King Kaufman's Sports Daily

Banker Bill Hambrecht talks about going head-to-head against the NFL with a new league.



Salon Staff
June 4, 2007 8:00PM (UTC)

The New York Times reported last week that investment banker Bill Hambrecht and Google executive Tim Armstrong are hoping to launch a professional football league in 2008 that will play mostly on Friday nights in the fall, with eight franchises in cities lacking an NFL team.

Hambrecht, who is a major investor in Salon, and Armstrong have each pledged $2 million toward the United Football League, and they've hired two executives and recruited their first owner, Dallas Mavericks owner Mark Cuban, who the Times said is considering taking over the Las Vegas franchise. Other cities being considered include Los Angeles, Mexico City, San Antonio and Orlando.

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Franchise owners will put up $30 million for a one-third share, with a stock offering valued at about $60 million giving fans one-third ownership -- Hambrecht explains that stock offerings are usually valued at twice the level of cash because of the liquidity -- and giving the league the other third. Hambrecht says the league will be able to compete financially for players not taken in the first two rounds of the NFL draft.

Hambrecht, 71, who owned a 5 percent stake in the Oakland Invaders of the failed USFL in the 1980s, spoke to this column by phone Sunday.

Let me come at you like the average fan, who I think read these reports last week and said, "Come on." So sell me on the idea that this isn't a hare-brained scheme.

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From what point of view? It's kind of interesting because the incoming calls we've had at the firm, both from the press and outside, were actually more than we had for Google. There's a lot of people interested.

There's a certain group of people who'll say, "You're crazy. The NFL is a total monopoly, they're going to be able to just blow you away." And, you know, hey, they are a monopoly. But that's what gives you the opening, because they're a monopoly that has not covered the whole market.

And I guess my answer to you about the average football fan who says, "No way," I think what you'd really have to do is ask the fans in Las Vegas, or Salt Lake or L.A. or Mexico City or Portland, the cities that don't have an NFL franchise. Ask them if they'd want a team. And what we've found is that there's a lot of demand for a team in these cities that don't have them.

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The NFL is essentially a TV show.

That's right.

It doesn't matter what cities the teams play in. It's a drop in the bucket, ticket revenues and that sort of thing relative to the TV money.

That's correct. But it does matter to the fan. If you really study the ratings, they obviously get a much better rating in a city where they have a team. Now, what they're trying to do, the reason they haven't expanded, is they're trying to make it a TV product where it doesn't matter where the team is. But football's kind of a cultural thing.

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But the next obvious question, and the big hurdle, is quality. I think you just said people are hungry for more NFL football. How do you get that NFL quality? There's a long record in this country of people not being that interested in second-tier leagues, including many of the failed football experiments that get dragged up in these stories about the UFL.

Right. Let me go back. A lot of football coaches' theory is that the last 20 or 30 guys they cut from a roster are indistinguishable from the last 20 or 30 that they keep. They're all good athletes, they've all played in Division I programs, they're very good, and you know, they get cut because the coach doesn't like them or they dropped a pass at the wrong time. You know, something goes wrong.

Let me interrupt you. I don't think people are paying to watch those last 20 or 30 guys. They're paying to watch the first 10.

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Yeah, but the pattern is that at least half of the really good players come out of that pool. Something like 40 percent of the Pro Bowl players were third round or lower, or undrafted. It's very hard, in football it's harder than any other sport to predict who's really going to be good. Look at how many first-round draft picks are just busts. It's a really hard job.

Right, but a good percentage of that 40 percent, if that's an accurate number, are, let's say, linemen, tight ends, fullbacks. They're not players that people are paying to see.

Not really true. Look at Tom Brady.

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Sure, and look at Ryan Leaf. I understand what you're saying, it happens at every position, but --

It happens almost more with quarterbacks than anybody else. It's an interesting thing, and, you know, what really gives you the advantage is the pay scale they have in the NFL. They pay an enormous amount for the first round, a significant amount for the second, and then from the third round on, these guys get five, six hundred thousand dollars. And we can afford a dozen guys at a million bucks. So we can afford to compete in there.

What we'll have to do to really achieve NFL parity -- which you would hope to do say in five years, because there's a lot of turnover on a football roster -- our revenue lines are going to have to go up fast, and they're going to have to get big enough so that we can have a salary cap that's competitive, so that we can ultimately keep the guys who do achieve stardom in our league.

Basically, stars are made by the team. They're not made in college, with very few exceptions. There's an occasional guy that will be ready. But most of them come out there and their capabilities make them a star in the particular situation that they get into, because a team needs a player at that position. So there's a lot of randomness to it.

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But that randomness can hurt you as much as help you.

No, I think it's an advantage, because without the randomness, if it were a perfect system and there was a competitive league that could pay a lot more than you can for the top 10 guys, then yeah, you'd never get there. They'd always get the top 10 guys. And what we're saying is they'll probably always get the top six or seven. But if we can get three of 'em, we'll have plenty of stars.

It seems like the big thing you can leverage is the age limit. If the UFL is willing to take players out of high school and pay them to learn the game for three years or so, that's an advantage. You'd be able to grab some top talent without having to compete with the NFL, though of course you'd be competing with the colleges.

That's a tricky thing. We haven't gone that way, and if we do I think it'll be very carefully and very reluctantly.

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Why?

Because, again, the odds are even higher as they're younger against somebody achieving stardom.

Why go head-to-head with the NFL? Why not play in the spring? There seems to be this opening in the sports calendar that nobody has been able to cash in on yet.

