The Sky's The Limit

Jaws Slackened, eyes popped and minds reeled on the evening of Sept. 8 following the establishment of a momentous record in sports. But this one had nothing to do with a Bunyanesque redhead swatting a baseball over a fence. At 7:55 p.m. Central time, shortly before Mark McGwire hit his 62nd home run, NFL commissioner Paul Tag-liabue emerged from the Grand Ballroom at the O'Hare Hilton in Chicago and announced that Alfred Lerner had submitted the winning bid for the Cleveland Browns, the league's newest expansion team. The price tag, $530 million, was by far the most ever paid for a sports franchise. This vastly outstripped the previous record of $311 million that Rupert Murdoch disgorged this year for the Los Angeles Dodgers and was more than double the $250 million that Red McCombs ponied up for an extant NFL franchise, the Minnesota Vikings, just last month.

There wasn't much time to adjust to the sticker shock. The next morning BSkyB, a London-based satellite-television company controlled by Murdoch's News Corp., unfurled plans to purchase the Manchester United soccer club for $1 billion. That offer has been accepted by the club's board of directors and now awaits government approval. But while the purchase of the Browns and the bid for Manchester United sent franchise values through the retractable roof, the similarities between the two deals end there.

Lerner, a billionaire credit card mogul from Cleveland, professed no interest in owning a football team when Tagliabue announced in March that the expansion Browns franchise would be available. A bitter taste still lingered in Lerner's mouth from his last dalliance with the NFL.

After buying five percent of the original Browns in 1986 to help the chronically cash-strapped Art Modell retain his ownership, Lerner was a driving force behind the franchise's relocation to Baltimore in '96. Lerner used his connections in Maryland, where he has substantial holdings, to secure a sweetheart stadium agreement; the deal sealing the Browns' exodus was signed on his private jet; and Lerner was sitting next to Modell's son, David, when the genesis of the Ravens was announced at a press conference in Baltimore. At the time, Lerner became such a b�te noire—a b�te Brown, anyway—in Cleveland that he installed bulletproof windows in his Mercedes and, like Modell, employed a bodyguard after receiving a death threat. Then in August of last year he sold his interest in the Ravens for $32 million. Returning to the NFL couldn't have been further from his mind. "There was no chance I was going to do this thing," Lerner, the 65-year-old CEO of MBNA Corp., the nation's second-largest credit card issuer, told the Cleveland Plain Dealer last spring. But when then San Francisco 49ers president Carmen Policy contacted him about forming an ownership group in July, Lerner said the opportunity was "just irresistible."

The NFL owners could barely contain their glee when they accepted Lerner's bid. Not only would they split this windfall, but the sale price also sent the value of their franchises soaring. If Cleveland, an expansion team without national cachet, was worth more than half a billion dollars, what could, say, the Dallas Cowboys or the New York Giants command?

The owners weren't the only ones sporting ear-to-ear smiles. "The golden goose didn't just get bigger, it laid a whole basket full of golden eggs," said Gene Up-shaw, head of the NFL Players Association, who helped negotiate the current collective bargaining agreement, which stipulates that 63% of a team's gross revenues can go toward player salaries.

Just one day after the Browns deal was done, the Washington Redskins were put on the block. Another team with a fervent fan base and a brand-spanking-new stadium, and in a bigger media market, the Redskins are expected to fetch at least as much as the Browns. "It's simply outrageous," says an unsuccessful bidder in the Browns derby. "It's awfully hard to justify paying money like that for a football team."

Or is it? A confluence of factors made this a tantalizing investment. First, Lerner will reap the fruits of the NFL's new $17.6 billion television package, roughly $70 million annually. Second, Cleveland's passionate and loyal fans ensure sellouts. Most important, Cleveland is offering the most lucrative stadium deal in football. When they take the field in 1999, the Browns will play in a state-of-the-art, $280 million facility financed almost entirely by public money. In exchange for the bargain-basement lease of $250,000 a season, Lerner gets virtually all revenue—from gate receipts, skyboxes, signage, naming rights, etc.—generated by the stadium.

Still, is $530 million a fair price for an asset that is likely to appreciate in the long term but unlikely to operate at a year-to-year profit? Lerner can only say, "Ask me in five years."

If anyone can afford to overpay by $50 million or even $100 million, it's Lerner, a man whom Forbes estimates to be worth $2.6 billion. One dividend of his purchase is redemption for the civic sin of having helped sell the old Browns down the Cuyahoga two seasons ago.