Bills Bonds

Thanks for the support and for the critiques. As some suggested, I posted the idea on this message board a couple weeks ago (see the link below). Some of the issues mentioned on this thread were discussed on that thread, so feel free to have a read. The initial interest on the message board helped to create buzz for the idea, so thanks to you all for your interest. http://forums.twobillsdrive.com/topic/122813-bills-bonds-an-idea-for-helping-to-keep-the-bills-in-buffalo/ A few have commented that a provision against moving the team may not be acceptable to a new ownership group or the NFL. That’s a fair comment. Here’s a hypothetical alternative to a provision against moving the team: Suppose the bonds pay a subsidized interest rate of say 3% as long as the Bills stay in Buffalo. But the bonds accrue interest at a market interest rate of say 6% to 10%. This market rate of interest does not have to be paid unless the team is in fact moved. Over time a financial barrier of interest would accrue that would disincentivize an owner from moving the team. Thanks again and I will check in here with updates periodically.

Luke Russert just tweeted about Bills Bonds. "Great idea to keep the Bills in Buffalo: http://www.billsbonds.com/blog/ A must read for any Bills fan and Buffalo lover." http://twitter.com/#!/RussertXM_NBC

I’m glad someone else had a similar idea. Thanks for sharing your thoughts, and I’d be interested to see your spreadsheet. I would note that on the math that you described, the loan amount would not need to be paid down entirely with earnings from the Bills. Some of the debt could be refinanced (most teams and companies maintain a debt balance rather than paying loans all the way to zero). Also, $650 million would be a lot of debt. But again – I’d be interested to see your calculation. With regard to your lawyer friend who advised on the sale of the Rangers, it would be interesting to hear his thoughts. I have run the idea by a number of sports investment bankers, including a few that advised on the recent sale of the Golden State Warriors (link below). They all have said that the idea of Bills Bonds works on paper. However, I have never spoken with anyone on the legal side about it. http://www.foxbusiness.com/markets/2010/11/12/nba-signs-warriors-record-setting-m-sale/ On your last point, as much as I like your idea of me being part of the ownership group, I couldn’t use other people’s money to become an owner of the team (unless I was capable of repaying it). In order to be an owner, I would have to either 1) put in my own money or 2) borrow money that I could repay someday. I’m sure fans would feel better about lending money to a group of multi-millionaires that own an asset like the Bills rather than me (a multi-thousandaire). You make a good point. Fans joining together to increase revenue for a new owner would be just a beneficial as fans joining together to decrease interest costs. If, for example, fans agreed to sell out all games for the first 10 years after a new owner buys the team -- that could have a lot of value for a new owner. Your idea is similar to the Business Backs the Bills movement started by Erkie Kailbourne ten years ago (see the link below). http://www.bizjournals.com/buffalo/stories/1998/08/31/story1.html

Bills Bonds was discussed on Jerry Sullivan’s live sports chat on November 12th (see minute 1:08 in the link below or the text copied below): http://buffalonews.typepad.com/sully_on_sports/ “Comment from Jim: Sully, I think you've seen the Bills bonds idea where fans fund the acquisition of the team. It now has a web site, what do you think of the idea? Sully: I've talked to Brady about it and it's intriguing. But I don't think the league would go for it.” Jerry has a valid concern and a concern that is discussed on the Bills Bonds website (http://www.billsbonds.com/blog/?page_id=76). The NFL could object to the idea. However, Bills Bonds would comply with NFL Bylaws as currently written.

Suppose a new owner could get 3% financing on $400 million of Bills Bonds (purely hypothetical as that is a lot to raise) instead of 10% from a bank (like Dan Snyder got when he purchased the Redskins). Instead of paying $40 million in interest per year, the new owner would pay $12 million. That $28 million of interest savings per year is what would appeal to a new owner (especially when you consider that the Bills only earned a profit of $28 million last year according to Forbes). Also, what do you mean by answer to bondholders? Bondholders are entitled to interest and principal payments, and as long as those payments are being made, bondholders don’t have a say. I like your idea of having fans as part owners. However, according to NFL Bylaws, an ownership group can have no more than 25 limited partners.

Supposedly Bills Bonds got a mention on the John DiTullio show this afternoon. I missed it but a commenter on the BillsBonds.com said the following: "John DiTullio, show host of a daily sports talk show, announced it this afternoon on his show. Spread the word! The concept of investing sounds interesting to do…make sure you consult a financial advisor first!! You can listen in locally or online. Http://www.whtk.com Rochester Sports Talk 1280 and 107.3! (and no, I don’t work for Clear Channel or am staff for the show…) Just a loyal listener and supporter of the “Bills Brothers” on Thursday afternoons at 3 pm EST."

