Wednesday, September 06, 2006

The NFL’s version of Napoleon

It all began innocently enough, on January 10, 1999. The estate of the late Jack Kent Cooke agreed to sell the Washington Redskins to a group headed by Howard Milstein, a co-owner of the National Hockey League's New York Islanders, for a record price involving an American sports franchise, according to two people involved in the sale. Milstein’s group paid $800 million for the Redskins and their home Jack Kent Cooke Stadium. Almost as an afterthought at the end of the release announcing the sale, the release briefly mentioned that Washington-based communications executive Daniel Snyder was part of Milstein’s group – again part of Milstein’s group.

Milstein’s bid wasn’t his first attempt at buying an NFL franchise. In September 1998 Milstein was a serious bidder for expansion franchise the league awarded the Cleveland. Milstein ended his bid for the Browns at $450 million claiming he couldn’t make the economics work beyond that figure. Al Lerner bought the Brown for $530 million. A year before Milstein purchased the Redskins, Red McCombs bought the Minnesota Vikings for $250 million.

What then made the Redskins worth more in Milstein’s mind then the Browns, but worth nearly twice as much as the Browns? Lerner was being handed the keys to a brand new football stadium located in Cleveland’s downtown area, directly across the street from the Rock and Roll Hall of Fame and six blocks from the new homes of the Cleveland Indians and Cavaliers. The football stadium was the last piece in Cleveland’s redevelopment. The Browns get every dollar the stadium generates, including the revenues from 116 luxury suites and 9,500 club seats, which pays for waiter service on cushy chairs. The only expense the football team is responsible for in Cleveland is rent of $225,000. Milstein didn’t believe he could make a deal along what was being offered the new Browns owner work.

When Milstein (and Snyder) agreed to pay nearly twice as much for another NFL franchise, the Redskins got everything from Jack Kent Cooke Stadium, because the late Redskins owner built it for $170 million (plus $70.5 million from the State of Maryland for infrastructure work), and all the cash glories that come with it: 80,116 seats selling for $40 to $60 each; 280 luxury suites renting for $60,000 to $160,000 a year, and 15,044 club seats going for $995 to $1,995 a year.

Michael Ozanian, statistics editor of Forbes magazine and the key player who established Forbes financial valuation for NFL franchises in 1999 believed the Redskins were worth $403 million, based on what the revenues they produced in 1997. Ozanian told the New York Times Richard Sandomir he couldn’t believe anyone would pay $800 million for an NFL franchise in 1999.

''I thought they'd come in for less than the Browns because the Browns have no major competition; the Redskins have the Ravens nearby,'' he said. ''I am astonished. I just don't understand it.''

Essential in understanding where the Redskins were in 1999 and where they are today is first of all accepting the National Football League remains sports socialism. The league shared 80 percent of all their revenues in 1999 and 83 percent today.

The Lords of the Pigskin never really seemed to appreciate Milstein. After tabling the sale to Milstein in March 1999, Milstein withdrew his offer a month later, fed up with the politics of the National Football League and the hurdles he was being asked to jump over.

''It's very simple,'' Milstein told The New York Times on April 8, 1999, one day after he, his brother, Edward, and Daniel Snyder, a Bethesda, Md., businessman, bowed out of the bidding for the Redskins when faced with certain rejection. ''If you play in the big leagues, be prepared for big wins and big losses.''

He added: ''I'm disappointed. We thought we presented the strongest possible financial structure.'' He insisted that he did not have to be persuaded to withdraw. ''I'm not a quitter,'' he said. ''I'm resourceful. I can get across the goal line. But I was not prepared to go down a path where the fans and team would be hurt by a controversy that would paralyze the process.''

The media frenzy that ensued in the days leading up and in the days that followed never mentioned Snyder, it was as if Daniel Snyder really was nothing more then a bit player in the sale of the Redskins soap opera.

Less then three weeks later, on April 26, with partners that included Mortimer B. Zuckerman, the owner of The New York Daily News, and Fred Drasner, the paper's chief executive officer, Snyder once again (this time as the leader of the bid) $800 million for the Redskins and the teams stadium. This time he had control, he had the team.

At 34, Daniel Snyder was living a larger then life dream. Snyder grew up going Redskins games as a child with his father. For Daniel Snyder, it was always – Hail to the Redskins.

''It's been an incredible journey,'' said Snyder, whose company, Snyder Communications, is in Bethesda, Md. ''I woke up this morning and I felt strange and wonderful. I'm a fan. A huge fan. It's that simple.''

How important was Snyder’s buying the Redskins for $800 million. Remember Al Lerner paid $540 million for the Cleveland expansion franchise in September 1998, Snyder $800 million for the Redskins in May 1999. That led to Bob McNair paying a $700 million expansion fee in October 1999 for the Houston NFL expansion franchise. Snyder’s $800 million for the Redskins, coming just months after Lerner paying $540 million for the Browns raised the bar overnight for what the NFL could charge for Houston franchise. Arguably it was Daniel Snyder who drove the value of every NFL franchise forward when he offered $800 million for the Redskins.

