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May 1, 2023

XFL, TGL Taking Divergent Paths to Billion Dollar Visions

Challenger sports properties can finance growth in a multitude of ways, including raising capital and selling franchises.

TMRW Sports, which has raised funding at a corporate level, is reportedly planning to sell six TGL franchises before putting on its first event. The upstart league believes having a handful of strategic owners aiding the league in a marketing and business development capacity will expedite its success. 

The XFL is going down a different path. Dwayne Johnson, Dany Garcia and RedBird Capital Partners are working to build terminal value in the spring football league and its eight franchises. They will decide at a later date whether to sell clubs. 

“We’re doing what we’re really good at doing, which is building companies anchored by intellectual property rights,” Gerry Cardinale (founder and managing partner, RedBird Capital Partners) said. 

There is no right or wrong method. The correct decision is completely dependent upon the properties’ circumstances and what the founders and investors are seeking to get out of it.

“Gerry [and XFL investors] will keep a lot more of the upside by selling the franchises later,” former Goldman Sachs partner Eric Grubman said. “The argument that I subscribe to as an investor in [TGL] is, by attracting these heavy hitters and knowledgeable people, who know how to run local franchises and attract business partners, is that we’ll succeed faster.” 

The latest rendition of the XFL is not like spring football leagues of the past.

It started with some recent national brand recognition thanks to the failed 2020 attempt and has proven to be a draw in select markets (see: Washington, D.C. and St. Louis). 

It also has an exclusive broadcast pact with ESPN and The Walt Disney Company, a strategic player development and rules innovation partnership with the NFL, and the Rock on its side.

Hollywood’s biggest star is expected to use his influence and marketing channels to help build terminal value in league IP and turbocharge the XFL’s growth efforts as a live event entertainment company. One must imagine plans exist to create shoulder programming around the league (think:

Ballers

or

Drive to Survive

). 

That content can give fans a reason to care about the on-field competition. Remember, few players in the league are household names and the XFL does not have 100 years of history and tradition to fall back on. 

The XFL has cultivated fan bases in D.C. and St. Louis by playing home games in those cities. 

“[Fandom] starts on the field of play. But then it jumps out of the stadium [to the] local experience and connectivity within those communities,” Kevin LaForce (managing director, RedBird Capital Partners) said. “For football, having teams in market is really important.”

LaForce would know. Prior to joining RedBird in 2021, he spent 14 years at the NFL where he oversaw media strategy and business development, and ran 32 Equity, the league’s investment arm. 

Playing home games is important for building affinity and fan interest. Packed stadiums also make for a meaningfully better television product. 

While XFL teams play home games in market, the league established a central football hub in Arlington Texas for all eight clubs to use during the week and in the offseason. Doing so creates some cost efficiencies and operating leverage, it has also allowed the league office to establish a consistent experience across teams and “light the place up for content [creation],” LaForce said. 

If the league can develop enough strong markets, it should be able to take advantage of the scalable fan engagement and monetization streams afforded to the big four leagues (think: national TV rights, sports betting).

To be clear, the XFL is not trying to compete with the NFL. In fact, it is vying to become a long-term partner and value-added contributor to the NFL ecosystem.  

“My goal is to be the fifth most valuable live entertainment company, in sports, in the country,” Cardinale said. “MLS has been around for 30 years and has proven that there is a legitimacy for live sports content with a very local and regional fan base. If we can deliver NFL quality football in markets that are either part of Football Nation or aspire to be, we should have the basis for real terminal value appreciation.”

If the XFL can find lasting success, the ROI will be significant. 

“The average franchise value of an MLS team is $300 million and there are 29 teams. So, that’s roughly a $9 billion entity. Somewhere between $15 million and $9 billion is where this will settle out,” Cardinale said. 

Johnson, Garcia and Cardinale paid $15 million to buy the XFL out of bankruptcy in 2020. 

Grubman likes the XFL’s chances, largely because the league has Cardinale in its corner.

“The probability of success of these models is informed by the strategy, who it can attract and who is making the judgements,” he said. “Gerry is very smart, he’s not rigid and he’s relentless. He’s [also] very well connected and has a lot of capital.” 

Remember, pro football is an expensive sport to fund until it can start to generate meaningful television revenue.

TMRW Sports, the company founded by Tiger Woods, Rory McIlroy and Mike McCarley, is taking a different approach to financing TGL. It plans to sell six franchises. Each will come with a 3% equity stake in the league and the ability to operate the team in a given market. 

There are no shortage of backers looking to own teams anchored by Tiger Woods, Rory McIlroy or Justin Thomas, particularly with the league picking up venue infrastructure and the bulk of labor costs. The business model for the PGA backed league has investors doing no worse than break-even in year one. 

More than 30 investor groups have expressed interest to date.

But the decision to veer from the centralized ownership model and sell franchises was less about the capital the sales will generate –TGL anticipates having lucrative national and international primetime TV deals– and more about creating tribalism and establishing allegiances for teams that do not currently exist, in a largely individual sport. 

TMRW plans to sell its franchises to existing pro sports team owners, many of whom have a passion for golf. The thinking is those individuals will be able to effectively communicate with fans in the local markets and serve as valuable marketing partners for the upstart league.

“Because they know what they’re doing in operating franchises and what success looks like in operating leagues, the probability of success is going to be higher if they’re at the table with you earlier,” Grubman said.

For TMRW, success is not measured against other sports leagues. The company is looking for TGL to serve as a proof of concept. Founders and investors alike believe its tech-infused model could be applied to other sports and entertainment properties. 

In other words, it’s not about building one $9 billion league, it's about trying to build sustainable businesses that, years from now, will have billion-dollar valuations.

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