Wednesday, July 15, 2009

What Falcons' New Minority Investors Mean

There are several kinds of sports business stories. There are those that mean everything to a fan: seasons canceled over labor disputes, a team's decision to cut payroll and dump its stars or a sale to a new owner who promises dramatic changes to payroll, culture, etc.
Then there are those that are interesting only to those with a keen interest in business and that have little impact on the reader whose sole interest is the team's on-field performance. Inside baseball stories, so to speak.
Classify the decision by Falcons owner Arthur Blank to sell a minority interest in the team under this last category. According to the story in today's Atlanta Journal-Constitution, Blank will still retain a controlling interest of more than 90 percent in the team. (To my knowledge, the NFL does not allow any owner to own less than a majority interest in any of its teams and also disallows corporations from owning teams; that way NFL franchises don't get in any Atlanta Spirit-style court messes.)
With this sale, Blank was simply monetizing his asset. Seven years ago, Blank paid a reported $545 million for the Falcons. As of last September in Forbes' annual valuation of NFL teams -- which economists I have interviewed cite as reliable and use in their own work -- the Falcons were estimated to have a value of $872 million.
So simply in appreciation, Blank has banked $327 million. (And you wonder why there are always people willing to buy downtrodden pro sports franchises, as the Falcons had the label of, when Blank bought them.)
Let's pretend, then, that Blank allowed his four new investors to buy 1 percent of the team for $8 or $9 million. The team already had two minority investors and, if we take the reporting in the story at face value that Blank still retains more than a 90 percent interest, let's assume that Blank sold 5 percent of the team.
That's a realized gain of between $40 and $45 million. Not bad.
In a statement released by Blank in announcing the transaction, Blank indicated that impetus for the sale was to increase funding to his family foundation: "This decision is driven primarily by my charitable and estate- planning goals and by the value that can be added to the franchise by partnering with minority owners of this caliber."
Blank's family foundation is not endowed -- that will happen, I believe, when both he and his wife are deceased, with the sale of his estate endowing the foundation. For a story I wrote early last year about Blank Foundation grants, its president Penny McPhee, explained how the foundation was financed.
"McPhee said foundation officials meet annually with Arthur Blank's finance team on a multi-year budget. She said Blank does not want the annual donations to be erratic, lest they affect the foundation's partners in a negative way."
Well, the Great Recession has taken its toll on almost everyone. That story indicated the foundation would make $19 million in grants in 2008. The first story I wrote at the Atlanta Business Chronicle indicated that the foundation gave out $23.3 million in 2006.
This year's total was set to be down to about $12 million, according to his November 2008 story by Rachel Tobin Ramos in the Journal-Constitution.
Obviously, this situation was not sitting well with Blank. The new infusion from this minority sale in the Falcons ought to help him get back to higher levels of funding for the foundation and weather the storm.
It's also interesting to take a look at who he chose to bring in -- in general, businessmen and entrepreneurs who share his interests. I don't know much about Ronald E. Canakaris or Ed Mendel, but I do know a bit about Doug Hertz (who, I believe, is a big Georgia Tech fan) and Derek Smith, whom I wrote a story about several months ago.
I first heard about Hertz in that same first story I wrote for the ABC. For those in Atlanta familiar with AM talk sportstalk station 790 The Zone, Hertz is the force behind Thursday's telethon on that station for Camp Twin Lakes, a nonprofit that hosts children with disabilities and serious illnesses.
Published reports have stated that Smith's value in Alpharetta-based ChoicePoint fluctuated over the years between $120 and $50 million. He recently founded his Myfifident Foundation
foundation with $10 million.
So, obviously, these are serious players who are not only incredibly wealthy but also share Blank's passion for philanthropy.
As for what it means for the Falcons, perhaps the bottom line is just a few more wealthy individuals watching games in the owners on Sundays.

4 comments:

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