For all the union hand-wringing over owners' "lockout insuranc

[1B4IDie]

You have absolutely no idea what you're talking about, do you?

 

Return On Investment (ROI) computations are very basic to finance and other business-related fields. It's analogous to the economics concept of rate of return. If an investment costs $1 billion, and if it produces $10 million in annual returns, its pretax, non-inflation-adjusted ROI/rate of return is 1%. If you would dispute that point, then you very obviously have no place in any discussion relating to finance or economics. (Making adjustments for taxes or inflation would of course lower the effective ROI.)

 

I also find your bolded statement very difficult to believe. Please provide a link to support it.

 

But even if the bolded statement is true, it merely serves to underscore my point. The Bills' spending in recent years has been well below the salary cap. If "well below the salary cap" is still good enough to put them in the 11th - 16th overall range (as you claim) then that means that more than half the league is even further below the salary cap than the Bills are. In the unlikely event that's actually true, it would only serve to further underscore how fast the salary cap has grown in relation to shared revenue.

You continue to be a source of comedy.

1.) ROI is a historical tool. Meaning you measure the ROI after you sell the Green Bay Packers not every day of the week you own the Green Bay Packers.

2.) You're forgetting that the Green Bay Packers value will increase over time.

3.) The dollars used to "purchase" an NFL franchise are generally "Leveraged" dollars, which means your initial investment was not 1 Billion dollars are whatever the purchase amount was at the time of the purchase.

 

I don't really have the time to show how silly you are; just know its a really silly calculation you put forward.

 

and here is the shocking facts that get in the way of the "Bills are cheap" mentality.

It was real hard to use Google to find the information:

http://content.usatoday.com/sportsdata/football/nfl/salaries/team

 

You can use it to find any other year you would like.

[JohnC]

It is correct to state that 50% of the Packers' concessions revenue is given to charity. In that sense, they are failing to get their hands on money other teams could acquire. But unlike almost any other small market team in the league, the Packers sell out literally every game.

 

Ownership of the Packers is divided into many small pieces. It is incorrect to assert that this division causes revenues to be distributed through stock shares. The Packers do not issue new shares of stock, and do not pay dividends on existing shares.

 

Stadium upgrades are not unique to the Packers. Especially in a down economy, local and state governments are becoming increasingly reluctant to pay for new stadiums or upgrades to existing stadiums. Ideally, the federal government would make it illegal for state and local governments to subsidize stadium costs. Public funding for stadiums represents a transfer of wealth away from taxpayers and into the pockets of NFL players and owners. Eliminating this transfer of wealth would mean that the owners and players would have to divide up a smaller pie. That's a good thing.

 

"Ralph Wilson has made in the range of a quarter of a billion dollars over the past eight years." $250 million / eight years = $31 million a year. Assuming the Bills franchise is worth $1 billion, that's roughly a 3% rate of return. That rate of return was achieved in large part by spending well under the salary cap. Ideally it would be possible for the owner of a small market team to earn a fair rate of return while spending up to the cap.

 

What the franchise is worth has little to do with the rate of return Ralph is getting. He payed $10,000 for the team. He holds either no debt or little debt on his football business venture. Considering the cost of his initial investment his rate of return is exponential. I don't begrudge him for making an impressive amount of money on his venture. Where I do harshly criticize him is the way he has run the franchise, especially over the past decade or so. His record in a system designed for parity is outright embarrassing.

 

Buffalo being in a small market has little to do with the failure of the franchise. Pittsburgh, Green Bay, Baltimore and some other franchises are considered to be small market teams. They have found a way to be successful. The Bills have been an irrelevant lower tier team for a generation because they are ineptly managed.

 

With respect to the stadium it was built with public funds, not his. The stadium has been upgraded with the addition of boxes and other adjustments. Again, it was paid with taxpayer money, not his.

 

How much Ralph spends or doesn't spend on his payroll is a futile discussion. He can run the franchise any way he wants. He is the owner. That doesn't mean that he shouldn't be judged on the quality of the product and the team's record over an extended period of time. Accountability comes with ownership.

Edited July 18, 2011 by JohnC

[Orton's Arm]

You continue to be a source of comedy.

1.) ROI is a historical tool. Meaning you measure the ROI after you sell the Green Bay Packers not every day of the week you own the Green Bay Packers.

2.) You're forgetting that the Green Bay Packers value will increase over time.

3.) The dollars used to "purchase" an NFL franchise are generally "Leveraged" dollars, which means your initial investment was not 1 Billion dollars are whatever the purchase amount was at the time of the purchase.

 

I don't really have the time to show how silly you are; just know its a really silly calculation you put forward.

