Don’t look now, but the Buffalo Bills‘ new $1.4 billion stadium may actually be a $1.7 billion stadium:
Three months since construction began on their new stadium, the Buffalo Bills are already facing a potential cash crunch with the latest projections having the team on the hook for as much as $300 million in cost overruns, four people with direct knowledge or who were briefed on the financial details told The Associated Press this week.
This is not at all unusual, as lowballing initial cost estimates in order to get a stadium deal done and then seeing the price tag rise is a long-established tradition. The good news here, such as it is, is that in exchange for getting over $1 billion in public money, Bills owners Kim and Terry Pegula are on the hook for all cost overruns, so they’ll have to cover the increase.
How much will this bring the total public/private split to? The Associated Press reports that the Pegulas’ share “now stands to potentially match the taxpayer contribution of $850 million, with $650 million due from the state, and the remainder from Erie County.” But that $850 million public cost leaves out about $160 million worth of future upgrades that the state has committed to pay for, while the estimates of the Pegulas’ share leave out the disparity in who’ll be getting revenues from the stadium, as we’ve covered here before:
At last count, Bills owners Terry and Kim Pegula were, after cashing their checks from the NFL’s G-4 stadium funding program and from the sale of naming rights, looking at a total cost to themselves of perhaps $150 million toward a $1.4 billion stadium. If we assume even an average $4,000 PSL sale, times 60,000 seats, that’s $240 million, which would bring the Pegulas’ costs to a nifty –$90 million — in other words, the Pegulas would turn $90 million in profit before the stadium even opens, while taxpayers are out $1 billion and Bills fans are forced to ante up thousands of dollars before they can even think of buying tickets.
Add back in $300 million in cost overruns, and it looks like the Pegulas will be on the hook for around $210 million, while state and city taxpayers will be paying about $1 billion. The Pegulas have an estimated net worth of $6.7 billion, and Sportico estimates that the Bills’ value rose by about $1.2 billion in just the last year, so they can probably find a way to afford it, but if your threshold for an acceptable stadium deal is that the billionaire owners pay 20 cents on the public dollar, you’re probably safe to celebrate now.
Ah, Sportico…
They had the Cowboys total revenue jump by 20% with literally no supporting information? Those guys? They even outdo Forbes on the ‘questionable research’ and ‘absence of hard data’ fronts.
Still, ya gotta feel for the Pegulas… not only are they multibillionaires being expected to pay for almost 15% of their own building, if they had bought the Jags instead of the Bills their franchise value would have rocketed from under $1bn a few short years ago to $4Bn+ now… even though they play in the old Gator Bowl (sort of)!
I bet they rue the day…
Still, it’s great to know that this organization believes the Bills are about the same as Manchester City, Bayern Munich and Liverpool… and that a business ‘run’ by Mark Davis is worth more than FC Barcelona and Real Madrid!
Man, that’s some solid investigative reporting sporticlowns…
I don’t think it’s hard to imagine that NFL teams are worth more than Champions League teams.
Champions League teams are not, as of yet, guaranteed a spot in the CL every year and their domestic TV deals are not nearly as lucrative.
(They’re not guaranteed a spot in their domestic top flight either, but none of the ones you mention are in any danger of going down).
They also have to buy players on an international market with no salary cap and an apparently infinite supply of money from Middle Eastern oil barons. So far, the NFL doesn’t have to deal with that.
And public funding for stadiums there is not a generous.
There’s no need to imagine it… Sportico is claiming it – Yet with effectively no data to support that conclusion (tons of data, but none of it supports their conclusions).
The average operating revenue of the top four NFL clubs went up by about $30-50m (ranging from 5-10% of annual income – list below), while at the same time their sportico stated values increased by 25% on average.
Cowboys revenue $978m to $1.05Bn valuation $9.2bn (+$1bn + 20%)
Giants revenue $616m to $670m valuation $7Bn (+23%)
Rams revenue $692m to $733m valuation $7Bn (+17%)
Patriots revenue $681m to $718m valuation $6.7Bn (+14%)
Bills revenue $ 475m to $516m valuation $4.1Bn (+38%)
Raiders revenue $ 571m to $676m valuation $5.8Bn (+41%)
According to these guys, the Raiders have more than doubled in value since 2020 (and up more than $2.5bn since 2021). Must be Mark Davis’ raw brain power that did it… and an 18% increase in revenue leads to a 40%+ increase in value. In what world?
