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The $126 Million Fumble

March 14, 1988
March 14, 1988

Table of Contents
March 14, 1988

Pittsburgh
Murray & Rice
The Eagle
John Smith
Special Report
Gymnastics
Forest Service
Reminiscence
Departments

The $126 Million Fumble

How Billy Sullivan and his son Chuck turned a $25,000 investment in the Patriots into a financial disaster

Billy Sullivan didn't make it to Super Bowl XXII in San Diego. Instead, Sullivan, the 72-year-old owner of the New England Patriots, was holed up in his condominium just south of Palm Beach, Fla. His absence was, to say the least, surprising. As founder of one of the AFL's original teams, Sullivan ranks among pro football's patriarchs, and he usually revels in the end-of-the-season socializing that is as much a part of the Super Bowl as the game itself.

This is an article from the March 14, 1988 issue Original Layout

But neither the game nor the parties mattered much to Sullivan this year. While the celebrants in San Diego ate, drank and danced their way into a super frenzy, Sullivan was watching all that he had worked for crumble around him. What started as a $25,000 investment in 1959 has mushroomed into nearly $126 million of debt for the Patriots, family-owned Sullivan Stadium and members of the Sullivan family. Moreover, sources close to the family say that Sullivan and his eldest son, Chuck, 45, who's executive vice-president of the Patriots, are teetering on the brink of personal bankruptcy. Chuck denied it last week, and Billy wasn't talking. (Another son, Patrick, 35, who is general manager and treasurer of the Patriots, has no equity in the team or the stadium, but has signed loans with his father and brother.)

Imagine the 28 NFL franchises as a group of nation-states. The Patriots are the league's Brazil. One set of documents obtained by SI shows that the team lost $11.9 million in fiscal 1987. Another set indicates that as of Feb. 15 of this year, the Patriots' debt had reached $49 million; that the Chuck Sullivan-owned Stadium Management Corporation, the company that runs Sullivan Stadium, where the Patriots play, had debts of $52.6 million; that Chuck had debts totaling $22.1 million; and that Billy had debts of $2.1 million. A whole platoon of creditors, from major banks to longtime friends, are badgering the Sullivans for repayment of loans and payment of bills as well as for answers to questions about how an NFL franchise could lose so much money.

In early January the Sullivans discovered they couldn't meet their monthly payroll for the Patriot players. So they pleaded with the NFL to release nearly $4 million in contingency funds, which were held in escrow. This unusual request was granted because the league worried that New England's players could declare free agency if they weren't paid on time.

The NFL could do nothing, however, about the $9 million the Sullivans owed Connecticut Bank and Trust, or the fact that they hadn't made a payment on that loan for nearly two years. The bank got tired of waiting for the money and threatened to foreclose on the collateral, which happens to be Sullivan Stadium. The bank moved to auction the stadium Feb. 23, but the Sullivans halted the sale by putting the Stadium Management Corp. into protection from creditors under Chapter 11 of the Federal Bankruptcy Code.

The stadium is only one of the Sullivans' problems. Francis Murray and John Charlton, two businessmen, have paid $22.6 million for an option to buy the Patriots. Every time Murray and Charlton have moved to exercise their option, the Sullivans have balked. Frustrated, Murray and Charlton sued the Sullivans three days before this year's Super Bowl, charging them with extortion, mail fraud, breach of contract and conspiracy. Murray, a Philadelphian, says the extortion charge stems, in part, from a threat by Chuck to sabotage the franchise by not paying the players and by allowing them to become free agents. The Sullivans dispute Murray's and Charlton's charges, and claim that they have consistently broken provisions of their agreement to buy the club.

Several third parties have attempted to provide a solution. For instance, on Feb. 16, Murray and the Sullivans announced that real estate mogul Donald Trump wanted to buy the team in an arrangement that would have given the Sullivans millions of dollars and allowed Murray to retain a stake in the Patriots. Trump met several times with the two sides to discuss a deal. However, on Feb. 29, Trump said he was no longer interested in acquiring the Patriots or in helping the Sullivans find a buyer. Chuck says Trump's fear was that the NFL would try to block his efforts to buy the team. "He said he had no problems with the numbers," says Chuck, "but was more concerned about having the league shun him."

Indeed, sources close to the negotiations say that NFL commissioner Pete Rozelle was opposed to the proposed Trump deal. According to the sources, Rozelle didn't want Trump in the league because of his casino holdings in Atlantic City and because of his role in the antitrust suit the USFL filed two years ago against the NFL. Trump, who then owned the USFL's New Jersey Generals, clashed repeatedly with Rozelle in court. (The NFL was declared a monopoly in the case but was forced to pay only $3 in damages. The case is under appeal.)

