5% return ... no wonder the number of bidders is small

[May Day 10]

many forget about appreciation

[eball]

El Pegual: "If I want to make money, I'll go drill another well."

[Mayhem]

3.8% or even 5% return on a billion dollars is a pretty lousy rate of return and would keep out anyone who looks at it purely as a business opportunity or who isn't cash flow positive enough to not need the billion dollars to produce current cash flow for them.

 

The appreciation of the team isn't something most buyers would realize in their life time (assuming they keep the team until they die). And if they are forced to sell it unexpectedly they are not likely to get the same kind of premium as in a non-distressed situation. It truly is the ultimate exclusive hobby for ultra wealthy people.

[Utah John]

All these posts assume the value of NFL franchises will continue to go up, indefinitely and rapidly, forever. Nothing does that. Sooner or later something will change. Perhaps concussions at HS, college, and pro levels will drive rule changes that ruin the sport. Perhaps some other sport becomes more popular -- if you asked people in the 40s and 50s if any other sport would supplant baseball, they'd have laughed. Who knows what will happen. So a billion dollar investment might only return a billion dollars 20 years from now. Or perhaps even less, at least factoring inflation into account.

 

The point I'm making is not something prospective owners wouldn't have considered. They will have thought through all this and still decided to go ahead. Got to be based on emotion, not hard cold business sense.

[Flutie Flakes]

I would take a 5% return all day every day. You will not get anything close to that in government bonds or treasuries and ask your local bank or credit union for a CD that pays 5% and they'll laugh at you. The real beauty with this type of an investment is that even if it loses money, you can write the losses off and thus reduce your taxable exposure. This is huge, especially for the very wealthy.

[zonabb]

It's not that bad an investment. You make 5% annually plus you get all your money back and then some when you sell.

 

EXACTLY! You have to account for the increased equity of the asset, not just the annual profit. Plus, the rate of return is likely to increase annually, and by what I've read given the increased TV revenues, that's likely the case.

[Flutie Flakes]

All these posts assume the value of NFL franchises will continue to go up, indefinitely and rapidly, forever. Nothing does that. Sooner or later something will change. Perhaps concussions at HS, college, and pro levels will drive rule changes that ruin the sport. Perhaps some other sport becomes more popular -- if you asked people in the 40s and 50s if any other sport would supplant baseball, they'd have laughed. Who knows what will happen. So a billion dollar investment might only return a billion dollars 20 years from now. Or perhaps even less, at least factoring inflation into account.

 

The point I'm making is not something prospective owners wouldn't have considered. They will have thought through all this and still decided to go ahead. Got to be based on emotion, not hard cold business sense.

 

Good point. The only true appreciable asset is real estate and even then, ask property owners in Florida and California that purchased on the bubble and got stuck with an asset that was worth a fraction of the value when the floor dropped out.

[Jauronimo]

Based on some of the info that's leaking regarding the Bill's annual profits ( $40-$60 million/ year has been leaked out) I can see why the number of bidders is low. If you're investing ~ $1 billion (and are looking at it from a purely business point of view) you would probably be looking for a rate of return north of 10%.. or in other words.. some rate of return that isn't easily obtained through investing in low risk bonds or something like that. According to my math ( using $50 million as an annual profit estimate) here are the rates of return at different price points: $800 mil - 6.25% / $1 bil - 5% / $1.3 bil - 3.85%. This is why I think Donald Trump will back out if the price is over $1 bil... it just doesn't make that much business sense at that point. Anyone who pays more than $1 billion is probably driven more by emotion than by business sense. This is actually a good thing for the Bills... if they were more profitable ( let's say they made $80 mil/year in profits) I think you'd see a lot more outsiders getting in on the action.

3% risk free and 5% muni yields exist only in textbooks. Welcome to the United States of Quantitative Easing. Fixed income yields are extinct. All hail equities!

[yungmack]

A 5% return in these times from a AAA investment that also has a history of strong capital appreciation would be a dream setup for most people. So even though purchasing an NFL franchise is largely about belonging to a very exclusive club, price be damned, it still more than passes the test as a solid longterm investment. But as many have pointed out, it ain't about the annual profits.

[bisonbrigade]

5% of 10,000.000 is not to shabby, I would take it.

[PromoTheRobot]

That's why I want Pegs. He has said that if he wants to make more money, he'll drill another gas well. Owning a sports team for him isn't about making money, or at least recouping his money.

Pegula has been a godsend for the city, but his investments are good business as well. Harborcenter spurs development that improves the city and makes his property even more valuable. I bet he envisions a state-of-the-art stadium/hotel/convention complex in ten years. Pegulaville, indeed.

Edited August 14, 2014 by PromoTheRobot

[CodeMonkey]

That's why I want Pegs. He has said that if he wants to make more money, he'll drill another gas well. Owning a sports team for him isn't about making money, or at least recouping his money.

Pegula has been a godsend for the city, but his investments are good business as well. Harborcenter spurs development that improves the city and makes his property even more valuable. I bet he envisions a state-of-the-art stadium/hotel/convention complex in ten years. Pegulaville, indeed.

