Inside the Commanders DC Deal with Owner Josh Harris | The Deal with Alex Rodriguez and Jason Kelly

Great to be here. Thank you for having me.

Well, it's seismic. I think for the city, for the DMV, for DC, DC is obviously an incredibly important city. And, you know, I grew up there. I grew up in Chevy Chase, Maryland. And to be able to bring football back to RFK Stadium, the spiritual home of Washington football of the Commanders and build a next-generation world-class venue. I mean, obviously venues are advancing. The technology is advancing. The fan experience is advancing. And then, you know, it's not just a football venue. We're going to put a dome on it. We're going to make it about football, but we're still going to put a dome on it. It's very important to the city that they be able to host massive events like the Super Bowl. Maybe we're not going to push Roger on that, but you know, Beyonce, pick an event. And DC obviously is a gateway city for the United States. So it'll make DC great and proud. And then not only that, it's a $2.7 billion stadium, but it's a $3.8 billion including all the stuff that's going to happen with the infrastructure and everything. And then the stadium itself is about 15% of the overall ground. I don't know if you've ever been down there, but you got the Capitol and the Monument. You can see it. You got the Anacostia River, and then it's a 15-minute bike ride to Nationals Park, the Navy Yard. So, you're going to redevelop a lot of neighborhoods with DC, affordable housing, you have a whole bunch of parks, and then retail, mixed use. And so you're going to really change those areas in a really positive way. And DC has had an amazing... they've done this in the past. So, you know, it's incredible actually and really exciting to be able to engage with a city and help a city. It is a massive deal. It's on a scale that, you know, we haven't seen in a long time.

Okay, so we play in Maryland today. The team has played in Maryland since the '90s, like the late '90s. And you know, obviously the DMV is DC, Maryland, Virginia. DC's in the middle, right? So RFK is in the middle. So Maryland, right, for Virginia fans a little further, but we play in Maryland. And so the first thing we had to do is assure all through the process, Governor Moore, who really cares about Landover, the governor of Maryland, he wanted to make sure that, you know, we said to him, look, we have to consider DC because it's the spiritual home of the Commanders. And he said, 'Look, I'm willing to let you consider that and be generous about how you allow you to have some options, but you need to convince me that you're going to build something in Maryland if you decide to leave.' And so we concluded a deal with the governor and that allowed for the project to be the land to be transferred to DC. So I don't know if you remember, but as the last Congress was sunsetting, we got a 100-0 vote in the Senate. The land was under federal control until the land was under DC control. And then it was possible to build a stadium. From there, we had negotiations going with a lot of different parties and you know, we're blessed that everyone wants the Commanders and ultimately concluded a deal with the mayor that would be highly beneficial for DC. And at 2.7 billion, which is what we're putting up, it's the largest investment in DC ever. So, it's the largest investment in DC's history. And so, once the mayor decided that it was okay, we signed a term sheet with the mayor and now we're working with the DC city council who, I mean, the project has incredible ROI for DC. Literally billions of tax revenues, thousands of homes and thousands of jobs, right? And so and affordable homes and of that 30% are by agreement going to be at least that will be affordable homes and so it's going to raise the standard and then you get an amazing entertainment district and I mean who's not going to play in a new stadium with the backdrop being literally the Capitol, right? And then you get the redevelopment on the Anacostia River. So, this is going to change DC. And so, I'm hopeful that the council's doing its work. A number of them are already supporting that, but we have some work to do. So, now the next step for us is to obviously get the council's vote. You've got to tell the citizens and the politicians, you know, why this is good for the city, why they should invest their money in this. And the reality is DC is going through a harder time right now. And we were very sensitive to that and made sure that this deal was very good for DC. But I'm also focused on making it a place where our opponents fear to come, which is how I grew up, and where our fans love to come. And you know, our RFK, right, was an incredible arena. I mean, the stands would shake and it was a smaller arena, but it was loud and you know, people showed up.

