Rams deal critical to the NFL
The success of the agreed upon deal to sell controlling interest of the St. Louis Rams to Illinois businessman Shahid Khan is going to be a leading indicator of the relative financial health of NFL franchises and a barometer of the future health of the league as a whole as it heads into a year of labor strife. The deal, which will not be formally presented to ownership until the owners’ meetings in late March, will clearly be the second biggest business issue, after the state of labor relations themselves.
Khan, the 55-year-old president of Flex-N-Gate Corp., a manufacturing company that makes pickup truck gates, is offering a deal, according to informed sources, that puts the total value of the Rams at around $750 million. That’s less than the franchise’s Forbes valuation of $913 million but more than what other bidders have offered to date for the franchise. The Rams do not own their own stadium, but they have a favorable lease with St. Louis, are considered moveable and need to be sold to pay inheritance taxes.
Death and taxes
Khan needs only to acquire the 60 percent of the Rams that had been owned by the late Georgia Frontiere and is now held by her children, Chip Rosenbloom and Lucia Rodriguez. The other 40-percent share is owned by Stan Kroenke, who is currently prohibited by NFL rules from taking control of the franchise because of his ownership of the Denver Nuggets and Colorado Avalanche. Kroenke has been quiet on his intentions, but for the moment, he’s believed to be standing pat.
Chip Rosenbloom and Lucia Rodriguez APChip Rosenbloom and Lucia Rodriguez currently own 60 percent of the Rams franchise.
For their part, Rosenbloom and Rodriguez have been dealing with an inheritance-tax situation since the January 2008 death of their mother. Sources say the IRS valued the Rams at $800 million at that time. This would have presented Frontiere’s heirs with a potential taxable estate of nearly $400 million based on the increase in value of the Rams during Frontiere’s nearly 30 years’ ownership. Frontiere took control of the Rams after the death of her sixth husband, Carroll Rosenbloom, in 1979. In other words, the two Frontiere heirs have a tax bill of nearly $200 million.
Very few people have the kind of wealth to absorb a $200-million tax hit and keep control of their football team, and Rosenbloom and Rodriguez aren’t among them. They reportedly pursued loans and sought other investors to maintain control and perhaps sell the team at a more advantageous moment. But with last year’s financial crisis and the downturn in the economy that followed, the Frontiere heirs have no real choice but to sell now rather than wait for a recovery that may be slow in coming. While Rosenbloom and/or Rodriguez will not get to keep the team, both will walk away very well off from its sale, pocketing about $100 million each.
Lower franchise values bonus in labor talks, problem in the future
Having a franchise decrease in value is never a good thing for a league with so many interrelated business and financial practices. But during labor talks, having a team sell under prior estimates probably isn’t the worst news for the other owners to hold over the heads of the players. It also underscores that individual franchise owners have borne most of the burden of both the slowed economy and increased labor costs.
Khan’s purchase, however, is considered by some knowledgeable insiders to be less than a sure thing. His approval by the league is not assured, and there are doubts about his overall financial resources. The league usually wants a primary owner to have about $300 million in cash and about $700 million in fairly liquid assets to be approved as a primary owner. And this is perhaps the most worrisome thing for everybody. The Rams need to sell, and Khan’s offer is far and away the best out there. If his deal falls through -- or he’s not approved – there’s a chance the price may drop more than the league or its owners are comfortable with. Remember, every day a team doesn’t sell is bad for the seller and good for the potential buyer these days.
While the folks at the NFL Players Association may not be pleased to see the Rams sell for less than prior evaluations, they should be terribly worried if the deal doesn’t go through at all because the team might not sell for some time and then perhaps for even less. There are a number of teams thought to be quietly on the market and still more that may have to be sold in coming years to pay potential inheritance tax bills in a league where 18 of the owners are older than 65 and eight are over 80. The pool of potential buyers is small, and logically, when supply outstrips demand, price is likely to be negatively impacted. And the loss of franchise values could have a devastating impact on labor relations and labor -- now and for years to come.
Re: Rams deal critical to the NFL
Wow, I know a 100 million is a lot of money, but that doesn't seem like much for Chip and Lucia for the price of an NFL team after all is said and done.
Re: Rams deal critical to the NFL
I think this article is going a bit overboard on just how much this means to the NFL, I really don't think that the sale of the Rams is going to shape the future of the NFL as the article suggests.
I always found the Forbes NFL/NHL/MLB team valuations to be a bit half-baked anyway. I've loosely paid attention to their numbers over the years and they've never taken into account the recession because as a whole, their numbers for team values have never went down across the board. I know they say that sports are recession proof but that's more about bringing clients/money in, not necessarily for franchise value.
I thought the total value for the Rams would have been even less then 750 to be honest. With the recession and looming CBA (a labor strike would absolutely kill team values) it just seems like an extreme buyers market out there.
If it's true that there's already a few other teams quietly on the market as the article suggests (and I've heard that elsewhere) and with 8 (!) owners over 80 the NFL is going to have a real mess on their hands if a few of those owners drop dead and other families are forced to sell like Chip/Lucia are now.
Roski would probably do well to wait a couple years and he'll have his pick of the litter if he's still dumb enough to finance a billion dollar stadium at that point.