The Louvre, Napoleon, Bordeaux. The French are known for many things, but financing U.S. sports franchises is not one of them.
Don't tell that to the people in Societe Generale's New York office, however. There, a handful of bankers have spent the past 36 months building a team that aims to become the loan leader of U.S. pro sports.
This week the banking company's team faces its first real test: syndication of a $340 million loan package to back the purchase of the Washington Redskins.
Quarterbacking the effort is Salvatore Galatioto, a managing director and head of the bank's sports advisory group. Mr. Galatioto, a frenetic executive in his mid-40s, seems as if he would be more comfortable on the sidelines, cheering on the home team, than he would lining up with sports barons.
But in the Redskins deal, Mr. Galatioto and his group have put the company's sports finance effort and reputation on the line. The deal is the largest bank loan for a U.S. sports franchise to date, and it has become the target of critics who say it is evidence that sports teams have become too leveraged.
For Societe Generale, however, the loan's fortune has different consequences. If successful, the bank's team is sure to reap more such business, enabling the company to enter a league dominated by top sports lenders Bank of America Corp. and Fleet Financial Group. If it fails, Societe Generale would tarnish the three-year-old effort with a high-profile blunder.
That their reputation is riding on the Redskins deal is not lost on the SocGen bankers. Kevin Meenan, who is leading the sales effort for the loan, calls it a "marquee" deal for the group and is quick to point out that the bank has done an extraordinary amount of due diligence on the deal.
"We've been in this from the start," Mr. Meenan said. "We represented one of the original bidders for the team and were well aware of the value of the franchise."
Societe Generale was, in fact, early in the game. It represented Howard Milstein and Daniel M. Snyder in a first round of offers to buy the Redskins. Though Mr. Milstein, a New York real estate magnate, and Mr. Snyder came up with the highest bid, the National Football League rejected the offer and set up an auction. The bank then backed a group led by Mr. Snyder, who offered $750 million for the team and its stadium. This time -- despite criticism that it overbid -- the team won.
One sports finance analyst said, "The Snyder deal has so much debt on it, it's scary."
Not so, says the buyout group. First and foremost, the previous owners failed to maximize the revenue potential of the Redskins. Ticket pricing wasn't structured correctly, in-stadium advertising was underpriced, some of the stadium's premium seating was undersold, and the previous owners had not negotiated a lucrative contract for a corporation to attach its name to the stadium.
"The franchise was broken," Mr. Galatioto said. "Now there is a marketing guy at the top of a business that's all about marketing."
For his part, Mr. Snyder has been working furiously to restructure contracts between the team and its advertisers. Seats at Redskins games no longer go unsold. Revenues have jumped $10 million since the deal was completed in July, compared with the same period a year earlier. Profits are expected to increase next year because delays in the bidding process meant that many contracts could not be renegotiated until then.
Jack Kent Cooke Stadium, where the Redskins play, was also without automatic teller machines until this season. But in an unusual move, Mr. Snyder bought ATMs for the stadium and collects the fees from them.
"We've already increased the revenue streams by $20 million in three months," Mr. Snyder said. "We're very confident. The numbers never were in doubt."
Some of the debt is also being passed on to customers. Ordinary patrons at an Oct. 3 Redskins game complained about the high cost of soft drinks - $5 - and liquor - $15. Meanwhile, bankers and investors in the owner's box that same day enjoyed free catered food, drinks, and gifts of team paraphernalia.
Despite the grumbling about prices, Mr. Snyder appears to be enjoying a honeymoon with the Redskins community. Ushers at the stadium refer to him as "Danny" and seem to enjoy his tendency to shout himself hoarse during games. If the Redskins lose, he categorically declines to be interviewed.
After the Redskins beat the Carolina Panthers 38-35 on Oct. 3, he told American Banker: Societe Generale has "a first-class sports arm. I felt very comfortable with Sal -- I still can't pronounce his name -- and I was very impressed. They've got a proven track record."
To win the confidence of banks, Societe Generale has built a loan it believes caters to market needs. The transaction includes a $100 million term loan for the franchise itself -- an amount equal to the limit allowed by the NFL -- that is priced at the London interbank offered rate plus 150 basis points. The second loan is a $240 million term loan to the team's operating company that pays Libor plus 287.5 basis points.
Sweetening the deal is a 287.5-basis-point prepayment penalty on the operating company loan. Societe Generale bankers say the penalty, coupled with new investment-grade ratings by Fitch IBCA, should help the loan syndicate. Fitch analyst Bill Brennan said the ratings reflect "the highly probable nature of its revenue sources" and "significant collateral coverage."
Since the NFL recently announced a $1 billion deal for a new franchise in Houston, Mr. Snyder's Redskins' debt looks somewhat more digestible.
Mr. Galatioto's team says it is confident about its ability to sell the Redskins loan. The bank has had to wrangle its way into the doors of many sports franchises that had relationships with other lenders. And the team had a substantial challenge selling the idea of a sports banking business inside SocGen as well.
In the summer of 1996, Societe Generale's bankers in New York were looking for a growing industry to specialize in. As Mr. Meenan describes it, the industry would have to resemble the cable business two decades ago: an unproved but potentially huge market in which the bank could make its name early in the game.
Sports finance, they say, fit the bill. The four major sporting leagues in the United States were growing quickly. Franchise values were skyrocketing. But in most cases, the team owners were largely debt-free because they had held their teams for so long. That debt-free status was coming under enormous pressure, the bankers thought. Player salaries were on the rise. New stadiums and arenas were necessary for revenue generation.
Finally, many owners were growing older. The average National Football League owner is in his 60s. As they retired, or died, the teams would be passed on to heirs or sold. And the new breed of owner -- men such as media mogul Rupert Murdoch, Dallas Cowboys owner Jerry Jones, and Mr. Snyder seemed to be more comfortable with debt. In the end, Societe Generale's U.S. bank team had only one obstacle: senior management in Paris.
"How do you convince a French bank to do sports lending in the U.S.?" Mr. Galatioto said. "We did it by doing a lot of hard research, due diligence, and by convincing senior management that we had the expertise."
To win approval, Mr. Galatioto and others drafted a hefty, 200-page report on why sports lending was ripe in America. After winning approval from top managers in New York, they made their pitch in Paris in the fall of 1996. With approval in hand and with the go-ahead to use the bank's balance sheet they began to join other bankers on sports finance deals.
By 1997 the team was in a full-court press. Societe Generale participated in a $40 million credit line for the San Antonio Spurs of the National Basketball Association and a $185 million recapitalization for the Baltimore Ravens of the NFL, and it was an underwriter for an $80 million secondary offering for the Florida Panthers of the National Hockey League.
In the last 24 months the syndications team has been in charge of, or involved in, 21 sports finance deals. As Mr. Galatioto explains it, the group's goal is to provide creative financing solutions. Owners unaccustomed to bank loans are learning about them quickly.
Mr. Snyder, for instance, reportedly complained about disclosing his personal financial statements, a standard practice in lending, saying sarcastically, "Why don't you just post them on the Internet?"
But the SocGen team also tries to speak to the sports guys on their own level.
"I'm not going to try to sell someone a pair of pants when they want shoes," Mr. Galatioto said. "If they want shoes, I'm going to sell them shoes."