Yeah. So, if you look at the calculus, we had to make sure that it was very favorable to DC and so because that's definitely something that people consider. They sometimes there's the ROI of a stadium, but they also want to know, okay, how much is the city contributing? And the RFK site has been sitting there since they closed RFK and it's like crumbling concrete. I mean, it's not great, right? There's nothing there. Nothing's been done with it. You know, and generating zero and actually costing money to make sure it's safe because it's just an open air thing and you know, they're, you know, pests and everything else. So whatever they do, whatever DC decides, they're going to have to put a bunch of money into that site just, you know, creating sewage and infrastructure and other things. And then we paid for everything else. Okay. And when you benchmark it, you know, there's actually articles that say, 'Wow, did the Commanders get a good enough deal?' And you know, we're getting criticized, which I guess if that's the criticism, people are leveling at me. The criticism is that you didn't get enough criticism in certain NFL sports. I've heard that. I've heard that. So like I'll take that criticism because on the other side of that, we have to convince DC and the public that it's fair and we have to convince the council that it's fair and that and the mayor has to sell it and the public is overwhelmingly supportive, which I think should help us. I mean, I think that usually these things are more controversial, but everyone who grew up in DC or in the DMV knows that they remember what a great place RFK was and how unifying it was. And what it was like when Washington football was dominant in the NFL and I think we can bring it there again.

Yeah. So, the common thread is building amazing fan experience, player experience, and something that helps the cities, right? So you're ultimately in finance you're steward of people's capital. In sports you're steward of people's memories and how they feel. How the Commanders do, how the teams play makes the city happy or the area happy. And then you have to treat everyone incredibly well. And so if you start with that as a premise, you say I'm going to be guided. My north star is going to be how do we create amazing memories? I had amazing memories at RFK. I remember some of my earliest memories. I remember being four years old. Four, I mean literally four years old and walking in there with my dad and you know just hearing it all and I don't remember a lot about it but then I remember being eight and Washington football losing to the Dolphins 14-7 in the Super Bowl and Garo Yepremian block kick was the one touchdown we Washington ran all the way back and we lost 14-7. Dolphins were 17-0. Don Shula and Griese. On Sundays DC would shut down and DC is obviously if not the most important amongst the most important cities in the world and everyone would be glued to their TVs or at the stadium. I remember riding my bike to the store once and no one's out. They're all watching football. So, I think that I want to bring those days back and I want to make DC proud and it's the same would go for Philly and London. Whatever you do, it has to be about the fans and about the experience and about the players and enhancing their experience and their ability to win because winning really matters.

So, the key moments were that, you know, we wanted to build a city arena. Comcast wanted to build an arena out by them and do it a little bit later than we did. And what we when we came together, we said again with the North star being what's great for Philly, what's the right thing for Philly? We decided that we would build sooner. So give the fan, create the fan experience sooner and do it in their site and do it together and then but also redevelop the site that we had created in the fashion mall district right downtown and do something great there as well. And so the city would get, you know, two for the price of one and that allowed for the deal to move forward. And you know us doing it together with basketball and hockey in the same arena and the combined, you know, kind of Comcast and HBSE that'll allow us to build a better arena that makes that's even greater of a city but also develop, you know, downtown and help that area as well. You know, one of the awkward things was, you know, we had had different perspectives and it had caused, you know, a lot of, I'd say, debate in Philly on both sides and at the end, you know, Brian and I just came together. And said, 'Look, let's just put this behind us and create a win-win.' And Brian Roberts at Comcast. Yes. And that, you know, like Philly had that took a little adjusting for the city but at the end of the day the strength of the project garnered the support of the mayor and support of the city and so we're moving forward really quickly in a positive way.

