Saturday, June 09, 2007

A New Football League? Don't Laugh...

The New York Times Magazine (I know that this blog doesn't like the NY Times for its whitewashing of Stalin's crimes as we discuss here) had a recent article titled

"First and Long - Very Long"

about some executives starting a new football league. At first when I saw it I dismissed the article as another USFL or even the hilariously inept XFL but then I saw the name of the guy who is proposing the league - Bill Hambrecht (here is his bio on Wikipedia).

Bill Hambrecht is not some bozo like the wrestling guys trying to set up the XFL. Bill Hambrecht is a billionaire who has taken on some of the nastiest, sharpest guys in the world - investment bankers. Investment bankers typically get a "cut" of the IPO value when they take a company public - based on a percentage of the amount raised (this varies and is confidential but in all cases it is a lot of money).

The investment bankers "earn" their money because their firm typically takes on some risk - a stock usually "goes public" at a certain price (set by the investment bankers) and then it "opens" at a different price. The firm receives the set price, and then the IPO bank makes a percentage cut (maybe 4%, as listed in this how-to article), and then they either make money or lose money depending if the stock opens higher or lower than the set price.

This method, while it reduces the issuing company's risk, also leaves the company vulnerable to mis-pricing. It the stock is issued at $50 and then it "opens" (when the buys and sells are matched) at $60, then essentially the company "gave away" $10 when they underpriced their shares relative to what the market could have brought in.

Bill Hambrecht took on these investment bankers, who are EXTREMELY powerful, and said that a "dutch auction" method where investors bid on shares and an equilibrium price is determined (without a significant investment banker "cut") would be better for firms. His most notable success was GOOGLE that used his methods to launch their IPO, which went very well.

Back to the football league. They are going to play Friday night, where the NFL is not allowed to play due to high school football rules. They are going to implement a salary cap and go to markets that aren't served by the NFL, such as Las Vegas, Los Angeles, etc... and they are going to poach talent in the draft mostly after the 2nd round as well as the CFL, etc... They would start with 8 cities and move up from there.

Another interesting item is that the fans would own 1/3 of each franchise, giving them a share in the upside and more than just a fan's interest in the teams.

The article said that the biggest barrier would be finding stadiums... but by staying out of the way of the established NFL that would be easier to do.

Finally, the last point is that the new league, if it gains traction, might be merged with the NFL the same way that they took over the AFL. If this were the case, then owners in this new league are making a shrewd investment because this would be a MUCH cheaper route into the NFL than paying hundreds of millions of dollars for an expansion franchise.

All I have to say is that you must take a guy like Hambrecht seriously. Not only is he a billionaire but he has taken on wealthy, powerful and entrenched competition and made a decent dent. Even though Mark Cuban is on the initial list Cuban is nothing like Hambrecht - Cuban sold out at the Internet boom and immediately cashed out. That is nothing compared to the sustained run of success that Hambrecht has had in his career.

This is a league to watch...

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