Meanwhile, according to Sportico, five of the top six european football clubs have revenues between $750 and $850m annually (and all of them would be behind only the Cowboys on operating revenue if they were in the NFL list), yet they are mostly listed in the $4-4.5Bn value range (excepting only FCB and #1, Man Utd).
Sportico’s list is a classic example of the ‘curve’. Because some clown paid $6bn+ for the Washington Commies, every other team must be worth the same multiple. That’s almost certainly why Man Utd is back on top of the soccer list too (the ‘offers’ the Glazers have been fielding that will help them take even more equity out of the club without selling it).
Same thing happened with the Dodgers and Cubs (both of which recurved all MLB team values despite virtually nothing changing for the majority of MLB owners), and with the Maple Leafs… when Forbes apparently forgot that the hockey club was only part of the package that two sports networks paid $1.3Bn for (they ignored, among other things, the Raptors…) so they recurved all hockey teams to match the Leafs’ perceived doubling in value.
Fair Market Value calculations are often unrelated to actual selling price when the asset in question is of limited supply. It doesn’t matter whether we are talking about 1962 Ferrari GTOs, sports franchises or (infamously) batmobiles. The fact that some idiot will pay over the odds just to get something doesn’t make it worth that amount.
We see the same thing with MLS franchises on the list… they are being valued above long established european clubs with 6-8 (even 10) times their annual revenues. And since a number of the MLS clubs are losing money on operations (and not small money in some cases either), that has nothing to do with ‘cost control’.
It’s either parochialism or bad math. Not sure which… could be both I guess…
I agree with everything you write above, John — and it’s worth noting that while Forbes’ revenue estimates have generally proven very good when actual numbers leak, their team value numbers have been pretty much crap.
But there is one caveat, which is that yes, “the fact that some idiot will pay over the odds just to get something doesn’t make it worth that amount,” but it does often mean that you can *get* that amount. If the Pegulas could get $4.1 billion for the Bills just because there are too many billionaires who want into the NFL club and not enough teams for all of them, that makes the Bills worth $4.1 billion just as much as a mint 1951 Mickey Mantle card is worth $3 million even if it doesn’t generate any operating revenue.
“The fact that some idiot will pay over the odds just to get something doesn’t make it worth that amount.”
Actually, that’s exactly what it does – as long as you assume that there are other “idiots” of similar means waiting in line for the next “widget”. A reasonable assumption for this particular market.
May not seem “worth that amount” to you, but that’s irrelevant.
The standard for Fair Market Value is the price an asset would change hands for if sold by a willing seller to a willing buyer.
Fundamentally, when you place an artificial limit on the number of assets in this particular class you can no longer have a true FMV.
Sure, Donald Sterling was ‘willing’ to sell for $2bn. He was probably also willing to sell for $650m (which was the on the high end of expected price for the Clippers before somebody with more money than brains showed up).
There was exactly one person willing to pay $2Bn for the Clippers. This means Sterling was really happy and the rest of the NBA was ecstatic, and that Forbes and every other valuation peddler immediately decided an average NBA franchise was worth $1-2Bn (not all that long after the Warriors had been sold for $450m and they all decided that is what a decent sized market NBA team was worth).
Ballmer may find a bigger idiot when he wants/needs to sell, I certainly can’t rule it out. Maybe there will be so many billionaires by that time that $5Bn will seem like a bargain. Who knows.
But the Clippers had an operating income of $12m last year on revenues of about $365m. Even if we bump them up to ‘avg’ OI once Ballmer stops spending like a fool (insert Steve Cohen joke here), it’s still only $75-$90m in annual OI.
A reasonable person would not pay $4Bn (the Clippers ‘value’ as asserted by Forbes) for an asset that makes that kind of return (2%).
So long as the sale prices keep going through the roof, a 2% annual return in OI is just fine. And sale prices are just dependent on the number of billionaires, which has been steadily on the rise since … the 1970s? The 1910s?
More billionaires. Ugh, a sad and scary thought…..