 

and here is the shocking facts that get in the way of the "Bills are cheap" mentality.

It was real hard to use Google to find the information:

http://content.usatoday.com/sportsdata/football/nfl/salaries/team

 

You can use it to find any other year you would like.

I will address your points in order.

 

1. It is false to assert ROI is a historical tool only. If a prudent investor has $1 billion to invest, and is considering multiple investment options, he would calculate the expected ROI on each. After he had invested that $1 billion, he would occasionally compare the ROI he could obtain by remaining in his current investments against the ROI available by selling out and acquiring different investments instead. While your "every day of the week" is too frequent to perform such calculations, they should be done periodically.

 

2. A few years ago Green Bay made $30 million a year. Now it's only $10 million annually. That $10 million annually will go back up to $30 million if and only if player costs can be reined in. Normally when a business makes less and less money every year, the underlying value of that business does not increase.

 

3. You pointed out that NFL franchises are typically purchased with leveraged dollars. Suppose the Packers had been purchased for $1 billion, with $500 million of that having come from borrowed money. High yield corporate bonds currently yield 7.21%. For the sake of argument, let's say that the new owner of the Packers has to pay 6% interest on his debt. 6% x $500 million borrowed = $30 million in interest payments annually. Instead of making a $10 million a year profit, the new owner of the Packers franchise would incur a $20 million a year loss. While the Packers are pretty much debt-free, many other teams have to worry about making substantial interest payments like the one described. This is why it is false to assume the Packers' financial situation is necessarily worse than that of other small market teams.

 

I acknowledge that your link demonstrated the Bills were the 13th highest spending team of 2009. That link demonstrates that surprisingly few teams were remotely close to the cap. (Another indication of how out of control the cap has become.)

Edited July 19, 2011 by Edwards' Arm

[1B4IDie]

I will address your points in order.

 

1. It is false to assert ROI is a historical tool only. If a prudent investor has $1 billion to invest, and is considering multiple investment options, he would calculate the expected ROI on each. After he had invested that $1 billion, he would occasionally compare the ROI he could obtain by remaining in his current investments against the ROI available by selling out and acquiring different investments instead. While your "every day of the week" is too frequent to perform such calculations, they should be done periodically.

 

2. A few years ago Green Bay made $30 million a year. Now it's only $10 million annually. That $10 million annually will go back up to $30 million if and only if player costs can be reined in. Normally when a business makes less and less money every year, the underlying value of that business does not increase.

 

3. You pointed out that NFL franchises are typically purchased with leveraged dollars. Suppose the Packers had been purchased for $1 billion, with $500 million of that having come from borrowed money. High yield corporate bonds currently yield 7.21%. For the sake of argument, let's say that the new owner of the Packers has to pay 6% interest on his debt. 6% x $500 million borrowed = $30 million in interest payments annually. Instead of making a $10 million a year profit, the new owner of the Packers franchise would incur a $20 million a year loss. While the Packers are pretty much debt-free, many other teams have to worry about making substantial interest payments like the one described. This is why it is false to assume the Packers' financial situation is necessarily worse than that of other small market teams.

 

I acknowledge that your link demonstrated the Bills were the 13th highest spending team of 2009. That link demonstrates that surprisingly few teams were remotely close to the cap. (Another indication of how out of control the cap has become.)

 

Listen,

 

I appreciate you determination to prove your point but you're applying the tools improperly.

Yes you can bang a nail into a wall with screw driver and it will be difficult, but the measurement of difficulty isn't the same as if you used the proper tool, a hammer, to drive the nail into the wall.

 

Just some quick googling brought me to this site:

http://www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp#axzz1SV5bp6NB

 

This may be helpful:

 

 

Moving Beyond ROI

ROI is a simple calculation that tells you the bottom line return of any investment. The operative word, however, is simple. One major factor that doesn't appear in an ROI calculation is time. Imagine investment A with an ROI of 1,000% and investment B with an ROI of 50%. Easy call – put your money in the 1,000% one. But, what if investment A takes 30 years to pay off and investment B pays off in a month? This is when time periods come into play and investors must look to CAGR.

 

 

Trust me, the calculation you did is mathematically correct but its as meaningful as measuring the difficulty of driving a nail into a wall with a screw-driver.

 

Yes it is shocking when you look at the actual numbers how NFL owners are so far removed from the Salary Cap.

 

I think if the salary floor is set to 90% of the Salary cap in the perspective CBA, as rumored, this will be the biggest problem for the game. It will cause outrageous salary inflation y-o-y from 2010 to 2011 that will take probably 30% - 50% of the length of the new CBA to normalize.