To be sure, some NFL owners had seemed to welcome the idea of Trump's buying the Patriots, and when Trump backed off from the deal on Feb. 29, he had this interpretation of events: "I feel the enthusiasm for selling the New England Patriots to me is an attempt by the NFL to co-opt me and get rid of Donald Trump as a problem...."

Over the past few weeks, other well-financed businessmen have indicated an interest in the Patriots. One is Marvin Davis, a Denver oilman who is a former owner of Twentieth Century Fox. Another is Preston Robert (Bob) Tisch, who stepped down as U.S. postmaster general on March 1. Tisch, the younger brother of CBS chief executive Larry, is a close friend of Rozelle's, and he has enough money and support among the owners to buy the team. As SI went to press, the Sullivans claimed to have lined up yet another source of financing: an unnamed group of investors who supposedly would keep the family involved in the Patriots.

Billy Sullivan was raised in a middle-class home in Lowell, Mass., where his father was a sportswriter for The Lowell Sun. In 1938, Sullivan convinced Boston College officials that they needed someone just like him to spruce up the school's image, so BC hired him as its first full-time public relations director. That same year, Frank Leahy was hired to coach the school's football team, and he and Sullivan remained close friends. When Leahy left BC to coach at Notre Dame in 1941, Sullivan tagged along as a ghostwriter for Leahy's syndicated newspaper column. He stayed a year in South Bend before joining the Navy. Sullivan spent most of his four-year World War II hitch stateside, doing public relations, and after the war he became p.r. director of the Boston Braves.

In 1955, Sullivan joined the Metropolitan Coal and Oil Co., a home heating company in Boston, as assistant to the president. Three years later, he became Metropolitan's chief executive. By then he and his wife, Mary, had six children. In 1959, Leahy called. He was helping Barron Hilton, the hotel magnate, put together the Los Angeles Chargers of the fledgling AFL. The league had seven teams and needed one more. Leahy wondered if Sullivan would be interested in starting a franchise in Boston.

Sullivan jumped at the offer and is fond of recalling that he had to spend his life savings of $8,300 and borrow the rest to come up with the $25,000 for the franchise. Then Sullivan lined up nine partners, who invested $25,000 each, the money going for working capital.

As the Patriots' president, Sullivan was always scrambling for money to make ends meet and to find a stadium in which to play. He and his partners raised $600,000 by selling nonvoting shares of stock to the public. Regardless of the hassles—and there were many—Sullivan was having himself a ball.

After 11 seasons, the Patriots still didn't have a permanent home. Negotiations to use area college fields had collapsed, and the city of Boston was unwilling to construct a stadium. The NFL put pressure on Sullivan to build a stadium amid concerns that the team might move elsewhere. Then, just when a move seemed inevitable, Sullivan and some of his partners hatched a plan to keep the team in the area. They decided to build in Foxboro, Mass., some 20 miles south of Boston, and proceeded to do so—in 1971—for a bare-bones $6.7 million. The Schaefer Brewing Co. picked up 25% of that tab, and the stadium was named after the beermaker. The team was rechristened the New England Patriots, and Sullivan was lauded for saving pro football for metropolitan Boston.

Although the Pats had found a home, they continued to struggle on the field and at the box office. Some of the partners thought the time had come for a change of leadership, so in a power play they ousted Sullivan as president and replaced him with Robert Marr, the son of one of the original partners.

Sullivan wasn't about to go down without a fight, but regaining control of the franchise would be expensive. Chuck quickly stepped in to help him come up with the cash. It was hard to believe that the two men were father and son: Chuck was as achromatic as his father was colorful. Personality differences aside, Chuck, then an associate with the prestigious Wall Street law firm of Sullivan (no relation) & Cromwell, was devoted to his father and wanted to do what he could to reinstate him as the team's top officer. So he acted as the point man in buying out the other voting partners and convincing the banks that the Patriots could generate enough cash to pay off the loans needed to finance the buyout. But a legal source close to the dealings says the banks wouldn't lend the Sullivans money unless they could put up the team as collateral, which meant they also had to persuade the hundreds of nonvoting shareholders to sell Billy their stock.

After much wrangling, they bought the voting stock of the very people who had given Billy the boot. The key to the deal was cajoling a widow, Hessie Sargent, who had inherited more than 10% of the team from her husband, another of Billy's original partners, into selling. Most of those with nonvoting stock—there were 139,000 nonvoting shares held by the public—were reluctant to give up their shares. Under Massachusetts takeover law, two thirds of the nonvoting shareholders had to approve a proposed buyout, and the Sullivans hadn't lined up that much support.

