The Washington Redskins franchise, already one of the top moneymakers in the National Football League, has become even more prosperous under the sometimes controversial, five-month stewardship of new owner Daniel M. Snyder.
The Redskins can finish this year with cash flow of about $60 million, an increase of at least $15 million over last year. With that amount of cash flow, the Redskins might challenge the Dallas Cowboys as the wealthiest team in the NFL, according to financial analysts. Cash flow is the amount of money a business has available after subtracting salaries and expenses but before interest, taxes and depreciation.
"This will put them on the same level, or maybe even surpass, Dallas," said John Mansell, senior analyst for Paul Kagan Associates, which publishes newsletters on valuations and appraisals of professional sports teams and other businesses.
Aided by the highest average ticket price in the NFL, which was in place before Snyder bought the team, the Redskins earn enough money to easily cover the $495 million in debt that the new owner took on when he bought the franchise. The Cowboys and Major League Baseball's New York Yankees are generally considered to be the two top earning teams in American sports, according to sports finance experts, with the Cowboys generating a pretax profit of about $80 million, sources said.
"I don't know details of the Yankees, but certainly [the Redskins] are one of the top 5 percent in sports in terms of cash flow," said Jack Veatch, managing director of the investment banking firm of Bear, Stearns & Co. Inc.
The Redskins last year had a cash flow of about $45 million, according to projections in documents that accompanied the sale of the Redskins. That placed them second in the NFL to the Cowboys, whose stadium sponsorship deals have helped drive the team's cash flow to the top of the NFL, finance experts said.
Snyder, 35, the majority and controlling owner, in partnership with members of his family and real estate/publishing magnate Mortimer Zuckerman and businessman Fred Drasner, bought the Redskins from the estate of the late Jack Kent Cooke in July for $800 million. The Snyders have 60 to 70 percent of the investment, sources said.
On July 14, Snyder closed the deal for the team, the 80,500-seat stadium and Ashburn training facility. He has since tripled the amount of local advertising in the stadium, sold the remaining 3,000 or so club and loge seats and the nine luxury suites that had been vacant, and signed a stadium naming rights deal with Federal Express for $205 million over 27 years.
Snyder's hands-on management style has been the subject of much debate in a season in which the Redskins are in first place in the National Football Conference's East Division with an 8-5 record, after spending most of 1998 in last place. Snyder raised eyebrows by firing about 25 employees his first day in control and immediately put Coach Norv Turner on notice he had to make the playoffs to keep his job, then moved General Manager Charley Casserly to a consultant, after bringing in his own personnel man, Vinny Cerrato.
In addition, Snyder had a highly publicized postgame session with Turner after the Redskins were soundly beaten in Dallas on Oct. 24 and last week met personally with five veterans before the Arizona game, a move that also drew criticism.
Snyder responded that he was simply trying to get the players to accept more responsibility and that he had Turner's blessing to do so.
Also, some fans aren't happy with being charged more money for playoff tickets and parking, to which Snyder responded that the team is following league guidelines on the additional charges. He also angered some broadcasting executives by charging them to use the Redskins' logo. "It's simply NFL policy," he said of enforcing the use of the Redskins' copyright. However, many teams choose not to exercise the policy.
Dick Reingold, general manager of WUSA-TV-9, said the station uses the Redskins' name and logo in news programs and coverage, but has stopped using them for weekly sports shows.
Snyder's $800 million price for the team at first drew gasps from the financial world because it was by far the most ever paid for an American professional sports team. But with approximately 80,500 seats (including approximately 15,000 club seats, around 2,000 loge seats and 208 luxury suites) at a league-high average cost of $74.28 per seat, FedEx Field is a cash machine that is worth at least what Snyder paid, according to financial experts.
The Redskins' average attendance this season (through seven games) is 77,378, third in the league behind the Kansas City Chiefs (who have played six home games) and the New York Giants (seven home games).
Snyder has a waiver from the NFL exempting him from sharing the proceeds of the premium seat tickets with visiting teams, providing that the money be used toward paying down stadium debt.
"When you deduct the 17,000 or so premium seats, our average ticket costs $60, less than many teams in the league charge," Snyder said in a recent interview. "Compare what we're offering our fans with other sports events; I believe we're providing the best value in sports."
The additional $15 million or so cash flow is based on an average $7.6 million per year for the naming rights (although the Redskins will not get the full amount this season); an approximate $7 million increase from in-stadium local advertising; about $3.5 million more from the Redskins' share of 3,000 club and loge seats that have been sold since Snyder took over; and $1.35 million from nine more luxury suites that the Redskins have leased since Snyder acquired the franchise.
