ALBANY – Think of the sale of the Buffalo Bills as akin to selling your house.
More precisely, selling your dead parents’ house.
Then add in a complicated set of circumstances, in the case of the Bills, the many more actors involved, and the financial, political and some would argue even societal considerations that go into the sale of a much-followed professional football franchise.
There are criminal background checks, for instance, on the prospective buyers. There is a confidential “teaser” document of the team’s revenues and expenses shown only to an approved few who want to buy the team. Finally, like needing the sign-off from 24 of your 32 closest relatives to sell that house, the team’s sale is contingent upon approval from some of the wealthiest Americans who already are members of the elite club that is the National Football League’s team ownership group.
Still, if past NFL transactions are any guide, the process for selling the Bills is similar in many ways to selling your parents’ house, including approval from the estate’s trust, a battery of financial background checks, inspection of the structure and its expenses, and a detailed appraisal by the seller – and buyer – of the Bills’ bottom-line value.
The Buffalo News interviewed a half-dozen individuals who have experience with stadium and professional team sales or are associated with potential bidders for the Bills; most would speak only on condition of anonymity because of the sensitive stage of the Bills’ looming sale.
They outlined the process for selling a pro football franchise, though all acknowledged the exception in the Bills’ case: Its sale by a group of four estate trust members who reside in Michigan and whose bottom-line financial goals for the transaction are still far from certain.
While some reports suggest Ralph Wilson’s trust might try to sell the team by July, experts involved in professional sports team purchases say the potential roadblocks and snags are so many that July is an ambitious date. One source, for instance, said an investment bank’s examination of the team’s finances will take at least a month, and that is a mandatory step before the “For Sale” sign even goes up.
And, like some house sales even after a purchase contract is signed, any execution of the deal for the Bills will then involve many more months of intense negotiations that will touch on everything from digging deep into the team’s financials to the concussion litigation brought by former NFL players against the league. Only then will the deal be brought to the NFL’s owners for approval or denial.
“If the Bills don’t get started until mid-June with the sale, at a minimum they’ll need six weeks to run a process, probably longer,” said a source who has been involved in other NFL team sales and who spoke on condition of anonymity. “What I can tell is how fast they’re running right now.”
Who will be the seller?
The seller is the Wilson trust. The team’s silent strategy – they have not even publicly acknowledged who sits on the trust, although it is all but certain that Ralph Wilson’s widow, Mary, is among the four trustees – has left many questions.
For instance, what are the trustees’ fiduciary responsibilities?
Is it to get the highest price for the team, or did Ralph Wilson’s last will and testament state any other objectives?
Experts on the outside say they don’t know, but they point to other sports team sales – like the $660 million sale of the Boston Red Sox in 2002 – that did not go to the highest bidders.
Some, apparently including developer Donald Trump, think the sale should be handled by others.
“The process would be significantly streamlined if the trustees of the Wilson estate would turn the sale over to the NFL and (Commissioner) Roger Goodell, because they have the knowledge, experience and the capability to expedite the process,” said Michael Cohen, executive vice president of the Trump Organization and a senior adviser to Trump.
Trump already has had three conversations with Goodell over the Bills’ future, sources told The News.
The NFL has some early duties to carry out for the sale.
For starters, some individuals already are notifying the league of potential interest in the team. It is possible the NFL can, if the sides agree, begin a financial and criminal background check of the would-be bidders.
In other deals, the league’s review of bidders starts after receiving an NFL financial packet that demands potential bidders fill out a range of financial and personal information.
“They go through it with a fine-tooth comb,” one source said.
The value of the team
One of the first steps is getting an appraisal of the team’s worth. Forbes has put the team’s value at $870 million, but Forbes did not have access to the financial documents that bidders will be seeing, nor does it consider what the team might be worth with a new stadium.
Sources involved in potential purchase efforts, as well as a Bills management source, say the team has yet to hire an investment banker to perform a financial analysis of the team to give to bidders. It is a crucial step in the process.
Goodell said last week that the trust is still working on the process of selecting advisers for the sale.
“They will probably do that in the near future,” he told reporters in Manhattan.
Goodell made clear the team needs a new stadium as part of a long-term strategy to stay in the Buffalo area.
According to officials in Albany, Goodell for weeks has been privately discussing the new stadium option as the best avenue to ensure the team and its new owners do not leave. But Bills’ officials have been reluctant to talk about a new stadium, in part because of a fear it could hurt the sale of the team.
The Bills have told state officials that Wilson left no edict requiring the team remain in Western New York. But the lease deal he signed last year to keep the team in Buffalo for 10 years did give the community a distinct advantage. And that lease deal’s stiff penalty for moving – $400 million except for the seventh year, when a far cheaper escape clause takes effect – may have devalued the team’s worth to those who want to move it.
