The 5 O’Clock Club: What is slowing down approval of the Commanders sale, a Josh Harris problem, or the NFL’s own outdated rules?

The 5 o’clock club is published from time to time during the season, and aims to provide a forum for reader-driven discussion at a time of day when there isn’t much NFL news being published. Feel free to introduce topics that interest you in the comments below.

We’ve seen a number of reports in the media that have hinted at problems with the Josh Harris bid to buy the Commanders, and suggesting that the structure of the financing, the number of limited partners, and the inclusion of foreign investors are all potential problems.

It leaves the impression that there’s something not-quite-right about the group — that the limited partnership is somehow substandard.

Mike Florio of Pro Football Talk took this idea and turned it into a headline a few hours ago.

Heres’ part of what Florio wrote:

One issue is the raw size of the proposed group of limited partners. They each have to be properly vetted by the league. That will slow things down, at a minimum.

This issue and others make it unlikely that the deal will ready for approval when owners meet later this month.

Although Commanders fans currently are euphoric at the prospect of Snyder’s permanent exit, they should want a new owner with the appropriate financial wherewithal to run the team successfully. It’s far better, frankly, to have a new owner who passes the approval process with flying colors than to see the team sold to someone for whom exceptions need to be made.

Mike Florio has gotten the wrong end of the stick here.

There is no genuine issue with the “financial wherewithal” of the proposed owners. The net worth of Josh Harris alone (not counting any of his billionaire partners) is estimated at $5.9b — roughly the same as that of Steve Bisciotti, the owner of the Ravens, who ranks as the 12th richest (by Forbes estimated net worth) NFL owner.

Here is the estimated value of three of his limited partners:

• Mitchell Rales $5.3b
• Alejandro Santo Domingo $2.7b
• David Blitzer $1.9b

These 4 individuals (including Harris) collectively have an estimated net worth of roughly $16 billion, together with a wealth of experience in finance, real estate and sports management. This is no inferior group of wannabes grasping to put together a borderline bid. This is a collection of wealth, intelligence and talent that is hard to equal.

So, what’s the problem?

Let’s be clear: I have no sources. I read Twitter and published articles like the rest of the unwashed masses, so I have no more knowledge than most and a lot less than some. But I have common sense and some experience in the finance industry in this century. What follows is my opinion, not supported by sources other than those available to the rest of the public.

The issues with the Josh Harris bid are not due to some sketchy Ponzi-scheme funding or an effort to launder money from an illegal arms dealer as part of the purchase. Instead, the issues that exist, from the published reports I’ve read on ESPN, Front Office Sports, the Washington Post and others who have ‘sources’ with real knowledge, seem to revolve around the NFL’s own arcane requirements for the principle owner.

What are those requirements?

There are two related requirements that are problematic in the current situation — that the primary owner has to own at least 30% of the team, and a limit on borrowing secured against the team of $1.1b; they combine to create an unrealistic financing conundrum given the proposed sale price of the team.

At the $6.05b purchase price, the 30% requirement makes it essential for Josh Harris to personally invest at least $1.8b.

The $1.1b debt limit on borrowings secured against the team applies to the entire group of investors. In this case, that’s a debt limit of about 18% of the purchase price. The same debt limit, applied to last year’s Broncos sale at $4.65m, was closer to 24%. This raises at least two issues:

• Shouldn’t a more valuable asset be useful for a higher amount of secured debt? In other words, you can’t borrow $490,000 on a mortgage if your house is worth $500,000, but it is usually possible if your home is worth $900,000. Should the debt limit be a percentage of the purchase price instead of a rigid dollar-limit? Should the plan to service the debt payment be more important than an arbitrary dollar limit imposed by the league?
• This requires Josh Harris to personally front up at least $700m in cash (and $1 more for every dollar that one of his partners borrows using the team as security). Billionaires don’t become billionaires by keeping a half-billion dollars sitting in a checking account. They get to be billionaires through OPM — other people’s money. Their capital is deployed, and it takes time to redeploy it. I read a report in (I believe) Bloomberg, last week, saying that Harris had spent the last month selling over $100m in Apollo stock to help fund his cash requirement for the Commanders purchase. This simply wouldn’t be necessary if the NFL adopted ownership and financing rules more suited to the contemporary situation.

With the value of franchise sales more than doubling in 5 years (2018 - Panthers $2.3b; 2023 - Commanders $6B), the league, frankly, needs to rethink its ownership and financing constraints.

If NFL owners want to see the value of their franchises continue to climb, they need to address the 20th century ownership rules that were put in place for franchises worth less than $1b; otherwise, the Commanders may be a demonstration of the top limit in franchise value achievable based on the financial realities of how billionaires utilize their assets.

To put a fine point on it, one of the major concerns with the Washington franchise is the ability to design, finance and build a new stadium in the DMV in the next 4 or 5 years. Dan Snyder’s inability to get that done is probably one of the primary reasons why he is now relocating to London.

Does anyone doubt that Harris, Rales, Blitzer, Ein, Magic Johnson and their partners, with well over $16 billion in personal net wealth, local connections, high public profiles, and incredible experience in related fields will be able to bring a cutting edge stadium to the DC area within a half-decade? Of course not. It’s laughable for Pro Football Talk (Mike Florio) to suggest that this amazing group of billionaires might lack the “the appropriate financial wherewithal to run the team successfully”, but he did.

The issue here is antiquated ownership rules designed for a century that has been relegated to the history books. If NFL owners want to see increasing team valuations into the future (they do), then they need to get busy revising ownership constraints to recognize that there aren’t enough individuals sitting around with enough money to buy a team single-handedly at the current skyrocketing valuations. As a group of owners, it does no good to do all the work of building the world’s most successful sports league if your own rules make it nearly impossible to find a buyer when you finally decide to sell your team.

The problem here doesn’t appear to be Josh Harris and his group of talented and wealthy limited partners; the problem is NFL ownership rules that need a total overhaul to bring them into line with 21st century NFL team valuations. The risk of not modernizing the rules is that the owners could find themselves without buyers capable of paying the full value, or limited valuations constrained by owership rules written in another century.