Edited July 19, 2011 by Why So Serious?

[GG]

Listen,

 

I appreciate you determination to prove your point but you're applying the tools improperly.

Yes you can bang a nail into a wall with screw driver and it will be difficult, but the measurement of difficulty isn't the same as if you used the proper tool, a hammer, to drive the nail into the wall.

 

 

You're not that much of a newbie to acknowledge the obvious.

[Orton's Arm]

Listen,

 

I appreciate you determination to prove your point but you're applying the tools improperly.

Yes you can bang a nail into a wall with screw driver and it will be difficult, but the measurement of difficulty isn't the same as if you used the proper tool, a hammer, to drive the nail into the wall.

 

Just some quick googling brought me to this site:

http://www.investopedia.com/articles/basics/10/guide-to-calculating-roi.asp#axzz1SV5bp6NB

 

This may be helpful:

 

 

 

Trust me, the calculation you did is mathematically correct but its as meaningful as measuring the difficulty of driving a nail into a wall with a screw-driver.

 

Yes it is shocking when you look at the actual numbers how NFL owners are so far removed from the Salary Cap.

 

I think if the salary floor is set to 90% of the Salary cap in the perspective CBA, as rumored, this will be the biggest problem for the game. It will cause outrageous salary inflation y-o-y from 2010 to 2011 that will take probably 30% - 50% of the length of the new CBA to normalize.

I did a Google search on ROI, and the link you cited was the first which came up. You found the part of that article which raised objections to ROI, quoted it, and acted as though it supported your contention that I'm using a screwdriver to pound a nail into the wall.

 

The text you quoted advocated CAGR (compound annual growth rate) instead of ROI. Let's go ahead and calculate the CAGR of a $1 billion investment that yields a $10 million annual return.

 

CAGR = [ (ending value/beginning value) ^ (1/# of years) ] - 1

 

One year CAGR = [ ($1,010 million/$1,000 million) ^ (1/1) ] - 1 = 1%

 

The financial tool your quote recommended provides exactly the same result--1%--as did my original post. If you invest $1 billion in something, and that something yields $10 million a year in return, that 1% rate of return is the bottom line. You seem to think financial tools should obscure that bottom line. The proper tools do exactly the opposite. The last nail has been firmly driven into the coffin of your arguments. The tool used to drive that nail wasn't a screwdriver. It was a hammer.

Edited July 19, 2011 by Edwards' Arm

[1B4IDie]

I did a Google search on ROI, and the link you cited was the first which came up. You found the part of that article which raised objections to ROI, quoted it, and acted as though it supported your contention that I'm using a screwdriver to pound a nail into the wall.

 

The text you quoted advocated CAGR (compound annual growth rate) instead of ROI. Let's go ahead and calculate the CAGR of a $1 billion investment that yields a $10 million annual return.

 

CAGR = [ (ending value/beginning value) ^ (1/# of years) ] - 1

 

One year CAGR = [ ($1,010 million/$1,000 million) ^ (1/1) ] - 1 = 1%

 

The financial tool your quote recommended provides exactly the same result--1%--as did my original post. If you invest $1 billion in something, and that something yields $10 million a year in return, that 1% rate of return is the bottom line. You seem to think financial tools should obscure that bottom line. The proper tools do exactly the opposite. The last nail has been firmly driven into the coffin of your arguments. The tool used to drive that nail wasn't a screwdriver. It was a hammer.

You're looking at it wrong.

Its not a Billion dollar investment and the value of the investment isn't static. Its not 1B/1B. This isn't going to Macys and buying a tie.

Take the value in the 2010 forbes compared to the 2011 Forbes.

Do you understand now?

Use whatever you want for financing numbers but that was already taken out before your profit number.

 

And then, since you went down this rats nest.

What does that number actually mean?

The cost of sitting in a fully decked out Owner's box is part of operating costs. The cost of taking the private jet and flying the family to the Pro bowl or away games is part of operating costs.

All of that is Millions in pre-profit benefits to the owner and need to be considered when evaluating the value of the investment.

This is why the 1% number you derived is meaningless.

Edited July 19, 2011 by Why So Serious?

[Ramius]

Does anyone know the ROI on research money used by East German scientists studying truculent triceratops?

[GG]

I did a Google search on ROI, and the link you cited was the first which came up. You found the part of that article which raised objections to ROI, quoted it, and acted as though it supported your contention that I'm using a screwdriver to pound a nail into the wall.

 

The text you quoted advocated CAGR (compound annual growth rate) instead of ROI. Let's go ahead and calculate the CAGR of a $1 billion investment that yields a $10 million annual return.