Attorneys and family sources familiar with the transaction say that the Sullivans went to the state legislature for help. Barney Frank, a family friend and a state representative who now serves in the U.S. House of Representatives, and David Schwartz, then a member of the Massachusetts House, pushed through a bill that amended the takeover law: Now a simple majority would suffice where once a two-thirds majority was required. The Sullivans received just enough support for their a takeover and bought back the nonvoting shares at $15 apiece. Chuck arranged financing plan that met with the banks' approval, and Billy owned the team. (Billy holds 100% of the Pats, now valued by one appraiser at $75 million; Chuck owns the stadium, which is valued at $15 million.)

The takeover had put the Sullivans, and the Patriots, $11 million in the hole. But that didn't seem to bother Chuck. A source close to the family who is a former shareholder says, "Chuck came up to me after the deal was completed and said, 'We just got a $30 million team for $11 million.' "

In 1981 the Sullivans moved to get sole ownership of Schaefer Stadium. Once again Chuck, using his father's assets, led the attack, offering to buy out the shareholders for $12 a share. They jumped at his offer because, as one former business associate of the Sullivans says, "The price was way above what anybody else would've paid. The Sullivans always paid too much."

One of the Sullivans' first moves after completing the deal was to rename the structure Sullivan Stadium in Billy's honor. They also added luxury boxes and a dazzling DiamondVision scoreboard. Cost of the sale and improvements: about $15 million, some of which was borrowed from Crocker National Bank of California.

The Sullivans had almost scary borrowing power, even while they were shackling the Patriots and the stadium with nearly $30 million of debt. The value of NFL franchises was appreciating wildly, and banks became less leery of lending money to football tycoons, especially those who had complete control of their teams.

The Sullivans kept wheeling and dealing. Chuck spent $1.5 million on some acreage across the street from the stadium, with hopes of turning it into a shopping complex. The Sullivans then paid a total of $1.5 million a year to lease a harness race track and 100 acres of land that adjoined the stadium grounds. Having regained their team and their stadium, the Sullivans were looking to increase their holdings in the immediate area. But in doing so, they were mortgaging the future.

Their power was also growing within the league. Chuck had impressed the other owners with his financial wizardry and in 1977 was named chairman of the NFL Management Council's Executive Committee. When Leonard Tose, then owner of the Philadelphia Eagles, was in danger of going bankrupt, Chuck secured a $12 million loan that bailed out Tose. During the players' strike in '82, Chuck strengthened the league's ability to withstand a long walkout by negotiating a $150 million line of credit from Crocker Bank that the owners could use as a strike fund.

Chuck seemed to get carried away by power. "The team and the league had become terribly important to him," says Camille Sarrouf, a lawyer and former Patriots shareholder who successfully sued the Sullivans. "He once said to me, 'There are 100 U.S. senators but only 28 owners of an NFL team.' "

But even as Chuck ascended in the NFL hierarchy, his family's decline was beginning. The 1982 strike sapped the team owners of revenues. The Sullivans were hurting more than most because they were still paying off the debts they had assumed when they took over the Patriots. Interest rates soared in the late 1970s and early '80s, when the Sullivans had done most of their borrowing, and the Sullivans were paying several million dollars a year just to service those loans. Then Chuck came up with a plan that would not only clear the books but also give his father and his family lifelong financial security: In 1984 he decided to promote a 15-city international music tour—the famous Victory Tour—featuring Michael Jackson.

Chuck had dabbled in music promotion before, having brought Duke Ellington and the Kingston Trio to Boston College for concerts while he was attending law school there. When he was stationed in Thailand, during the Vietnam War, he worked as the Army's front man for Bob Hope's 1968 Christmas tour. In the early '80s he brought such big names as David Bowie and The Police to Sullivan Stadium.

This time, however, Chuck was in over his head. He eventually signed a deal that guaranteed Jackson $41 million, and he had to borrow much of that money. Once again he put up Sullivan Stadium as collateral by taking out another mortgage.

Chuck gave Jackson too much. He had guaranteed 75% of gross revenues from anticipated ticket sales. For various reasons—for example, because of lack of familiarity with stage construction and design, the promoters overestimated the number of tickets that could be sold in many of the stadiums—receipts fell far short of estimates. Chuck also had to cover most of the Jackson entourage's considerable expenses. Chuck employed 120 people for the tour and provided Jackson and his large troupe with everything from their favorite foods and beverages to two 175-ton stages that had to be assembled and taken down at every stop. Total overhead expenses ran about $1 million a week, which was far more than expected.

He also had hoped to cut sweetheart deals on stadium rentals with his NFL brethren, but most were never consummated, and, as usual, he ended up paying top dollar. Finally, in the ultimate humiliation, Chuck couldn't even bring the Victory Tour to his own stadium. The Foxboro town fathers canceled the three concerts Chuck had scheduled there, because they feared the shows would attract throngs of rowdy kids.

