Houston scores NFL team for record $700 million

League's 32nd club outbids Los Angeles, to begin play in '02

October 07, 1999|By Vito Stellino | Vito Stellino,SUN STAFF

Houston businessman Bob McNair proved that money still talks in the National Football League when he bought the 32nd team yesterday with a record $700 million expansion franchise fee.

It only took the owners about an hour yesterday to end months of debate, reject bids by Los Angeles and award the latest expansion team to Houston, which will begin play in a new $310 million stadium with a retractable roof in 2002. The vote was 29-0 with two abstentions.

The record price for an expansion team topped the fee of $476 million -- plus $54 million in stadium costs for a $530 million total price -- that Cleveland businessman Al Lerner paid for the expansion Browns just two years ago.

In effect, McNair's costs will even top the record sports franchise price of $800 million that Daniel Snyder paid this year for the Washington Redskins because McNair is scheduled to contribute slightly more than $100 million for the new stadium. The city of Houston has agreed to come up with the other $190 million.

Said McNair: "Certainly, [the price] goes beyond reason, and it's much more than I anticipated paying when I first entered this process. But we wanted to differentiate ourselves [from Los Angeles] and that's what we attempted to do."

Commissioner Paul Tagliabue said Houston will be placed in the American Football Conference and that the league will realign to eight four-team divisions when the Houston team begins play, although there is likely to be a major debate among the owners about which teams will play where.

The decision returns the NFL to Houston, which lost the Oilers after Bud Adams moved the franchise to Tennessee after the 1996 season, where it now plays as the Titans.

No name has been chosen for the new team, but it won't be Oilers, because Tagliabue has declared that name "retired."

Except for the St. Louis Rams, each of the other 30 existing teams will get a payment of more than $23 million as their share of the fee. It'll mean an infusion of cash for the debt-laden Ravens, who did not get a share of the Browns' expansion fee.

The $700 million price tag will presumably raise the value of current franchises with new stadium deals, including the Ravens, who are looking for a minority investor.

When Snyder paid $800 million for the Redskins, it was believed to be a one-of-a-kind price because the Redskins have 208 luxury boxes and 15,000 club seats among a total of 80,000 seats. Most new stadiums have half that number of premium seats in stadiums of about 70,000 seats.

The sudden end to the expansion process came after the owners spent nine meetings in the past year discussing ways to award an expansion team to Los Angeles, including a decision last March to give Los Angeles an exclusive window of negotiations until Sept. 15.

But Los Angeles never came up with public funding for a stadium. Since he would have had to pay for the stadium himself, the best offer from Los Angeles businessman Michael Ovitz was $400 million.

Los Angeles' failure to provide public stadium money opened the door for Houston, although McNair originally wanted to pay a fee similar to what Lerner paid for the Browns. When some owners suggested that the league might not expand if McNair didn't boost his offer, he decided to give them an offer they couldn't refuse. The league also guaranteed Houston a Super Bowl at some future date.

This may not be a very good business deal because $700 million in a stock index fund going up 10 percent a year would earn $70 million a year. The way these deals are done, McNair is likely to borrow a good portion of the fee, but the team might not make enough money for several years to cover the debt service.

McNair, though, was willing to pay the price because he wanted to return professional football to Houston.

"Houston is a first-class, major-league city, and I think it's important that we have the major sports there. To not have the NFL there was just something that was unacceptable to me," McNair said.

John Moag, who helped lure the Browns from Cleveland when he was the head of the Maryland Stadium Authority and is now managing director of the Legg Mason Sports Industry Group, said: "It is a rich price, but it may not be an irrational one based on how much revenue the stadium produces. That's one of the stronger football markets."

McNair founded Cogen Technologies in 1984. As its chief executive officer, he led it to become a huge cogeneration company. Its natural gas-fired plants in New Jersey supply about 13 percent of New York City's electricity. Houston-based Enron Corp., which bought naming rights to Houston's new baseball stadium to open next spring, bought a majority of Cogen's assets this year.

Pub Date: 10/07/99

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