Yeah. I was a partner in the Oakland Invaders, one of the USFL teams. And, you know, it was a pretty successful franchise. I was a small partner, I was sort of along for the ride.

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We had a good football team, we went out there in the spring, and the pattern was pretty consistent every year. The attendance was really good for the first four to six weeks, because there is a media void in February and March in sports. February particularly. There's just nothing there for the sports alcoholic, the guy who sits down and wants to watch a sports event. Except some NBA games that don't mean anything, it's a real void.

Our attendance was very good and our ratings were good. And then the minute you got into the latter part of spring -- first of all you had terrible weather problems in many of the Northern cities, and secondly, people just lost interest. And by the end of the season, everybody was into baseball, March Madness, NBA playoffs, all that stuff.

I came out of that experience saying there's something cultural about football, built into the culture, that says it's got to be in the fall. It's when people expect it, it's when people like it, when they love it. I think trying to do that differently would always doom you to a minor league. You'd just never get the kind of support and ratings you need to generate the revenue to ultimately get the really good players.

It's interesting, on the last marketing survey we did, there's always the question, "Would you watch in the spring?" And everybody says, "Yeah." But the reality is they don't. They really don't. So, you know, hey, is there something creative to be done in February? Maybe. There's probably something to do there, but it just doesn't last long enough to create economics where you can build a franchise.

So in the fall you're going to go on Friday nights and compete with high school football, which in some parts of the country is pretty big, and is sucking away some percentage of your market, who are going to be sitting in the stands or playing high school football games.

Take a look at the numbers. They're very minor. They're tiny. It really is in only three or four areas of the country. Basically, the people who go to high school football games are the parents. The whole "Friday Night Lights" stuff, when you really look at the numbers, it doesn't happen in urban America. It happens in rural America, but it doesn't happen in urban America.

Is it a public relations problem for you?

I don't think so. Would it be maybe in Texas? I don't know. It would certainly be in Lubbock, Texas. But I don't think it would be in Dallas. It's a very local problem, and if we happen to be there we'll try and schedule around it. We'll also do some Sunday games, so we can mix and match to the local market. But I tell you, in 95 percent of the markets we're in, high school football is almost a non event.

What about TV? The NFL seems like it has kind of the waterfront covered. Almost all of the networks you might look at have a deal with the NFL. Where would you go with a TV deal?

I really can't talk to you about that now. There's all kinds of conversations going on but nothing we can talk about. No one wants to be accused of doing it without actually having a deal. That's either going to happen or not happen over the next six months or so. But let me put it this way: There are a lot of alternative ways of getting this kind of content out into the media.

Are you talking about new media?

Some of it is. I mean, hey, look at the background of some of the guys involved. That's exactly where we're coming from.

Are you concerned at all about NFL -- I don't know if this is the right word, but -- bullying? The NFL putting pressure on media outlets, for example, on executives and coaches with formal or informal blacklists, that sort of thing. Is that an issue?

Oh, sure. I think they'll be very careful. They're a monopoly, and they know it. And the courts know it. They have to be very careful about doing anything that could be deemed to be anticompetitive. But will they disparage it in every way they can? Sure. A pretty consistent chorus of "This will never work, those guys aren't very good." That's going to happen.

How do you fight that?

Just put up a good product. The whole thing's going to make it or break it on whether we're going to be able to put together a quality product.

The level of football is a big part of fan interest, but also a big part of it is the historical resonance of, say, the Cleveland Browns or the Dallas Cowboys or whatever. How do you make up for that lack? Something start-up leagues have to deal with is: "What the heck are the Oakland Invaders?" How do you overcome that hurdle?

One of the first things we do is make it basically community owned. Let's say you've got 5,000 people who buy stock. Then you create an ownership bond like they have up in Green Bay. So that's one way to start, and then, yeah, the real job is community development. You've got to do that well. You've got to get people to become emotionally attached to their home team.

You say you expect this to be about a five-year project before it stands on its own legs.

Yes. This is why we've said at least $90 million for each franchise, so that we all have staying power, and the people we're talking to are shareholders that have significant other resources too.

The key to any new league, I think, is to fund it for the long term, so you can stand the early losses that are absolutely part of any kind of a start-up, and you can see the whole program all the way through.

If you look closely at all those leagues that didn't make it, virtually every one, all but one, were basically underfinanced. What happens is guys put up letters of credit, promises, when they're feeling good at the top of their cycle, and then the cycle goes the other way and they cancel. So this whole program is hard cash put onto the balance sheet of the franchise.

What's the ultimate goal here?

To have a successful league. I personally am a big believer in competition. I think monopolies get sloppy and monopolies get unresponsive to their market.

I think it strikes a lot of people as odd, though, for people like you and Mark Cuban to say, "This is the new business we're going to invest in in sports, competing with the NFL," as opposed to, say, getting in on maybe not the ground floor, but the second floor, with something like lacrosse, where there's obviously huge potential for growing from almost nothing.

Well, the people that understand the business understand exactly why we're doing it. We've had some very interesting conversations with some NFL owners and others. Hey, they understand. Football is the most valuable content that there is now in the media world. By design, they've restricted the supply to get a monopoly price out of the consumer. Look at the fights they've had with Comcast.

It's almost an obvious monopoly, and they have left 40 percent of the market open. They have not kept up with the demographics of the United States. It's still basically a Rust Belt league. You just look at the map, it's really kind of fascinating to look at it compared to the population. It's shifted and they haven't kept up with that. So, you know, if it were any other business, there'd be people filling that market.

This is the one major sport that's left a good part of the market open. As we move along, particularly in the media world, it'll get a lot more understandable and hopefully a lot more believable.

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