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Rooneys struggle with putting price on Steelers

Wednesday, July 16, 2008

Steelers Chairman Dan Rooney asked Arthur Andersen Accounting to put a price tag on the team as early as 1999 because of a "potential corporate restructuring as well as estate planning," according to court documents filed last year.

That day of reckoning didn't happen in 1999, but it seems to be playing out now in a family feud pitting Dan Rooney against his four brothers, Art Jr., Thomas, John and Patrick Rooney, each of whom owns 16 percent of the club.

"It's not that the succession problem wasn't spoken about, because it was. You've got to remember that we're fans, and we thought we had plenty of time. In 1999, we weren't ready to do this, but now there's a perfect storm that's bringing it to us," said Art Rooney Jr., the former scouting genius who sculpted the squad in the 1970s that won four of the franchise's five Super Bowls.

The "perfect storm" looming for the five brothers is part estate taxes -- threatening to gobble nearly half of the franchise's assets -- part NFL mandate to divest from ancillary gambling operations and part concern for the third and fourth generations of Rooneys. Art Rooney Jr. says each of the brothers feels the ancestral, Irish tug to do right for their children but also a sacred duty to follow the dying wish of their Hall of Fame father, Art Rooney Sr., who founded the franchise in 1933.

"The Chief" drafted a letter to each of his sons shortly before his 1988 death encouraging them to keep their Pittsburgh Steelers Sports Inc. stock and make sure that their wives and children were "treated fairly."

"I believe if this does not happen, down the road, there's going to be nothing but lawsuits," wrote the patriarch in a letter recently published in Art Jr.'s book "Ruanaidh: The Story of Art Rooney and His Clan."

Control of the Steelers flowed from their father's will, with each of five brothers provided a 16 percent cut in a company tagged "PSSI" in investment documents. An additional 20 percent is reserved for their cousins, the McGinleys.

"My dad always said this, 'There's only enough from the Steelers for Dan, and then I got a little into it. That's why he made opportunities for the other kids to work at the tracks. But all the brothers are fans. We bleed black and gold," said Art Rooney Jr., who added that the entire family is committed to working out a solution that's fair to fans, professional football and the family.

"It's an awful big family. We had a lot of kids, and you want to do right by them," he said.

The second generation of the Rooneys and their children are sprinkled throughout the family empire, a mix of Steelers-related enterprises in the Pittsburgh area, dog and harness racing tracks, a Maryland horse stud ranch, a chain of pubs and even a New York flea market, according to public disclosure forms. Dan Rooney and his son, PSSI president Art Rooney II, manage day-to-day football operations. The other brothers head the Florida and New York tracks.

Eight years ago, they started to follow an industry trend nationwide by adding casino gaming at their Florida dog track and recently began offering video slots at their New York harness track, lucrative revenues the NFL consider verboten, according to league bylaws.

Paying dividends?

The brothers still gather twice annually for PSSI shareholder meetings and communicate often by conference calls, but Art Jr. wouldn't say if they've been talking about the team's dividend payouts. According to court filings, the value of their stake in the football franchise increased 16 percent between 2001 and 2007, or about 2.7 percent annually. That's about what a small wad of cash in a savings account would earn. It would lag behind inflation for much of that span, according to federal charts.

Dan Rooney, his son Art II, their attorneys and team spokesmen declined to comment. They've told the Pittsburgh Tribune-Review previously that they're trying to work out a deal to buy enough shares to keep the franchise in the family.

The PSSI shares that drive the dividends are what investment experts call "illiquid," which is to say they are unregistered securities not traded publicly and they cannot be converted easily for cash. According to the court filings, shareholders cannot sell their stock without the Rooney brothers having first right to nix it.

Based on court filings, each share of PSSI stock paid between $705 and $1,296 in annual dividends between 2004 and the royalty highmark of 2007. That equated to between $2 million and $3.7 million before taxes for each of the late Art Rooney Sr.'s sons annually, once all their shares are added up. The court filings suggest there could be more than 17,900 total shares in the company, with a pot to be passed out of between $12.6 million and $23.2 million, depending on rising expenses or revenues.