 

CAGR = [ (ending value/beginning value) ^ (1/# of years) ] - 1

 

One year CAGR = [ ($1,010 million/$1,000 million) ^ (1/1) ] - 1 = 1%

 

The financial tool your quote recommended provides exactly the same result--1%--as did my original post. If you invest $1 billion in something, and that something yields $10 million a year in return, that 1% rate of return is the bottom line. You seem to think financial tools should obscure that bottom line. The proper tools do exactly the opposite. The last nail has been firmly driven into the coffin of your arguments. The tool used to drive that nail wasn't a screwdriver. It was a hammer.

 

Quick Einstein, what's the annual ROI that an owner of a Picasso painting gets?

[Simon]

Quick Einstein, what's the annual ROI that an owner of a Picasso painting gets?

3.5?

[Mr. WEO]

You're looking at it wrong.

Its not a Billion dollar investment and the value of the investment isn't static. Its not 1B/1B. This isn't going to Macys and buying a tie.

Take the value in the 2010 forbes compared to the 2011 Forbes.

Do you understand now?

Use whatever you want for financing numbers but that was already taken out before your profit number.

 

And then, since you went down this rats nest.

What does that number actually mean?

The cost of sitting in a fully decked out Owner's box is part of operating costs. The cost of taking the private jet and flying the family to the Pro bowl or away games is part of operating costs.

All of that is Millions in pre-profit benefits to the owner and need to be considered when evaluating the value of the investment.

This is why the 1% number you derived is meaningless.

 

It may be meaningless to whatever argument you are trying to make, but EA's straightforward calculation and his point are correct. Keep googling, though.

 

Also, the Forbes valuation is a "meaningless number". A team is worth whatever the next guy pays for it. Whether it goes up or down in consecutive years will mean nothing to a prospective buyer. Since, as you sort of point out, NFL teams are not (bought and sold) like ties at Macy's, there is no way to price them right now, other than guessing.

 

 

Quick Einstein, what's the annual ROI that an owner of a Picasso painting gets?

ahh.....yeah.

[GG]

3.5?

 

Eventually it will regress to the mean.

[Orton's Arm]

You're looking at it wrong.

Its not a Billion dollar investment and the value of the investment isn't static. Its not 1B/1B. This isn't going to Macys and buying a tie.

Take the value in the 2010 forbes compared to the 2011 Forbes.

Do you understand now?

Use whatever you want for financing numbers but that was already taken out before your profit number.

 

And then, since you went down this rats nest.

What does that number actually mean?

The cost of sitting in a fully decked out Owner's box is part of operating costs. The cost of taking the private jet and flying the family to the Pro bowl or away games is part of operating costs.

All of that is Millions in pre-profit benefits to the owner and need to be considered when evaluating the value of the investment.

This is why the 1% number you derived is meaningless.

Suppose I buy a team for $1 billion, and suppose that team produces cash flows of $10 million in perpetuity. If my cost of capital is 7%, that $10 million a year is worth about $143 million. (The value of a perpetuity = annual profit/required rate of return .) The remaining $857 million I paid for the team represents a premium over and above what the actual cash flows are worth.

 

In the above post, you are assuming that the next owner will be willing to pay an even higher premium above and beyond the value of the cash flows, and the one after that will pay still more, and so on. In that sense, potential investors are being counted on to treat the NFL team like a collectors item--such as the Picasso GG mentioned. A typical Picasso generates no cash flow, and has value only because it's rare.

 

Typically, collectors' items go up in value during good economic times, and down in value when times are tough. The dot-com boom saw an enormous increase in the value of collectors items. But the values of those items have since fallen as times have gotten tougher.

 

If you buy a bond or stock in a utility company or some other profitable, mature business, you will have two options for your investment. 1) Hope you can sell your investment to someone who's willing to pay more than you. 2) Sit back and collect the cash flow. A collectors item produces no cash flow, so option 2 is eliminated. NFL owners' risk is increased for that reason. It's also increased by the lack of diversification: $857 million is a lot for anyone to invest in one particular collectors item.

 

Suppose an owner pays $1 billion for his team. Should he then expect to receive a business that's worth $1 billion? Or should his expectation be a business whose cash flows are worth $143 million, plus a non-cash producing, $857 million collectors item?

 

For the business to be worth $1 billion, its annual cash flows need to be $70 million (assuming a 7% cost of capital). That's definitely doable, and would require a significant reduction in player salaries. It's reasonable for NFL owners to want their teams to be businesses, not collectors items. It is unnecessary to make player salaries so high that teams are pushed mostly into collectors item status.

