Could Magic Johnson be the key factor in one group’s bid for Broncos?

Could Magic Johnson be the key factor in one group’s bid for Broncos?

USA News

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Buying an NFL franchise is typically, at least in one way, something like buying a house. A really, really expensive house. 

Cash is king and usually wins out, but terms matter, too.

The Denver Broncos, up for sale since Feb. 1 by the Patrick D. Bowlen Trust, are in something of a unique position because the process is an estate sale, meaning the trustees involved are bound by fiduciary duty to accept the bid that ultimately is in the best interest of the trust.

At the same time, the NFL says it is taking a greater interest in increasing minority representation in the league’s ownership group.

How, then, do last week’s multiple reports that Earvin “Magic” Johnson was joining the bid led by Josh Harris, the Philadelphia 76ers and New Jersey Devils owner, impact the potential race for the Broncos? 

“Magic Johnson, in addition to being African-American, also is a brilliant businessman and knows about professional sports and how to run a professional sports organization from the inside and the outside,” said attorney Irwin A. Kishner, the executive chairman at Herrick in New York and co-chair of the firm’s sports law group. 

“And, not to be overlooked, has a fairly sizable and indeed maybe extraordinary net worth. I think it adds to the financial wherewithal of the offer. I think it adds to the management structure of the offer.

“It enhances the offer on a number of different bases. I really do believe that.”  

At his Super Bowl news conference in February, NFL commissioner Roger Goodell said he thought the league could find a balance between competitive bids and increased minority representation in the league’s ownership group. Presently, Buffalo’s Kim Pegula and Jacksonville’s Shad Kahn are the only non-white owners among the 32 teams.

“We would love to see a diverse owner of the team,” Goodell said then. “Whether that’s a person of color, or a female, or a Black man, we think that would be a really positive step for us. And something we’ve encouraged. And one of the reasons we’ve reached out to find candidates who can do that. The Broncos are selling the team, not the NFL. We would have approval rights.

“But I think we’ll be very clear, and we have already been clear with the Broncos that is something we would seek to have in the ownership.”

The Bowlen trustees, then, are tasked with carrying out their fiduciary duty to the beneficiaries of the trust –  Pat Bowlen’s seven children – while also recognizing that the league is keeping a keen eye on the complexion of the bidding groups. 

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“A trustee to a trust has the highest fiduciary duty under the law,” Kishner said. “You have to act in the best interest of the trust. It does leave a bit of discretion to what the best interests of the trust are or could be. It doesn’t mean you have to get it right when you make the decision, but you’d better have very good and thoughtful reasons why you went down one path vs. another path.

“I think the two goals of maximizing value and achieving diversity can be managed and should be managed.”

The NFL declined to comment on the process and the impact of Johnson’s involvement. Allen & Company – the firm handling the sale for the Broncos – Harris’ company, Johnson’s company and attorneys for the trustees did not respond to USA TODAY Sports when asked for comment.

In terms of Johnson’s addition to the Harris group, one key factor that remains unclear is how much capital Johnson is potentially committing to the project. He put in $50 million toward the 2012 purchase of the Los Angeles Dodgers, which ultimately sold for $2.15 billion to Guggenheim Baseball Management, a group led by Mark Walter and, among others, Todd Boehly. Boehly is also leading a bidding group that is a finalist for the Broncos, according to Sportico and other outlets.

Ten years later, though, the Broncos are expected to fetch a price perhaps double or more than the Dodgers. At $4.5 billion, for example, a $50 million investment would represent just more than a 1% stake. To match the 2.3% stake Johnson started with in the Dodgers, he would be looking at a commitment upward of $105 million. 

Even that, though, would represent just a small percentage of the commitment from Harris who, pursuant to NFL rules governing ownership bids, must be able to take a minimum 30% stake in the team as the prospective principal owner. 

The Harris group is considered by some in the industry to be fighting an uphill battle against Robert Walton, the Walmart heir, another of the finalists who is worth in the neighborhood of $70 billion.

Not only can Walton likely provide the cleanest financial terms if he chooses, but he is also related by marriage to Los Angeles Rams owner Stan Kroenke, who is married to Walton’s cousin, Ann Walton Kroenke.

What can boost bids? 

The exact makeup of the finalist groups, including whether Walton would bring on any minority shareholders, is not known, though Pittsburgh Steelers owner Art Rooney II said at the league’s annual spring meetings in March that his understanding was that “several” of the bidding groups featured representation from minority groups.

At the league meetings, the ownership group passed a statement resolution saying in part, “when evaluating a prospective ownership group of a member club pursuant to League policies, the membership will regard it as a positive and meaningful factor if the group includes diverse individuals who would have a significant equity stake in and involvement with the club, including serving as the controlling owner of the club.”

Given the fiduciary duty of the Bowlen trustees, the makeup of the bid groups may not make a difference in the selection process unless the final bid numbers are close. If Walton or another finalist offers a number the others are unwilling to approach, the rest may be moot. If the bidding is tight, though, the structure of each group may come more heavily into play. 

“If I’m looking to have Magic or Peyton Manning or John Elway and they’re not contributing enough money to be the controlling interest, am I letting them have a substantial management role so that I can take advantage of their expertise?” said Robert Wallace, a former executive with the Rams and Eagles and currently a law partner and co-chair of the sports law practice at Thompson Coburn. “Whether it’s John or Peyton in football or Magic in sports ownership and creating winning environments. I think it’s significant if that person will have a substantial role within the organization.”

The addition of Johnson to the Harris bid comes at an interesting time, then, considering multiple outlets, including the Denver Post, reported Thursday that Harris and his group spent time in Denver and are the first of the finalist groups to make planned visits this month. Almost simultaneously, Boehly’s group finalized a $3.1 billion agreement to purchase the English Premier League franchise Chelsea. It is unclear whether Boehly will now bow out of the Broncos process, but Kishner indicated the process of buying two franchises at the same time would be a daunting one.

“Iconic brands like Chelsea and like the Broncos, like pretty much any NFL team, transfers of control don’t come up every day,” Kishner said. “It would be very difficult, unless you have a very large balance sheet, to pull off two of those acquisitions. I don’t think it would be so easy, on a number of levels. There’s the financial, but there’s infrastructure and operational (challenges). There’s a lot there.”

Even if the Harris group does ultimately prevail, Johnson’s exact role and how much of an impact he may have in terms of fighting the lack of diversity at the highest levels of the NFL will be key.

“Magic is a proven, successful sports investor,” Wallace said. “What the league really needs is minorities in decision-making roles. Depending on what role he’s going to take, that will carve my opinion a little bit more.

“What we’re searching for is more of an active investment and a senior position with some decision-making authority.”

In the meantime, though, his presence may well make the Harris group more attractive to both the Bowlen Trust and the league.

“In the laboratory, you’re looking at things and you say, ‘if everything else is equal,’ and you mean everything else, maybe you lean that way,” Kishner added. “But it’s never that way. It’s always the totality of the package of ownership, including the ability to continue funding operations, the business of how you made your money…

“I think it enhances the overall prestige of the package.”

Follow USA TODAY Sports NFL writer Parker Gabriel on Twitter @ParkerJGabriel

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