Months into his stewardship as Redskins owner, Snyder had fired the entire front office staff. That shouldn’t have come as a surprise (the Napoleon syndrome).

However his decision to remove Jack Kent Cooke’s name from the stadium in November 1999 sent shockwaves through the sports industry. In a deal that blew the covers off the door of previous stadium corporate naming rights, Snyder announced a 27-year, $205 million agreement with FedEx. Six years after the agreement was signed, the $7.6 million annual fee FedEx pays the Redskins remains the industry standard (since topped by the $10 million Reliant Energy pays the Houston Texans), but still an agreement that has stood the test of time. What drove the fees FedEx was prepared to pay six years ago was a willingness on Snyder’s part to re-brand the entire stadium. The game day staff, signage, everything in and around the facility would bear the FedEx look.

"We believe FedEx Field will offer tremendous visibility for our company and services," said FedEx Executive Vice President, Market Development, T. Michael Glenn when the deal was announced. "Our global leadership in express transportation has been built on the attributes of speed, reliability, quality, technology and teamwork and we are proud to partner with an organization, a team and a facility which embody these attributes."

Stephen T. Baldacci, President of the Washington Redskins, said when the mega deal was announced, "When the Washington Redskins elected to seek a partner for our stadium name, our goal was to join forces with a globally recognized brand that understood the potential power of the relationship. FedEx was always our number one choice and clearly meets that goal. We also sought a partner that shares our long-term vision of what the Washington Redskins stand for in the community. There will be many examples of these standards in the years to come."

Snyder had made his fortune with Snyder Communications Inc., the world's largest direct marketer. Snyder Communications provides customer relationship management, sales support and public relations services. It had 1998 revenue of $815.3 million. More so then the other 31 NFL owners, when 1999 ended and a new century began the new owner of the Washington Redskins understood marketing, sales and how important customer service is in building a company and a brand.

From day one Daniel Snyder understood the Redskins could be a money making machine, especially if he focused his efforts on improving the teams stadium.

With 80,116 seats, Jack Kent Cooke Stadium became the largest stadium in the NFL, when it hosted its first NFL game on September 14, 1997. Three tiers of red and yellow seats circle the entire playing field. Two video-boards are located beyond both endzones.

Soon after Snyder’s purchase was approved by NFL owners, he invested $35 million in improvements at FedEx Field. Another $20 million of improvements were completed in time for the 2000 season, which included a new owners club suite level, escalators to the upper deck, and additional seats were added. FedEx Field has many amenities including several restaurants that overlook the field and a Redskins Hall of Fame. In less then one year, Snyder who had already paid a record $800 million for the team and the stadium invested an additional $55 million in the franchise.

Seven years after buying the Redskins for $800 million Forbes Magazine released its 2006 NFL franchise financial valuations and pegged the value of the Redskins at $1.423 billion, the highest value Forbes has ever assigned to a sports franchise. The Redskins became the first sports franchise to eclipse the billion dollar mark in value a year ago.

Forbes determined their breakdown using the following variables: sport $549 million (39 %), market $390 million (27%), stadium $354 million (25%) and brand management $130 million (9%)

Sport: Portion of franchise's value attributable to revenue shared among all teams. Market: Portion of franchise's value attributable to its city and market size. Stadium: Portion of franchise's value attributable to its stadium. Brand Management: Portion of franchise's value attributable to the management of its brand.

Since buying the Redskins, Snyder has added 10,000 seats and now has the biggest stadium in the NFL by far. He's not adding cheap seats either. Roughly 800 of the seats are deemed lounge or "dream" seats, costing about $400 a game. Fresh off the team's first playoff appearance since 1999, the 'Skins are raising general admission ticket prices for the first time in four years. Seat prices jumped 39 percent for the 2006 season, and parking went up to $35 from $25. The teams’ average ticket price stands at $68.

Never one to sit by and rest of his laurels, Snyder continues to push his envelop. Earlier in the year, Snyder gained control of Six Flags theme parks (actually Snyder took control in December 2005). Six Flags had more then $2 billion in debt on its books in February. That didn’t deter Snyder, who promptly hired ESPN executive Mark Shapiro, 35, as his CEO. Once again as was the case when he bought the Redskins, Snyder cleaned house with Six Flags.

Last week, days after media mogul Sumner M. Redstone cut ties with Tom Cruise for his off-screen conduct, Snyder reached a two-year deal with Cruise's production company to pay between $3 million and $10 million annually for development and overhead costs in exchange for the opportunity to finance film projects and to profit from any hit movies.

The true test of successful business people is in their innate ability to take calculated risks. They look before they leap, but they’re always prepared to take that jump when most people fear looking over the ledge. In seven years Daniel Snyder has increased the value of the Redskins by more then a billion. Daniel Snyder doesn’t just dream, he dreams big and bigger. He may be short, he may at times be called the Napoleon of the National Football League, but be very sure when all is said and done, Daniel Snyder has made a great deal of money for himself, the Redskins brand and the 31 other NFL owners. Hail to the Redskins and Hail to Daniel Snyder’s business acumen.

For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: The New York Times