Editor’s Note: Thanks for the great feedback on last week’s edition! Please keep it coming by responding to this email or on social media (LinkedIn, Twitter).

Forwarded this newsletter by someone in your network and want to receive it yourself? Subscribe here 

Good Thursday Morning. Here’s the rundown of this week’s Sports Business Playbook:

• This week, we’re talking about the Washington Commanders’ pending $6B sale and how one of the worst run organizations in sports is about to fetch the highest franchise sales price in sports history

• Want to show off your sports knowledge in a public setting but don’t have time to read the full article? Hit the “Impress Your Friends at Cocktail Party” section at the bottom for a CliffsNotes of this week’s topic

• “Whoa of the Week”

• Reminders that sports are awesome

Hey team,

The Washington Commanders took another big step towards securing new ownership this past week, with Josh Harris agreeing to terms with current owner Dan Snyder to sell the team for over $6 billion.

There are additional details to be worked out in the coming months but the sale is expected to go through, which both solidifies the most expensive sale of a sports franchise ever and closes the chapter on Dan Snyder’s tumultuous two-decade tenure as arguably the worst owner in sports.

These two concepts seem to be at odds with each other, so how is this possible? Two words:

The Shield

As we’ve talked about in prior editions, the NFL, is a business juggernaut.

The league, only half-jokingly referred to as “The Shield” due to the NFL logo, made nearly $20 billion last year, which for reference, is 10x the NHL, roughly double the NBA, and about 45% more than the MLB.

82 of the top 100 events watched in the US last year were NFL games, and because of this success, the league has $120 billion in committed revenue from TV deals over the next several years. Hell, Peacock paid $110 million for the exclusive rights to stream one early round playoff game.

Business is booming, but what’s most interesting is how the revenue gets divvied up.

Despite the fact that many of the owners are billionaire businessmen and capitalists who have “pulled themselves up by their bootstraps,” embraced “rugged individualism,” and [insert overused trope about working hard and those damn Millennials], the NFL is arguably one of the most socialist organizations in the United States

Before we get the pitchforks out and the Fox News chyrons fired up, let me explain.

Remember those lucrative TV deals? Those, and other major league-level deals, are negotiated league wide and the revenues are distributed evenly amongst the clubs. In addition to that, 40% of all ticket sales from each club are entered into a pool that is also split evenly amongst the teams.

The teams can keep 60% of ticket sales and the local revenue from things like concessions, merchandise, and parking all to themselves, which is a pretty significant windfall in itself, but most teams end up making more than 50% of their annual revenue from the league rev share.

And it’s a pretty sweet deal. The clubs received ~$350 million payouts each after the 2021 season, which essentially means that they will have covered all of the salary cap ($208 million in 2022) and other substantial expenses before they even hold a single home game.

So, the league and owners know they’ve got a good thing going, and they will do whatever it takes to ensure their business interests remain stable. This is what’s known as “protecting the Shield.”

Normally this defense comes against outside forces, but sometimes it requires turning on one of your own for the good of the league.

Dan-maged Goods

Dan Snyder bought the Commanders (known then as the Redskins) in 1999 for a then-record $800 million. The business he bought was humming at the time — the team was incredibly successful on the field and they had a rabid fanbase that dominated the sixth largest metropolitan area in the country.

Since then, things have been…less than stellar.

The club has the 5th worst winning percentage in the league during the years of Snyder’s tenure, they play in the worst stadium in the league, and the business has cratered — the Commanders ranked dead last in attendance last year, and ticket sales revenue for the Commanders have dropped by an inflation-adjusted 66% since 2008.

The first 10+ years were mostly marked by organizational incompetence and Snyder’s renowned petulance, which would be met with casual amusement from outside observers (let’s be honest, probably on the floor laughing from fellow NFC East teams’ fans) and frustration from diehard Washington fans.

Unfortunately, things have taken a much darker turn in the past few years, with the organization being plagued by toxic workplace and sexual harassment lawsuits, corporate malfeasance allegations, and a PR nightmare due to Snyder’s years’ long fight to keep the name “Redskins” despite the fact that the term is a racial slur against Native Americans.

You can get away with a lot as an NFL owner, but the one thing you do not do is mess with the Shield and potentially hurt the business. So, Snyder’s legal problems evolved into “league-al” problems, and the gears began to turn on a possible transaction over the last 6-12 months.

Commanding Presence

Today, Josh Harris uses some creative financing — his estimated net worth is only (lol) somewhere between $5.9-$7.6 billion — and pays $6 billion for a broken organization mired in scandal. Is he crazy?

Not at all.

Let’s look at this two ways: cash flow and enterprise value (how much the market thinks the Commanders are worth).

