network television and licensed goods sales. TV is the most important of these, earning each team $39 million this year. Had there been 30 teams, the cut would have been $36 million.

"They are selling a piece of the business," Megna said.

The league has a solid defense for a high fee: The average franchise has increased in value at about 20 percent a year over the NFL's history, according to research by James Quirk and Rodney Fort for their recently published book, "Pay Dirt: the Business of Professional Team Sports."

Throughout its history, Major League Baseball has managed growth in franchise value of about 8 percent a year, the NHL about 20 percent a year and the NBA about 16 percent a year.

One way to maintain franchise value is to restrict competition from other leagues, and, Fort said, "Nobody has been as good as the NFL at killing competition." The sport has also proven itself a savvy marketer.

Jerry Clinton, an investor with the group in St. Louis, said: "I'm going to be hoping for something very reasonable.

"But if it goes beyond what's been thrown around, or if it's $175 million, it will have to be coupled with very good terms. . . . I don't think they expect the new franchise owners to exist with a fTC negative cash flow," he said.

The average NFL franchise is worth about $129 million -- the highest in sports -- with the most valuable team being Super Bowl champion Dallas Cowboys, worth about $165 million, according to a recent study by Financial World magazine.

But that doesn't mean the sky is the limit, according to potential investors.

"There's a limit for everyone, but what the limit is, what the ego is, I don't know," said Pepper Rodgers, who is working on behalf of the NFL bid in Memphis, Tenn.

Bryan Glazer, whose father, Malcolm, also is seeking to own a team in Baltimore, said: "We've heard numbers in the $150 million to $175 million range from the start."

Tony Agnone, a Baltimore-based player agent, predicts that a higher fee will favor Baltimore and St. Louis, the only cities with new, publicly funded stadiums in their proposals -- reliable revenue generators.

It would hurt Memphis, because of its relatively small stadium, and Charlotte, N.C., with its smaller market, Agnone said.

Officials in Charlotte and Memphis, however, say their plans could handle a high fee. Officials in Jacksonville declined to comment.

"It sounds like it could easily be over $150 million and to the extent that it's over that, it will be more and more difficult," said Max Muhleman, a consultant working on behalf of Charlotte.

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