Neither Rooney family members nor the accountants who prepared the report would discuss the details. Their valuations were tied to a recent divorce of a cousin to the Rooney brothers who owned 77 shares in the franchise, or less than half of 1 percent of PSSI.

The apparent 2007 dividend surge came before the team went on a $9 million buying spree in 2008, hiking player wages an estimated 8 percent, sparked largely by quarterback Ben Roethlisberger's eight-year $102 million contract extension. As a family business that pays a dividend based on profits, when the Rooneys raise salaries to remain competitive on the field -- including Roethlisberger's $25.2 million signing bonus -- they take money out of their own pocket, according to Don Erickson of the Dallas-based Erickson Partners.

"Fans don't realize that. The public wants payroll to be higher. They want the better players. They want to win. But that probably means a lot less for the owners," said Erickson, whose company has helped value or brokered deals for more than 50 professional teams, including half of the NFL's franchises.

Erickson, who is not involved in the Steelers situation, sees a Rooney family that's been "gifting" a portion of their earnings to fans for two decades. As the market for NFL teams heated up in the 1990s and franchise sales inched toward the $1 billion mark for a single team, the Rooney brothers let their money ride with the local club and focused on winning, a tradition Art Jr. says "permeates the entire family."

Art Jr. said he and his brothers weren't the ones who cooked up the $700 million valuation for the team, a price tag $50 million less than what the Oakland Raiders were valued last year during an ownership restructuring. That came from Dan Rooney and his son, PSSI president Art II, during a meeting Art II held for three brothers who live outside Pennsylvania.

Art Jr. said it was former NFL Commissioner Paul Tagliabue -- brought in to help the family work out succession and tax issues -- who advised the brothers to seek out rival evaluations and potential suitors who would help keep the team in Pittsburgh in the event a brother died.

"We're actually fortunate that nothing has happened to any of us over the years," said Art Jr., a former Marine and now a real estate executive in Mt. Lebanon.

Retained by Art Jr. and three of his brothers, Goldman Sachs & Co. came back with a potential price tag of $1.2 billion, which would put the Steelers in the upper deck of franchise sales for all sports. New York hedge fund billionaire and rabid fan Stanley Druckenmiller publicly declared he is interested in buying and that the team would remain at Heinz Field.

"This is the way I try to explain it to people: It's like someone rolled up in your driveway and offered you $500,000 for your house. You would say, 'Well, let's find out what its market value is, right?' That's what's going on now. In the end, the team might very well stay in the family, so don't be surprised if it does," said Thomas J. Rooney, founder of Rooney Sports & Entertainment Group.

He is the son of former Steelers ticket chief Vincent T. Rooney and cousin to the brothers considering selling the team. He owns no PSSI stock.

'A trophy asset'

The potential price tag of $1.2 billion puts the performance of PSSI's dividends in marked contrast to the rocketing value of the franchise. According to the court filings, public sources put the value of the Steelers at $173 million in 1997, rising to $608 million six years later, a leap that came alongside the opening of Heinz Field in 2001.

If a deep-pocketed fan wanted to shell out $1.2 billion for the club, that would figure out to a pre-tax cut of $192 million for each brother -- or what PSSI dividends will pay him in 52 years, based on the returns published in the Steelers' court filings. Why would anyone pay so much for an investment that will return so little in annual payouts?

"It's a trophy asset," said Chad Lewis, a Fitch Ratings analyst who gave the NFL's stadium bond pool an A+ grade.

There are only 32 franchises and hundreds of American billionaires. Only a few clubs hit the market in a generation, and few with the cachet of the Steelers or a new stadium -- with new revenue streams -- akin to that the Black & Gold. The league is stable, buttressed by $3 billion annual TV contracts that are equally divided with all the teams and the players' union. A hard salary cap in place for the next two seasons keeps a lid on labor costs, and competitive balance keyed to revenue sharing has buoyed fan interest and caught the eyes of those billionaires, according to Fitch.

"It comes down to supply and demand," said Lewis. "It's like prime oceanfront property or a penthouse in Manhattan. There's only so many franchises to buy."



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