Yeah. So I would say that it would be hard for anyone to say that they dream that the valuations in sports would be where they are today. But I felt that when we looked at the Sixers it started off as an emotional thing. Apollo had gone public. I found myself, you know, financially successful more than I had ever dreamed. And I had gone to Penn. My dad had gone to Penn. I knew a fellow David Blitzer from Penn. And the Sixers were part of a big entity that had the Flyers and the arena and a series of other arenas and Ed Snider was managing it and his passion was the Flyers. He had started the Flyers and the Flyers were doing great and the Sixers were not doing as well for many many years and I had been I lived through this thing and it must have been indelibly in my memory in 1982 the Washington football won the Super Bowl. Washington was a very divided city both racially and socioeconomically. Everyone came out in the streets one ticker tape. I'm a senior in high school. Go up to Penn as a freshman. I'm 17. I see Dr. J, Moses Malone, Maurice Cheeks, Andrew Toney win the NBA title and they dominate the playoffs and then Philly, which was also a very challenged city, you know, tough economics comes out in the streets and for a moment in time, sports brought everyone together and I noted that I never thought in my wildest dreams I'd be an owner of both these teams. So to have the opportunity to own both these teams, it's an amazing thing. But coming back to your question, when we bought the Sixers, they had less connection with the city and in teams if you're connected with the city, if they think you're trying to win, if they think you're on their side, if you're doing things for the right reasons, generally the revenues follow, right? So, at this point, the revenues were lagging. They were near the bottom in revenues. They were losing 50 million a year and the NBA was in a lockout. And so they weren't even playing. And so we put together a group and we sort of decided to zig when others were zagging. You know, it was a little contrarian and we said, 'Look, we think that this team really matters. It's got a storied history. We think we can reconnect with Philly if we do the right things.' And we, you know, brought in a whole new... We bought it at 280 million. Took 18 months. Lot of negotiations with Comcast who are very good at their job. And took 18 months. And I remember the Comcast team saying like, 'Well, we're going to schedule the arena. We do that and you'll just get whatever.' And we're like, 'Nah, why don't we have input into that?' So there a million issues like that. Wow. Just like little nuanced issues that really matter because the days you get really matter. And then we reconnected with the city. We, you know, we started to win basketball games. We started to improve the fan experience, the food, the driveway to driveway experience. And then now you fast forward to today we're top quartile, top five in every major revenue category and team's profitable and then along the way as or more importantly global the evolution of sports right what used to be that you watch sports on cable with cable becoming streaming people can watch sports all over the world more people watch the Sixers in many cases in China or overseas than watch them in Philly. And so the value creation that's occurring at these leagues is obviously massive uplift in revenue and that's creating massive growth in revenue which is creating some profitability. I mean each league is different and obviously certain leagues are more profitable than others but over time it's allowing for the teams to invest and enhance their experiences and what's happening in sports is garnering more and more attention and more and more consumer focus like every like live events and so the big five sports are now global media businesses. So that all that stuff has contributed and you know we could talk a lot about valuation if you want.

Yeah. So what's happened is sports values have rocketed up pretty much for the big sports and it's all different but certainly the NFL and the NBA leading the way but also the NHL and you know certainly global soccer right so I think that what's happening is that the companies, the teams are getting so big that the amount of equity and you know the amount of leverage that the leagues allow is limited and so for example when we I'll use the Commanders example. I'll give you round numbers. We paid obviously 6 billion for the Commanders which at the time everyone said was the highest price of my... I would say my credentials as a value investor were shattered because Josh is crazy. Josh is crazy. I paid the highest price in sports, right? And now that price looks pretty good. But I think that we put up five billion of equity, right? And I was not allowed to talk to private equity. I had to go raise $3 billion and one family at a time. So, I think what the NFL, what other sports, certainly the NBA, and the NHL leading the way have done is say, okay, in some form, we're going to allow institutional capital in here because if we don't, the valuations are going to be constrained, and we want people to still be able to build stadiums, to enhance fan experience, to enhance streaming. And so allowing capital in for these now much bigger media companies to keep continue to improve and innovate is very important. And so that's why private equity is coming in and obviously private equity coming in is creating demand for investment. So that's lifting the sports team values.