In addition, the Redskins also receive about $70 million annually from the NFL's national television contract and about $3.5 million from local broadcasts of preseason games and a preseason scrimmage on WRC-TV-4 and 17 Redskins Sunday morning shows on WTTG-TV-5.
With a new management team headed by Steve Baldacci and David Cope, the Redskins have tripled advertising revenue by bringing in new sponsors or expanding existing deals with companies, including Bell Atlantic Mobile, Dominion Resources, Bank of America, Toyota, US Airways, Arthur Andersen accountants, Amtrak and Cadillac.
Mansell estimates that cash flow for the Redskins is approaching one half of total revenues. Other sources put the figure at 40 per cent. He said most NFL teams' cash flow runs a little more than one-third of revenue.
"I think [the cash flow] justifies the [Redskins' sale] price," said Andrew Zimbalist, professor of economics at Smith College.
Mansell added, "The Redskins could easily be, and probably is today, a billion dollar franchise."
Snyder is president of Bethesda-based Snyder Communications Inc., which owns advertising and public relations companies that could benefit either directly or indirectly from companies that the Redskins deal with. He said last week he is satisfied with the performance of his other businesses.
Snyder's demands that the Redskins produce a playoff team this year mirror the way he runs his other companies, which have lagged recently on the stock market.
Investors were intrigued with Snyder Communications during two years of rapid acquisitions by the Bethesda-based marketing services company from 1996 to 1998 that pushed annual revenues close to $1 billion. But over the past year, investor interest in the company's performance cooled and the stock price slumped.
This fall, Snyder shook up his company in an attempt to rekindle Wall Street's support. A health care marketing division was spun off as a separate company, Ventiv Health Inc. Then Snyder bundled the company's Internet services operations into a new division within Snyder Communications called Circle.com, with its own stock. Although revenues continue to grow, the stock prices of Snyder, Ventiv and Circle.com are all below their highest marks this fall.
Snyder bought the Redskins from the Cooke estate in July after New York real estate billionaire Howard Milstein withdrew in April when it became clear the NFL would not approve his purchase. Snyder would have been a minority partner with Milstein.
"The club's cash flow when I bought the team was fine," Snyder said. "But the franchise, in our opinion, was in poor shape. Management was not responsive. The controls on the operation of the team and stadium were not there; nor was the service to the fans, as well as stadium services. We've talked to between 400 and 500 fans; we try to call any customer who has a complaint and we've tried to act on these complaints."
Former Redskins president John Kent Cooke, son of the late owner, declined to comment, according to his attorney, Joe Hasset.
At the same time Snyder is increasing revenues, he found a way to trim heating and air conditioning costs in the club and loge levels. He invested millions of his own cash to upgrade FedEx Field, including a new sound system, more loge seats, glass railings instead of steel to improve sightlines and state-of-the-art advertising signs.
He also has spent, by his estimate, $1.8 million to relieve the traffic and parking jams that caused havoc the first few games, including a $500,000 fee to Washington Sports & Entertainment for use this season of the US Airways Arena parking lot about a mile from FedEx Field and $500,000 for 100 shuttle buses from nearby Metro stops (the round-trip cost to riders is $3).
Of the $495 million in debt that Snyder and his partners took on, $340 million was a loan from French bank Societe General that was later syndicated among other investors this fall. The $340 million was syndicated among lenders who are satisfied that the team can generate enough cash to cover its debt, said Bill Brennan, director of loan products for the Fitch IBCA debt-rating service. "There was a lot of demand to participate" in the October financing, Brennan said.
Snyder also assumed $155 million in debt that the Cooke estate held on the construction of the stadium.
The rest of the purchase price was $120 million in Snyder's own cash and $185 million from his partners, including his sister, Michelle, and father, Jerry, plus Zuckerman and Drasner.
At an 8 percent interest rate, Snyder's debt payments are estimated to be between $35 million and $40 million a year, which leaves him with a net profit of around $20 million. That $20 million is subject to income tax for each of the investors. Snyder said he has finished paying off the debt on the team's training facility in Virginia.
Most sports franchises distribute little or no dividends, according to industry experts. Team owners generally make their money from the sale of their franchises, which over the past two decades have tended to increase in value.
"This is a good long-term investment," said Snyder, who added the owners plan to put their profits back into the franchise this year. "As prices for sports franchises rise, people will see we paid a fair price for this franchise.
"I love it," Snyder said of owning the Redskins. "I'm totally involved and want it to work. It's the best thing I've ever done. I love the challenge and I promise I'll get this right."
Staff writers George Solomon and Peter Behr contributed to this report.