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For those that don't expect charity from Pegula simply because they were born or raised in Buffalo, I thought it would be worth looking at the economics of purchasing the Bills.
The Bills are reported to have made $30M last year and it appears they will sell for $1B or more. So that would be a 3% return.
That $30M does not include $78M/5 years for the Bills series but does include some lessor amount for the Bills game in Toronto last year -- let's say $8M rather than almost $16M per year for the prior 5 years. I believe I read that the Bills did not share this income in the same way that they share non-premium seat ticket revenue for home games in Buffalo.
On the other hand, the next NFL TV contract is said to increase each team's share by $40M after the player's get their share through an increased salary cap.
The Bills are currently behind the 4 year average salary minimum floor and that will cost them $5M more in the next two years (2015 and 2016).
In any event, here are two interesting arguments about the merits of the investment -- one in favour and one not.
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I took this from another message board and was impressed enough that I simple copied and pasted it here. It is not my own work product, but I agree completely with it. The author is someone posting under the user name 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.
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On the other hand, Ralph did not have the tax write-off advantage that the new owner will have...
Buying Buffalo Bills Would Save Donald Trump A Fortune In Taxes
...The Bills would go for around $900 million, and tax law established in 2004 allows the buyer to count the majority of the purchase price as an “intangible” asset that can be amortized–deducted from profits–over 15 years. Given their recently improved (from the standpoint of the Bills) stadium lease and the NFL’s collective bargaining agreement, even a small market team like Buffalo is likely to generate at least $200 million in pretax income over the next 15 years.
Let’s assume that $800 million of the purchase price is amortized over 15 years. Such a large write-off would eliminate the team’s tax bill entirely. Moreover, the remainder ($600 million) of the write-off could be used to shield taxes from the other businesses owned by the team’s investors. Even if Trump were, say, just a 20% owner of the Bills, he would have perhaps $120 million of write-offs to deduct from his profitable businesses, like television and training programs....
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Thoughts?
The Bills are reported to have made $30M last year and it appears they will sell for $1B or more. So that would be a 3% return.
That $30M does not include $78M/5 years for the Bills series but does include some lessor amount for the Bills game in Toronto last year -- let's say $8M rather than almost $16M per year for the prior 5 years. I believe I read that the Bills did not share this income in the same way that they share non-premium seat ticket revenue for home games in Buffalo.
On the other hand, the next NFL TV contract is said to increase each team's share by $40M after the player's get their share through an increased salary cap.
The Bills are currently behind the 4 year average salary minimum floor and that will cost them $5M more in the next two years (2015 and 2016).
In any event, here are two interesting arguments about the merits of the investment -- one in favour and one not.
-------------------------------------
I took this from another message board and was impressed enough that I simple copied and pasted it here. It is not my own work product, but I agree completely with it. The author is someone posting under the user name 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.
-----------------------------------------------------
On the other hand, Ralph did not have the tax write-off advantage that the new owner will have...
Buying Buffalo Bills Would Save Donald Trump A Fortune In Taxes
...The Bills would go for around $900 million, and tax law established in 2004 allows the buyer to count the majority of the purchase price as an “intangible” asset that can be amortized–deducted from profits–over 15 years. Given their recently improved (from the standpoint of the Bills) stadium lease and the NFL’s collective bargaining agreement, even a small market team like Buffalo is likely to generate at least $200 million in pretax income over the next 15 years.
Let’s assume that $800 million of the purchase price is amortized over 15 years. Such a large write-off would eliminate the team’s tax bill entirely. Moreover, the remainder ($600 million) of the write-off could be used to shield taxes from the other businesses owned by the team’s investors. Even if Trump were, say, just a 20% owner of the Bills, he would have perhaps $120 million of write-offs to deduct from his profitable businesses, like television and training programs....
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Thoughts?
Comment