I agree and I have been trying to ignore where his money came from. But what immediately comes to mind whenever I see that "drill another well" statement is he can take that another well and shove it up his ass.

 

Actually it just occurred to me, people have been asking what the trust might not like about Pegula. That is one possibility, where his money came from.

Admittedly a long shot, but I'm not sure what else they would not like about him.

Edited August 14, 2014 by CodeMonkey

[Kelly the Dog]

All these posts assume the value of NFL franchises will continue to go up, indefinitely and rapidly, forever. Nothing does that. Sooner or later something will change. Perhaps concussions at HS, college, and pro levels will drive rule changes that ruin the sport. Perhaps some other sport becomes more popular -- if you asked people in the 40s and 50s if any other sport would supplant baseball, they'd have laughed. Who knows what will happen. So a billion dollar investment might only return a billion dollars 20 years from now. Or perhaps even less, at least factoring inflation into account.

 

The point I'm making is not something prospective owners wouldn't have considered. They will have thought through all this and still decided to go ahead. Got to be based on emotion, not hard cold business sense.

65 years running appears to be somewhat of a trend.

[Over 29 years of fanhood]

. But what immediately comes to mind whenever I see that "drill another well" statement is he can take that another well and shove it up his ass.

 

 

Ouch! You gotta do something to be a billionaire.

[TH3]

Criminy:

 

NPV (buying price) = NPV of summation of expected cash flows + NPV of appreciation of asset

 

Making 5 percent on cash in looks pretty good if the asset appreciates in value by 7-10 percent.

 

This of course doesn not take into account leverage.

[finknottle]

There is an idea out there that would-be owners are already so rich that they are so motivated by joining the club that making money falls by the wayside. I think that is misleading.

 

Set aside the question of whether the personal qualities that make you filthy rich (such as good discipline about business decisions) can be turned on and off.

 

Think about the relative size of a billion dollars. Even if a would-be owner is worth more than that, a billion dollars is a significant fraction of everything they own. You are asking them to liquidate half or whatever of their financial empire and convert it into a toy. And the great majority of bidders are not billionaires, which is why you generally see ownership groups formed.

 

Raising an absurd amount of money takes time and maneuvering, even for the extremely rich, and a typical winner may wind up borrowing money one way or another to finance their bid. And that loan charges them interest. So when you say 'who cares, 3.5% sounds good if you are rich already,' you ignore the fact that after they pay their interest they are making diddly or even losing money. So they need a return at least as big as what they are losing to finance the purchase.

 

As to the point that this is risk-free, and that history shows this is the safest investment there is, things always go up until they stop. Railroads, steel, broadcast television, real estate, many industries had half-century periods of growth by the end of which they appeared money-in-the-bank investments. Horse racing was the dominant sport at its height. I'd guess that the major horse tracks showed similar growth until the 50's or so, appearing then to be slam-dunk investments. Didn't last. The bottom line is that there is risk to the NFL - risk that popularity will wane, risk that the internet age will destroy their broadcast revenues, risk that lawsuits, liabilities, and government regulations will undermine the product. Owning an NFL franchise looks reasonably safe, but it certainly no more risk-free than buying an S&P tracking fund for the long haul.

[Kelly the Dog]

There are 31 owners right now and there are exactly 31 different reasons these rich bastards originally bought and now are keeping their teams.

 

Within those 31 different reasons are dozens and dozens if not hundreds and hundreds of small reasons they did it. Some are bigger than others. A lot overlap with other owners. But there is not one reason a guy buys a team, each guy has many reasons for it.

Edited August 14, 2014 by Kelly the Dog

[maddenboy]

There's only about 1600 Billionaires. On Earth.

 

So its not like we should have expected 30-50 bidders. Especially, as noted above, the Billionaire would have to liquidate a lot of his stuff to buy the team. Some assets arent easily liquidated.

 

Pegula reportedly just liquidated almost $2BB. Str8 cash, homie. I'd say he is the 800 pound gorilla here.

 

http://www.forbes.com/billionaires/

 

"The ranks of the world’s billionaires have swelled to a record 1,645 including 268 newcomers"

Edited August 14, 2014 by maddenboy

[Mr. WEO]

I agree and I have been trying to ignore where his money came from. But what immediately comes to mind whenever I see that "drill another well" statement is he can take that another well and shove it up his ass.

 

Actually it just occurred to me, people have been asking what the trust might not like about Pegula. That is one possibility, where his money came from.

Admittedly a long shot, but I'm not sure what else they would not like about him.

 

Why would they consider this? And what's wrong with where he got his money from? Did he steal it?

[Tipster19]

It's a seller's market, there is only 32 of them in the world. With that being said, the Bills are actually one of the lowest selling franchises in the league, meaning that a buyer would be buying low in comparison to the entity. Also the Bills, I believe, are on the cusp of ascending, meaning the revenue should grow rapidly if they become more successful, fanbase would churn in bigger numbers, the possibility of a new stadium would help in the imagining, especially if a Super Bowl could be hosted and merchandise would swell.

 

Btw, speaking of hosting a Super Bowl, I fully expect this to be one of the top, if not the top, priority of new ownership. This would recoup a lot of the initial investment if this were to come to fruition.