Cash Flow

Even at the organization’s lowest point this past year, the Commanders still generated $170 million in local revenue, according to a March 2023 investment prospectus put together by Harris’ team that ESPN obtained.

That, plus the ~$350-$360 million that comes from league rev share, should enable them to both cover their debt payments from the sale and make additional investments in the club.

All of the above happens before the Commanders begin to repair their relationship with the fanbase. As we noted above, the fans love this team; they hate Dan Snyder.

In Harris’ prospectus, they believe that they can capitalize on Snyder’s absence and work to re-establish their relationship with the fanbase. Harris has a history of doing this, as he took the NBA’s Philadelphia 76ers from one of the lowest performing businesses to a top-5 performing club. Assuming things go well, the same will happen here, as Harris’ group is expecting to generate ~$1 billion in total revenue (local + league rev share) in 10 years.

This is also not factoring in a new stadium, which the team had begun in-depth discussions with the state of Virginia on the last few years but was put on hold due to the club’s turmoil. Bringing a new stadium online would potentially add an addition $100 million per year or more to the revenue projections.

Enterprise Value

The enterprise value of an organization is essentially an estimate on what someone in the market would be willing to pay for it. The optimal scenario is paying for an undervalued or fair valued asset, improving the business operations, and then selling it later at a premium.

Who knows if Josh Harris wants to sell the Commanders in the next 10 or so years, but you better believe that he’s paying attention to their valuation numbers and looking for ways to increase it in the event he does.

Here’s what he’s thinking about.

Harris paid about 10x revenue ($545 million revenue/$6 billion sales price) to complete the Commanders deal. This multiple is relatively standard for traditional M&A activity, but it's actually much more reasonable in the sports world where teams are being valued for as much as 30x revenue.

The reason for these crazy valuations is that sports teams, particularly American teams, are seen more and more as low-risk assets that are expected to grow incrementally up and to the right due to the inherent scarcity (there’s only 32 NFL teams and you can’t add any more unless the league authorizes it), the fact their largest expense — salaries — is literally “capped,” and the increasing value of TV deals and other key revenue drivers that are not related to the stock market, which again mitigates risk.

So, in as bad of shape as the Commanders were in, they were still valued as a top-10 club in the NFL. Now, Josh Harris essentially has an asset that is almost a sure-fire guarantee to appreciate before he even lifts a finger. Not a bad gig to be stepping into.

He’s got a lot of opportunity to boost the value by making the changes noted above to repair the fanbase, and he’ll really juice it if they can get a stadium deal done where they retain a level of ownership and therefore the value.

And I’ll think he’ll succeed. My prediction is that the Commanders are a top 3 valued club in the NFL within the next 5-10 years.

More importantly, though, I’m hopeful that the organization can resolve its legal and workplace issues and turn things around on the field. I know we have a number of Eagles and Giants fans who read this newsletter and will probably unsubscribe for my saying this, but I’d say the fanbase deserves it after what Dan Snyder has put them through.

Impress Your Friends at a Cocktail Party

Want to show off your sports knowledge in a public setting but don’t have time to read the deep dive? This section is the CliffsNotes of this week’s topic

• Dan Snyder = bad guy; worse owner

• Josh Harris (also owns the 76ers) is buying the team for $6b, the most ever paid for a sports franchise

• NFL clubs make on average 50-60% of their overall revenue from the league revenue share

• Josh Harris expects to repair the fanbase and try to get a stadium deal done, which will enable even greater revenue and increased enterprise value

• Harris expects to double club revenue to $1 billion in the next 10 years

“Whoa” of the Week

Insane, mind-blowing things constantly happen in the sports business world. Here was my favorite of the past week.

This week, we’re back talking about draft picks’ impacts. The San Antonio Spurs won the NBA Draft Lottery last night, which means there is a 99.9999% certainty they will take French phenom Victor Wenbanyama with the first overall pick.

Wenbanyama is considered the best prospect since LeBron, and the Spurs are hoping he will have a similar impact for the organization on and off the court.

Weekly Reminder that Sports are Awesome

This newsletter is, of course, mostly centered on the business side of sports and the things that happen off the field. That being said, it’s important to remember why we fell in love with sports in the first place, though.

This section is meant to highlight the amazing things that happened in sports this week that serve as that reminder.

This week…

1. NFL Draft videos do not get old

2. San Antonio Spurs’ fans reaction to getting the #1 pick and Victor Wenbanyama

Thanks for reading! Let me know what feedback you have.

Also, if you enjoyed this breakdown, please consider sharing it with your friends and network by clicking the social media icons at the top of the newsletter.

Until next time, sports fans!

-Alex