Edited July 19, 2011 by Edwards' Arm

[1B4IDie]

Suppose I buy a team for $1 billion, and suppose that team produces cash flows of $10 million in perpetuity. If my cost of capital is 7%, that $10 million a year is worth about $143 million. (The value of a perpetuity = annual profit/required rate of return .) The remaining $857 million I paid for the team represents a premium over and above what the actual cash flows are worth.

 

In the above post, you are assuming that the next owner will be willing to pay an even higher premium above and beyond the value of the cash flows, and the one after that will pay still more, and so on. In that sense, potential investors are being counted on to treat the NFL team like a collectors item--such as the Picasso GG mentioned. A typical Picasso generates no cash flow, and has value only because it's rare.

 

Typically, collectors' items go up in value during good economic times, and down in value when times are tough. The dot-com boom saw an enormous increase in the value of collectors items. But the values of those items have since fallen as times have gotten tougher.

 

If you buy a bond or stock in a utility company or some other profitable, mature business, you will have two options for your investment. 1) Hope you can sell your investment to someone who's willing to pay more than you. 2) Sit back and collect the cash flow. A collectors item produces no cash flow, so option 2 is eliminated. NFL owners' risk is increased for that reason. It's also increased by the lack of diversification: $857 million is a lot for anyone to invest in one particular collectors item.

 

Suppose an owner pays $1 billion for his team. Should he then expect to receive a business that's worth $1 billion? Or should his expectation be a business whose cash flows are worth $143 million, plus a non-cash producing, $857 million collectors item?

 

For the business to be worth $1 billion, its annual cash flows need to be $70 million (assuming a 7% cost of capital). That's definitely doable, and would require a significant reduction in player salaries. It's reasonable for NFL owners to want their teams to be businesses, not collectors items. It is unnecessary to make player salaries so high that teams are pushed mostly into collectors item status.

Wow I never thought of it that way. Maybe NFL owners should just by 1 billion dollars worth of US Savings Bonds instead of one of the most low risk, highest yielding investments in the world. Genius!

Edited July 19, 2011 by Why So Serious?

[maryland-bills-fan]

Seems to me that I took a couple of accounting courses in my lifetime. (I worked in semi-conductor industry R&D, management and manufacturing engineering). An item in a double entry accouting system is the value of assets. These might be the value of a piece of real estate the company owns, a piece of machinery or an investment in another company. These are things that you own right now and are using or saving. They are not things you necessarily have sold and turned into cash; although, cash on hand is an asset itself. Depending upon what and y you are analyzing things, you might consider the "ROI-worth" of any asset, just as well as considering how that asset enables you to make money by what it does for you in your business.

[Orton's Arm]

Wow I never thought of it that way. Maybe NFL owners should just by 1 billion dollars worth of US Savings Bonds instead of one of the most low risk, highest yielding investments in the world. Genius!

Several NFL teams--including the Lions, Jaguars, and possibly others--are losing money. While purchasing an NFL team might be a low risk proposition, it's certainly not zero-risk.

 

Much has been made about the appreciation of NFL teams' underlying values. However, there are several factors to consider. 1) Just because that appreciation occurred in the past does not mean it will continue to occur in the future. Rising player salaries have made small market NFL teams less enticing business propositions than they otherwise would have been. 2) An NFL owner should not buy a team with the intention of selling it a few years later. NFL owners should have the mentality of Ralph Wilson, who seems to feel that they'll have to pry the Bills from his cold, dead hands. If an owner waits until he's dead to sell his team, the money from that sale won't do him a lot of good. The positive annual cash flows a team generates are much more relevant.

 

The Green Bay Packers' annual level of profit represents just 1% of the franchise value. (Assuming the franchise is worth $1 billion.) Most people wealthy enough to own NFL teams did not get that way by contenting themselves with 1% annual returns on their investments!

 

Your own link demonstrated that the Bills spend more than most other NFL teams. Considering that the Bills spend well below the cap, this means that most NFL teams are even further below the cap! Yes, most teams are profitable, but a lot of those profits would disappear if every team in the league spent up to the cap. The whole purpose of the salary cap is to allow a team to a) earn a reasonable level of profit, while b) being able to spend as much on players as can any other team. The salary cap has been increased to the point where it no longer serves both those functions. Small market teams often have to choose between a) and b); and that is bad for the league.

[Malazan]

Wow I never thought of it that way. Maybe NFL owners should just by 1 billion dollars worth of US Savings Bonds instead of one of the most low risk, highest yielding investments in the world. Genius!

 

I think you could benefit from this advice as well. You're assuming an NFL team is a 'long term' investment. How many owners have owned their teams for 30 years?