I like your enthusiasm! Step one - the idea needs to spread beyond message boards. However, if the idea could gain some momentum and get the right people behind it, I believe it could take off quickly. Two parties that are key to this idea taking off are: - A New Pro-Buffalo Ownership Group – Kelly’s group or another ownership group that wants to keep the Bills in Buffalo would need to get behind the idea. - A Financial Institution to Run the Bond Issuance Process – many of the most recent posts have discussed this.

I have my Series 7 & 63 FINRA certifications, but you seem to have me beat on securities regulations (all you need is a 70% to pass those tests). Thanks for your comments. You are correct that a commercial bank that is not registered as a broker dealer could not run the process on its own. I was simply making the point that from a distribution perspective a bank with a large presence in Buffalo would have many advantages. Maybe a commercial bank in Buffalo could team with an investment bank and get involved in the syndication process. Maybe I’m an optimist, but I think if the demand/interest is there then the proper registrations could be figured out. I will explore the Packers stock offering document for ideas. However, I would think that the document is a bit atypical given that it is stock in a non-profit entity.

Stevewin and Mr. WEO thanks for your thoughts and feedback. I agree with your comments that putting these types of barriers in place is more realistic than a provision on not moving the team. It takes feedback like this to improve the idea -- I appreciate it.

It depends how you write the bonds’ legal agreements. You could write the documents so that the accrued interest portion remains outstanding even after the principal portion is paid off. This accrued interest portion would transfer with the team to new ownership. If any future owner moves the team, that owner would need to pay the accrued interest. This accrued interest portion could even be structured as a detachable security. There is plenty of flexibility in how the financial instruments could be structured. It would all be dependent on negotiations with a new ownership group.

You may be right about that. The point I was trying to make is that even without a prohibition on moving the team, there are other ways Bills Bonds could create barriers to the team leaving. The alternative I suggested is structuring the bonds so that interest rates are low if the Bills stay in Buffalo but are high (or at market) if the team ever moves. Interest could accrue that would only have to paid to holders of Bills Bonds if the team actually left. This would not be a prohibition on the team leaving Buffalo (which as you point out the owners and NFL may not allow). But it would create a financial disincentive in moving the team.

You make a lot of good points -– yes, a typical bond issuance involves an investment bank (or a group of investment banks) underwriting the bonds and selling them in relatively large chunks to investment managers. As you point out, selling bonds to fans would be more difficult because it would be involve selling smaller chunks to more investors. However, the Packers were able to orchestrate a stock issuance of 120,010 shares to 105,989 separate investors during a 16-week period in 1997 and 1998. So while I agree that it would be more difficult than the typical bond issuance, I do not think it would be impossible. I also think that a commercial bank with a large presence in Buffalo would be able to handle the process better than an investment bank. They already have the branches, bank tellers and online systems –- buying a Bills Bond could be like opening a bank account. On top of the fees that a commercial bank could earn, there could also be reputational benefit associated with running a process designed to help keep the Bills in Buffalo. It wouldn’t be an easy task to get a financial institution to sign on, but I think if the demand is there then one could be attracted.

It would have to be a negotiation with the new ownership group. If you are correct that no owner would sign up for that (which may be the case), there are other ways to put up barriers to the team leaving. Here’s an example – the bonds pay a subsidized interest rate of say 3% as long as the Bills stay in Buffalo. But the bonds accrue interest at a market interest rate of say 6% to 10%. This market rate of interest does not have to be paid unless the team is in fact moved. Over time a financial barrier of interest would accrue that would disincentivize an owner from moving the team. We are speaking in hypotheticals and all of this would be a negotiation. But with some creativity hurdles could be overcome.

I’m glad you suggested that. If a fan financing effort could gather some momentum, I don’t think that a government guarantee is unrealistic. The state and local governments would certainly benefit from the Bills staying in Buffalo and certain politicians claim to be committed to the cause. When the Montreal Canadiens last changed ownership, an investment arm of the Quebec government (Investissement Québec) offered any new owner from Canada a C$75 million subsidized loan to help cover the purchase price of the team (see the articles below). They were tired of rich Americans owning the team and wanted to incentivize a Canadian purchaser. A few months later the Molson family purchased the Canadiens. If the Quebec government is willing to give a loan just so a Canadian owns the Canadiens, it is not unreasonable to think that a government entity could guarantee Bills Bonds in order to help keep the Bills in Buffalo. http://www.montrealgazette.com/sports/Canadiens+sale+done+deal+Gillett/1979251/story.html http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8j61p1VaB2A http://www.nationalpost.com/m/story.html?id=1685925

Thanks again to all who have taken the time to read this idea and comment on it. Please voice your support for the idea by following it on facebook and by sending it to others: http://www.facebook.com/pages/Bills-Bonds/169457796400351 We will make sure to keep this message board updated as the idea progresses (as some have suggested).