So, I think the way I think about it is this. There's a scarcity value that is associated with these teams, right? So, you know, there's a small number of people in the world that can lead these deals and there's only, you know, 30. There's only 32. It depends on the league. And so, one of the things that's happening is that people want to own the teams. They want to be involved in it. They want to be part of building, creating memories for cities and winning and competing. And so I thought when I bought the Commanders that I was going to be outbid by Jeff Bezos, just to be very direct about it. It was rumored that he was interested. And obviously he doesn't, you know, for me to put together a $5 billion equity account is much harder than for someone of his wealth to put together. He can just stroke a check and do it right. So I thought I would lose, but it was a labor of love. I really felt it needed to happen. And you know God smiled I guess on me. But my point being that that part of the valuation uplift is just the scarcity value. But I would say the second thing is that as revenues grow cash flow will grow. Right? So I think a good analogy is you know beachfront real estate where if teams are losing money it'll limit the number of people that are willing to lose money consistently. If teams start to make money or make increasing amounts of money then it draws in people. And you know, I look at it as in the case of the NFL, which is the most profitable league right now, we think that, you know, we're buying at a real cap rate of 3 to 4 going to 5 to 6. So even though that sounds like a very high EBITDA multiple, I look at it as like cash flow yield. And the NFL and the NBA and the NHL and all these leagues are incredible businesses. They're dominant. And in our culture, it's live entertainment. They're growing. There's lots of innovation. So I look at it as growth equity and then most of the cash flow is guaranteed by massive media and technology companies. So that you know it's almost like you get this yield and then you participate in the growth and the scarcity value of valuation. So and if you look at it the only thing that's done better than private equity honestly if you go back is sports valuation. So, I'll just throw out the NFL numbers. The Bills, you know, a billion 3, a billion 4. The Panthers 2.2, 2.3. Broncos in 2022, 4.6. Us at 6. And now, so that's 4x in 10 years. And now you start to hear about some of the things and I think there'll be trades even higher than what you're saying. I think those are coming.

You know, I don't know. I think there could be stuff in the 9 to 10 range. I mean, it's all coming together. I think eventually for sure.

I'm a value investor in terms of growth equity, right? Yeah. And so I think this is growth equity. I think it's also unique and it's backstopped by media and as long as you think people are going to want the content and we have long-term media deals and also it's very resilient economically right so certainly if there's harder times not as many people will come to the games or whatever but the media payments are locked in that's you know the majority of the revenue and even in harder times people want something to celebrate so I think these are fundamentally great businesses they're also inflation resistant, right? Like if inflation goes up. So when you talk about cap rates of, you know, 3 to 6 real cap rate, that's a reasonable that'll go up and down and be inflation resistant. So I think there are really good businesses and I think they are actually interesting investments and I think it will keep going up.

It's all free cash flow. I mean EBITDA even in private equity everyone talks about EBITDA generally they're looking at free cash flow it's just a proxy for free cash flow and since many businesses have different capital spending you know EBITDA is just a way of saying hey 6x EBITDA but ultimately everyone who I guess who knows what they're doing is looking at free cash flow. In terms of the Commanders yeah we felt that the Commanders used to be the number one franchise in the NFL for many many years so everyone says Dallas is the number one franchise number one in terms of revenue venue. Revenue is that right? Yeah. And for many years and then you know obviously they didn't do as well. So when you looked at when we bought the Commanders they were in the 20s out of 32. And so if we get them to league average we'll double the EBITDA and not commenting on your numbers. And then if we with the new media deal we'll triple it. And if we build a new stadium, we'll cut, you know, it'll we have to invest, but we'll, you know, get some push up and execute and execute. So, I think that, you know, we think we are in the process of enhancing the Commanders, but again, it's all about doing it for the city and not worrying about it. But when you do that, and a lot of it is just driven by the media uplift, right? That just comes from the upward trend in media. Certainly the NBA deal which was 2.7x over 11 years, it makes it look like NFL content is severely undervalued and there's uplift there, right? So you can now without even factoring that in, we feel like we're going to get increased cash flow many more times.