“The problem is that the Bills in Buffalo are probably worth half of what they would be worth in some other market in a new stadium. So how do you conduct a normal sales process without having the issue of the stadium and whether they move and under what circumstances? I think those issues are going to delay this sale quite a bit,” said Andrew Zimbalist, an economics professor at Smith College who has worked as a consultant on numerous professional sports matters, including on stadium and team valuation issues for both private and government sector clients.
The stadium issue will be a crucial component for bidders trying to determine an offer.
“The big unknown is what happens with the stadium and to what extent the purchase agreement will make stipulations about keeping the team in Buffalo under different circumstances. I imagine there will be stipulations, but I’d also imagine there will be various loopholes that make the new owners able to move,” he said.
For instance, Zimbalist said, the trust could sell the team with a stipulation that a new stadium, with certain specifications and some level of public funding, be built by 2017 or the team can move.
For Gov. Andrew M. Cuomo, it would make no sense to agree to a new stadium deal unless the current 10-year lease is greatly expanded, all sources agreed.
How the process works
After the investment bank, counsel and other advisers are hired, a Confidential Information Memorandum is prepared by the seller.
The document does not put a precise value on the team, but it shows revenues and expenses, upside potential, stadium lease and other documents that must be accurate but are typically made “most positively in favor of the team.”
In the words of one expert, would-be buyers “look at it as a teaser.”
Once the trust writes and approves this memorandum, the team is formally put up for sale. Only those bidders pre-approved by the NFL get to see the document.
“They want to make certain they’re on the up and up, and if a person passes the test, they’ll show them the books,” Zimbalist said.
Potential bidders must agree, in writing, to keep confidential the team’s financial information on the document.
Buyer’s next step
Next, the bidders ask questions about the document as part of their own due diligence process.
For the Bills, bidders might want to know more details about the non-relocation terms the team signed last year with the state.
“Or, if you are a buyer, do you want to know the NFL position on concussion litigation, because it’s a potential liability?” one source said.
In the case of the Bills, there are some obvious differences from other NFL and pro sports team sales.
“The owner has passed away, so you have an executor of the estate making decisions and trying to tell what is best for the family. You don’t know if the fiduciary duty is the highest price possible, so how do you judge the valuation side? When you have a seller who is alive they can say, ‘This is what I want,’ ” said the person involved in NFL team sales.
But just because a bidder asks a question doesn’t mean the Bills must always answer.
Experts from outside Western New York say the sale of the Bills appears to be more “emotionally charged” because of the intense loyalty of the Bills’ fans and the community’s desire to keep the team in Western New York.
How that plays into the sale of a team by trust members who are not New York State residents is another question that only time will clear up.
Finally, the question remains of the NFL’s long-term interest and how that will play into the sale. Goodell has made clear that the NFL wants the team to stay in the region.
“Because it’s a very small market, what does the future hold for the Bills in seven or 10 years?” one source said, referencing the stadium contract deal signed by the state and the team and approved by the league in 2013.
“The NFL is the second most exclusive club in America, behind only the U.S. Supreme Court,” said another source involved in the process. “Whoever gets to be part of that club is clearly somebody of significance, not your average Joe coming in to buy a football team, especially when that team could be worth $1 billion.”
Then there is the future ownership group.
Some have speculated that the NFL is not interested in a large group of investors. But two people with knowledge of NFL team purchases says the league has one basic rule to address that issue: At least one person in the purchase group must own at least 30 percent of the team.
“All professional leagues prefer the groups to be smaller,” one source said. But some NFL owners argue that having a purchase group with six or eight members can “spread the risk” of the complications the Bills are now seeing having been owned by one individual, the source said.
What has to happen before the Bills can be sold:
1. Identifying the sellers. The Wilson trust owns the team, but it has not said who sits on the trust. It is all but certain that Ralph Wilson’s widow, Mary, is among the four trustees. But questions about the trustees’ fiduciary responsibilities remain. For example, did Ralph Wilson’s will state any objectives or conditions?
2. Appraisal of the team’s worth. Forbes has put the team’s value at $870 million, but that does not include the financial documents that bidders will be seeing, nor does it consider what the team might be worth with a potential new stadium. The Bills will have to hire an investment banker to perform a financial analysis to give to bidders.
3. Confidential Information Memorandum. This document, prepared by the seller, shows revenues and expenses, the potential for growth, the stadium lease and other documents. The information must be accurate, but it is more of a sales brochure, portraying the team in the best possible light. Once the trust writes and approves this memorandum, the team is formally put up for sale.
4. Pre-approved bidders. The NFL will approve bidders who get to see the document and ask questions about it. Bidders might want to know more about the non-relocation terms the team signed with the state. Bidders might also want to know about the status of the NFL’s litigation with the players’ union about concussions.
5. Closing the deal. The other NFL owners will approve the deal, if it meets their expectations and requirements. There are some who believe the owners will not be interested in a group investment, that is, six or seven people combining resources to buy the Bills. A group could get around that if at least one member owns 30 percent or more.