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Fan Finance

2010 November 30
by Skip Sauer

A novel means of financing has been proposed by an investment banker and Buffalo Bills fan, Steven Brady. The idea is to finance an anticipated purchase of the team from 92 year old owner Ralph Wilson with “Bills Bonds”, which would pay below market interest as long as the team is kept in Buffalo. Gene Warner reports:

[H]ere, in rough terms, is how it could work:

The Bills’ franchise has been valued recently at close to $800 million. So let’s say that a potential new owner could raise half that amount, having to finance the remaining $400 million through a combination of secured and non-secured debt.

That owner could pay somewhere between 6 and 9 percent interest on that debt. But Bills fans, here and across the nation, could buy bonds at an interest rate somewhere between 2 and 4 percent.

Even on $100 million of Bills bonds, the roughly 4 to 5 percentage point difference (between 6-9 and 2-4) would save an owner $4 million to $5 million per year.

“I think that’s a meaningful amount,” Brady said of the hypothetical numbers.

Brady’s Web site is replete with examples of pro sports owners who have current cash-flow problems because of their choking debt service.

While some Bills fans want the team to be community-owned, the Green Bay Packers model can’t be copied.

In 1923, with the Packers franchise in trouble, the Green Bay community bought the team, Brady noted. Current NFL rules require that no more than 25 partners can own a team, and one must own at least 30 percent, Brady said.

But the Green Bay case still can provide some lessons for Buffalo.

Since 1923, the Packers have floated three stock offerings, including one in 1998 that generated more than $24 million ($32 million in today’s dollars) for stadium renovations, according to the BillsBonds Web site.

Brady cited two factors that led him to believe Bills fans could provide a much larger figure.

First, Packers stock has almost no monetary value, as stock in a nonprofit entity with no dividends and no ability to be resold or appreciate in value. Bills bonds, on the other hand, would be repaid in full, along with interest.

This has the potential to exploit a loophole in the NFL’s policy against community ownership. The public has an equity interest in the Packers and this keeps the team wedded to its Wisconsin location. Debt finance by the public could achieve something similar. In particular, suppose a) the bonds are very long term, in principle like an infinitely lived British consol; b) have a coupon payment tied to Treasury Inflation Protected Securities that adjusts so that it remains below market; c) are callable, but only with a substantial pre-payment premium; and d) relocation forces the owner to call the bonds. A significant premium, along with the sub-market interest could be enough to deter a team from relocating in order to capture $100 million of public subsidies from the “team-less city on the margin.”

This might be fantasy, but it might just keep a team in its hometown when it might otherwise move. Moreover, this form of subsidy is completely voluntary: the fans who want the team in Buffalo subsidize the team through accepting lower interest payments than in the market, not the general taxpayer, and not the out-of-town visitor who has no interest in the team or sport butĀ gets hit with a hotel or rental car tax. It’s a concept worth of further exploration, in my book.

Brady’s website is billsbonds.com and carries the motto “Saving the Bills While Saving Money.” Kinda like War Bonds, back in the day.

Thanks to Pete Toms for the link.

One Response
  1. December 1, 2010

    Thanks for the post, Skip.

    I guess I can see some fans buying the bonds. But they’ll take an even bigger bath than they think (smaller interest return); free riding should have fewer people buy the bonds than value the team (since they can take less of a loss with some other instrument). Those that do buy lose out.

    But then, it could work just on the backs of the poorly informed and extremely enthusiastic. After all, at billsbonds.com, I read this:

    kenneth corkins / November 28, 2010
    great idea i would be interested in helping keep them here but only if they stay in buffalo.

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