Tuesday, July 2, 2013

Opinion: Haslam May Have to Sell the Browns

No doubt Browns fans are reassured to know that Jimmy Haslam knew nothing about irregularities at Pilot Flying J, and has no intention of selling the Cleveland Browns to Los Angeles investors.  

    Pilot Flying J, the corporation that provides the bucks that feeds the Browns ownership, may be having some financial problems, and to this observer it looks like there is a substantial possibility that another ownership change may be in the works in a year or so.  This may not be a bad thing, as there is little evidence that the current ownership has the interests of the city of Cleveland at heart.  

    To make a long story short, Pilot Flying J is spread thin because of the merger between Pilot and Flying J, revenues are down because of changes in the trucking industry; and Pilot Flying J is having to pay back the money it withheld, while simultaneously the company is being sued for its undershorts.  And all this after diverting more than a billion dollars out of the company to buy the Browns. 

      Even before the scandal hit, Pilot Corporation took on 1.8 billion in debt to buy out and merge with Flying J in 2011, and then the company paid out an additional 1.7 billion in dividends so that Haslam would have enough money to buy the Browns (the family owns 59% of the company, so that is why they had to withdraw $1.7 billion in order to carry out the transaction for the Browns at about a billion). 
The Wall Street Journal article linked below provides a most concise summary of the problems of Pilot Flying J. 


     This is a much more technical analysis than the normal stuff we get from the sports news, imho.  Note especially that old business models may be breaking down, as trucking companies are using new software to figure out where to buy the cheapest fuel, which is reducing margins in the entire industry.  So in other words Pilot Flying J is trying to expand at a time when the rest of the industry is cutting back. 

    And oh by the way the company is being sued by a dozen customers even as Pilot pays back the money that they owe. I'm not sure how much money they owe, but according to the affadavit on file, one of the customers was short changed by some six million dollars, and there are hundreds of customers involved.  So it could well be over a hundred million dollars, with interest, and all this before the lawsuits figure in.  That comes out of profit, not revenues.  Meantime they are no doubt losing other customers on top of that, and there is the very real threat of criminal charges against Haslam and other top brass. One might also wonder whether the company will be able to borrow money while it is threatened by lawsuits and a federal case.  Translation: this company is getting its ass kicked. 

    Perhaps that is part of the reason that the Browns did not add as much payroll as some of us expected. They may be short of operating cash right now, and it may get worse as the combined problems of reduced margins and legal difficulties cut deeply into the profit margin.   

    Hence Haslam may have to sell the Browns or risk losing control of Pilot Flying J.

     What's not mentioned in the WSJ article is that Haslam misled the NFL into believing that he would retire from Pilot Flying J and become a full time resident of Cleveland to enjoy being a resident owner. The NFL definitely prefers resident owners rather than persons with no connection to the city in which the team is based (i.e., the Knoxville-based Haslam family and the Cleveland Browns). In any case, after a few months Haslam decided to un-retire, and fellow UT alum John Compton graciously decided to step aside. Isn't that convenient?   I don't think the other owners are going to overlook the fact that the Browns wound up with a non-resident owner, and the little charade about retiring and moving to Cleveland will not go un-noticed.  

Haslam is a resident of Knoxville Tennessee and used to proclaim that he was 1000% loyal to the Steelers. Yet few Browns fans question his commitment to the City of Cleveland.  Go figure.   

     In the past I have pointed out that  Haslam's management team is well equipped to support a megastadium building effort. The company president is Alec Scheiner, who oversaw the building of the Cowboys megastadium for Jerry Jones. Now why, pray tell, do the Browns need a megastadium building expert as their team President? Well, the NFL has publicly endorsed the idea of one of its teams moving to Los Angeles as soon as a stadium deal is made.     

Farmers' Field in Los Angeles will be a fabulous megastadium,  similar to the type that Browns Alec Scheiner helped build in Arlington Texas for Jerry Jones.  What an amazing coincidence that the Browns have an expert in Megastadium building.
     GM Mike Lombardi has been through a move before, when Art Modell's Browns moved to Baltimore. 

      Of course, Haslam has too much integrity and too much of a personal investment in the city of Cleveland to ever consider anything like that, right? He's our friend, right?  

    Uh, right.  

    I am sure that my fellow Cleveland fans will proudly bring up the fact that the city has a lease with the team!  And they have lawyers to make the lease foolproof!  In response, let me just offer the opinion that if Haslam's legal team can keep him out of jail over the problems of Pilot Flying J, prematurely breaking a lease agreement should be no problem at all.

     Oddly, many Browns fans still love Haslam, believing he has done nothing wrong and totally taking him at his word that he was all set to move to Cleveland, but he just missed the excitement of Pilot Flying J. Surely the lawyers will get him off the hook, and then he can get back to the business of investing millions of new dollars into building the team.  To Browns fans, Haslam is kind of like Santa Claus, but instead of bring toys for good little boys and girls, he buys free agents for good little Browns Backers all over the world.

Is Jimmy Haslam the answer to the prayers of Browns fans?

     In my opinion,  LA probably is not going to want to deal with Haslam now that he is radioactive, so if there is an attempt to move it will involve the next ownership group, not this one.  With any luck, some team like Jacksonville or St Louis will make the move before the Browns can.   But if the Browns manage to stay in Cleveland it will be despite Haslam, not because of him.  

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