As first reported by Brendan Coffey and Scott Soshnick at Sportico, the XFL is looking for new equity investors in the league. The league has retained PJT Partners, a prominent capital raising firm, to help with the search. The process has been ongoing for quite some time. RedBird Capital Partners, Gerry Cardinale, Dany Garcia, and Dwayne’ The Rock Johnson are owners of the XFL.
“Part of PJT’s responsibilities with the XFL search is ensuring potential equity investors share the vision of the current ownership group on the development and commercialization of the XFL, according to the person familiar with the transaction.”Quote from 8/8/2022 Sportico article on the XFL’s arrangement with PJT Partners
The XFL, when contacted, had no comment on today’s story.
XFLNewsHub has learned some arrangement parameters and goals for the equity search.
The XFL Seeking Investors To Own Up To 45% Of The League
The XFL has engaged PJT Partners to raise $125 million in equity funding. A focused equity raise with PJT Partners contacting 15 affiliated offices. RedBird Capital is prepared to fund 100% of the equity if needed. Although not specified for this endeavor, RedBird could, in theory, assist investors with capital in exchange for residual interest.
New investors could own up to 35%-45% of the XFL. Sources indicate the league is not looking to sell ownership of its eight teams. There have been early investors who have expressed interest in the league’s teams during discussions.
The XFL was purchased out of bankruptcy for $15 million, plus over $9.2 million in debts and payments in the summer of 2020.
The 2023 XFL season starts a week after the SuperBowl on Saturday, February 18th. A 12-week season, 43 games as part of a five-year broadcasting agreement with Disney/ESPN. All games will be broadcast in linear and digital format. Daniel Kaplan and Bill Shea of The Athletic reported that the XFL has a substantial rights fee with Disney to air their games exclusively on ABC, ESPN, and FX.
Several sources have indicated that the XFL’s five-year deal with Disney has ad splits (percentages not confirmed), with the network covering production and broadcast talent costs with escalators throughout the agreement to go along with the initial rights fee.
The league has announced its eight-team locations, with three teams playing in Texas. The XFL’s arrangement with REV Entertainment, a subsidy of the Texas Rangers, will see Arlington, Texas, serve as the league’s in-season hub and headquarters for the next three years. The XFL has secured and finalized seven stadium deals for its eight teams. The XFL’s teams will be training in Arlington before and during the season but will fly out to their respective cities for games.
What does this all mean for the XFL moving forward?
You can look at today’s news from several angles, positively and negatively. A red flag or business as usual? There’s a great deal of mystery involved.
Let’s get into what we know.
RedBird Capital Partners holds $6 billion of assets under management. But them seeking funding is a reality of the space they are entering. And it speaks to their standard practices over the years of maximizing their investments through multiple partnerships.
RedBird has several different sports entities under its umbrella. The firm has partnerships, ownership, and interests in AC Milan, Toulouse FC, Fenway Sports Group, One Team, and the Yes Network, among others.
The XFL, however, is arguably the riskiest property in RedBird’s vastly successful and diverse portfolio. After all, properties like the New York Yankees, Boston Red Sox, Liverpool, AC Milan, etc., are proven commodities with marginal risks. Especially in contrast to owning and operating an upstart pro football league.
Over the years, many alternate pro football leagues have faltered because of being underfunded or individuals underestimating how much bleeding of finances is involved. Based on what I’ve heard. I don’t think that’s the case here. Quite the opposite.
For an example of the current reality in this space, The USFL has been seeking funding of up to 200 million dollars since 2021. They enlisted Allen & Co. to help fund expansion in their league. The expansion in question is not added teams; it’s added costs of moving current teams into their cities.
Therein lies the rub for the XFL; their eight teams will be playing in their cities; even if it’s through a partial hub, it will be a much more costly proposition than what the USFL had in 2022 by centralizing their league in Birmingham. Sources have indicated that FOX, who reportedly earmarked 150 million over three years for the USFL, spent over 70 million in 2022 on the league. And that’s on the heels of operating a cost-controlling league. Expanding into markets in 2023 will cost more because of travel, facility, venue costs, etc.
Several months ago, XFL 3.0 was considering staging their entire 2023 season in Texas, following the same model that the USFL had in 2022. But the league opted to shift from the hub strategy to attempt to better connect with their cities, develop business relationships, and create more viable revenue streams. (Ticket sales, local sponsorships, merchandise, etc.)
Selling any ownership percentage is a significant story. There have been talks since 2021 of the USFL selling off their teams for a franchise fee. But none of those desires have come to fruition yet, and it may take a while to accomplish that goal.
While there are similarities between the USFL and XFL seeking funding, the XFL’s phase one is very different from the USFL’s. XFL 3.0 will spend more money to get off the ground than the USFL did.
Playing into the XFL’s favor is that they already have venue agreements in place. The plane is already fueled up as it prepares to take off. Travel costs and the benefits of flying out of Texas are a question for another time without definitive answers.
The real question in this story is the type of investors the XFL is seeking. Especially considering that team ownership is off the table, and it’s a matter of motivation for investors who commit capital to the league.
Will buying a percentage of the XFL be served as a means to purchase company shares with the expectation that they’ll rise in value over time before potentially selling off their interest? Or will investors seek significant decision-making power as part of their agreement?
That’s where details are murky at the moment and can get tricky. The lack of transparency to the outside public can create doubt. Something that has always existed for alternate pro football leagues.
RedBird Capital has already earmarked three years of funding for the XFL, which coincidentally aligns with their multi-year agreement in Arlington. The funding commitment is similar to what FOX has done with the USFL.
Gerry Cardinale and co-Owners Dany Garcia and Dwayne Johnson have worked on a business and marketing plan for two years. RedBird Capital is trying to cover all its bases. Par for the course for what they always do based on their history as an investment firm.
However, no matter how much you strategize, plan forward, and control costs, there’s no escaping the reality that owning and operating a pro football league is prohibitive. You must be willing to play the long game and take early losses to survive. And even then, despite all that, there are no guarantees that these entities will eventually thrive.
As one respected industry source told me today when hearing about this story. “Profits and league value is the long-term goal for the XFL, but you need funding to bring things up to scale past just launching.” That sums up what is happening right now. But it won’t stop people from declaring doomsday. Because until the new iteration of the XFL and ownership proves itself. The jury will be out on them.
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And will these investors be on the Booking Committee? Will they get to vote on Angles? Do they have to sign an NDA about maintaining Kayfabe? If Dwayne Johnson is the Booker does that mean he’ll do the same disclosure to the Gaming Commission about it being “Sports Entertainment” to avoid paying Taxes like Vince McMahon did with his promotion? A lot of questions and zero answers. That doesn’t spell sound investment to me…