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Washington Post article helps explain why the NFL owners are struggling to finalize the purchase agreement for the Commanders

The NFL doesn’t do business like everybody else.

Milwaukee Bucks v Philadelphia 76ers Photo by Jesse D. Garrabrant/NBAE via Getty Images

The Washington Post published a story today that details some aspects that have not been made public before of the sale agreement for the Washington Commanders between Dan Snyder and the Josh Harris group.

The Post story says that the contract includes an “earnout”, which the story describes as “a form of contingent, deferred consideration that is often utilized to reconcile a difference of opinions between the buyer and the seller regarding the fair market value of the target business as of the date of the closing.” The article goes on to say that this is a common structure in high-dollar deals in most business settings, but that it is not common in the sale of sports franchises.

The story indicates that, although many elements of the sales agreement remain murky at this point, the earnout, and perhaps other elements of the deal structure, are seen differently by the purchasers and by the members of the finance committee, with, it appears, divergent opinions on whether the structured agreement complies with NFL rules.

The article has this to say:

One person with knowledge of the committee’s conversations said this week that the amount of debt in the deal is, in the committee’s view, significantly above the NFL’s $1.1 billion limit for team acquisitions.

The Harris group believes its deal is in compliance with NFL ownership rules, people connected to the process have said. They say the group also believes there should be no questions about the liquidity of Harris and his investors, given their combined net worth [is] above $100 billion.

Overall, the article continues to paint a picture of a deal that may not be completed quickly, but will ultimately be approved:

“Everyone wants this to work,” one person with knowledge of the finance committee’s conversations said. “There’s no doubt about that. But it has to comply with the rules. It has to be under the debt limit.”

It has become increasingly clear over recent weeks that with the unprecedented purchase price for the Washington Commanders franchise, NFL rules on ownership structure and financing are creating barriers that will need to be addressed by the league if the owners want to have a situation where the value of their franchises continue to climb and have a robust market driven by buyers who can make well-structured offers that comply with standard business practices.

The Washington Post article, however, warns that the NFL will not be taking action in time to make this deal easier:

Analysts have said those [NFL ownership] rules may have to change, given the soaring NFL franchise values, but they are not expected to be modified for this transaction.

The sale of the Commanders to Josh Harris and his limited partners will likely create a clearer understanding of the challenges facing NFL owners, who have been incredibly successful at building the value of their businesses, but who, as a result of skyrocketing valuations, run the risk of no longer having a pool of buyers who can comply with the NFL’s own rules on ownership structure and debt.

There are likely to be dramatic changes coming in these areas, but not in time to make the Commanders sale a smooth transaction.

From all reports, however, the sale of the Commanders should still be finalized sometime in the next few weeks or months.