I'll leave that one to the league, but yeah. No, and then you have to make your case like you're making your case. If you think about the Commanders ownership group, Mitch Rales who built arguably one of the best companies in America, Donn, you know, obviously Magic Johnson, and then a whole bunch of other people that are very shrewd investors, including some people on Wall Street, they want to be part of it, right? But at the same time, they want to understand, okay, what's the return here? Why should I, you know, write a check? And again, the, you know, obviously being part of an NFL franchise, there's a limit to how many people you can accept. And so, we had to ask people for really significant investments. So, they certainly wanted to know how it was going to work, right? And we were able to say, 'We're going to win for the city. We're going to spend. We're going to invest. But here's why we think that the value of the equity will go up.' And a lot of it has to do with all the things we've talked about here. The upward trend in sports values, the scarcity value, but also our ability to move the Commanders back to being relevant for the DMV again and therefore fill up the stadium, which was empty, get sponsors back, and make feel great about being part of the Commanders again.

So, first of all, when you run a sports team and you're an owner, your three most important jobs, hiring a GM, hiring a coach, hiring a president to run the business operations and making them incredibly talented and like-minded in terms of values. By the way, this owner is nodding right about that. I'm taking notes. Exactly. Yeah. You don't want to be I mean ultimately, right, there's just a thousand things that decisions that are made and you should not want I do not have the inclination I don't want to be involved in all thousand. I want to be involved in the most important decisions and then I want people who have the same vision that I do, which is to it's really a servant leader mindset like do this on behalf of the city or on behalf of the players. So, you know, Adam Peters, Dan Quinn, you know, obviously Mark Clouse from Campbell is an amazing get for us, but then as far as specifically answering your question, you know, the facilities that the players were showering in, playing in, weight training in, when we showed up, there wasn't even a game clock. Our bubble was deflating. And so we just literally said that, you know, what you want to do is become a destination for players. Look, there's a relatively small amount of people who can play or coach or be in the front office of major sports. And so your job is to become a destination where they feel like they matter, you care about them, and the way that you articulate that is to create amazing facilities to make their lives easier. And so we've rebuilt everything from showers to locker rooms to weight facilities to food. And we really showed them that we cared about them to how they travel. I mean, think about it. If you have to travel all over the place and you're not staying in a nice hotel or you're not traveling on a great plane, that's going to make a huge difference in your life. And so people think that the players I mean Alex, you were a player. No, everything you're saying is spot on. These are the things that really matter to us, right? Think about it. There were probably some owners where, you know, you felt like, hey, my life is harder and some owners where you felt like, hey, this guy really or this person really cares about me. In addition to, I mean, obviously, you know, each player wants to get compensated fairly and that's all part of it. But a lot of great players, I mean, great players today can play wherever they want, right? So your job is to attract them and make them feel welcome. And that starts with the front office and the coaches, but it also goes to their facilities. And so what we've spent $125 million across the stadium and the player facilities. And again, I think that you win in sports by I don't think this is like a growth, as I said, I analogize it to growth equity, cutting back stuff, skimping. I don't think that's right. In sports, you're entertaining and you're attracting talent. So, you've got to be like first class every step of the way. And that's why it improved. I think that the players I engage enough with the players and the coaches that they know that I'm there for them. And when they notice, hey, you know, the food's not great or something else. If you saw like for example, there's only like one cold plunge, right? So, it's like, 'Oh my god, are you kidding me?' Right. It turns out, by the way, that you know, because a cold plunge the normal cold plunge costs about $6,000. You have to get a special cold plunge because everyone's so big. Yeah. So, it's more expensive, but I said, 'Go get it. Get it.' Like, are you kidding me? I love the cold plunge because I did it every day. I did it. I did it before I came. You're a cold plunge guy. Okay.