Midway through the tour, Chuck started asking Jackson for help. Jackson agreed to lower his take of the ticket-sale gross, but Chuck still couldn't cover his expenses. He made one final stab at financial redemption by paying $18 million for certain licensing rights to Jackson clothing, which would allow him to cash in on souvenir T-shirts and the like. As luck would have it, Jackson went into seclusion for almost three years right after the tour, dampening the demand for Jackson memorabilia. Physically and financially drained, Chuck suffered a mild heart attack. The venture cost him at least $20 million.

Business at the ballpark was also turning sour. Even though the Patriots were selling out most of their home games, they were losing money. They had one of the highest payrolls in the league. The luxury boxes were not selling well. The town of Foxboro restricted the number of concerts and other events that could be held at the stadium. No one could make a privately owned stadium pay with only 10 professional football dates a year.

In the summer of 1985, Billy asked Goldman Sachs, the Wall Street investment banking firm, to help him sell his holdings. But a funny thing happened: New England ended up in the Super Bowl for the first time, and Billy began telling people that he was having too much fun to give up his team.

His euphoria didn't last long, however. Shortly after the Sullivans had regained control of the franchise in 1976, three disgruntled groups of shareholders filed separate suits against them, claiming, among other things, that the stockholders weren't paid enough for their nonvoting shares. In 1986, two suits came to conclusions. The judge in one case ruled that the Sullivans had grossly underpaid the stockholders. The shares, he determined, had been worth $80 each, not $15, and the Sullivans should pay the plaintiffs $2.5 million. The judge in the second case ruled that the buyout was illegal and awarded the stockholders $584,000.

Where would the money come from? Time to mortgage the future again. A Boston radio station had recently signed a five-year, $4 million contract with the Patriots for the broadcast rights to their games. The Sullivans began passing that money on to the plaintiffs.

And the losses were mounting elsewhere. Even though the Pats had gone all the way to the Super Bowl, court documents show that they had a deficit of $9.6 million for fiscal 1986. The harness track, according to a source with knowledge of the operation, lost $1.6 million that fiscal year, and the Sullivans began falling way behind on their payments to creditors. Then, on April 10, 1987, they lost the third shareholder suit. If the judgment is upheld on appeal, it will cost them at least $7 million.

After Super Bowl XX, the Sullivans again started talking about selling the Patriots and the stadium. But the question was, Did they really want to?

The Sullivans often seemed as if they were just looking for a way to hang on. Indeed, the sales talk briefly served to placate their creditors, but by October 1986 the Sullivans couldn't hold out anymore and began negotiating to sell an option on the team to a group of businessmen headed by Murray. The Sullivans eventually received from Murray $16.6 million plus a $3.9 million line of credit. In addition, Murray agreed to pay $24,500 per quarter to cover Billy's $5 million life insurance policy. But all the Sullivans had really done was announce an engagement. They were still nowhere near the altar.

They needed more money to get out of the hole. Some three months after signing the option deal, the Sullivans asked Murray for more money. He quickly advanced them another $2.1 million. According to court documents, some of the cash was used to keep the Fleet National Bank of Providence from foreclosing on the team and to keep other banks from foreclosing on the Massachusetts homes of Billy, Chuck and Patrick.

At about the same time, Chuck put $1.9 million toward the manufacture of a new line of Michael Jackson clothing, an investment that exacerbated already strained relations between the Sullivans and the Murray group. Each side began claiming that the other was violating the option agreement. Many observers suspected the Sullivans were trying to kill the deal. The price for the team had been set at $63 million. But the Sullivans had already taken—and spent—nearly $23 million of that, and while the balance would certainly help, it would not come close to covering their debt.

Shortly before this year's Super Bowl, the sides finally negotiated seriously. Again the sale appeared imminent. According to sources close to the discussions, the Sullivans had worked out a package that included these provisions: Billy would retain the title of chairman of the board for life, he would be paid more than $250,000 a year for life, the Sullivan family would receive four new cars every year, the family would be given a luxury box (value: from $35,000 to $100,000) at Sullivan Stadium, and the family would be given 25 tickets for every home game as well as a percentage of the Super Bowl tickets the Pats are allotted each year. But when it came time to sign on the dotted line, the Sullivans balked again. Murray and his partners could take the dithering no longer. They filed suits in both state and federal court.

What happens next is anyone's guess. Whoever ends up with the Patriots will be getting a financially emaciated team, and he will need a healthy supply of capital to keep it afloat.

Most NFL owners will not comment on the Sullivan situation. Those who will talk agree with Lamar Hunt, owner of the Kansas City Chiefs, who says, "We would all like to see Billy come out of the situation in a positive fashion."

That would take some doing.

PHOTOBILL GREENE/ THE BOSTON GLOBEThe money worries of (from left) Chuck, Patrick and Billy may cost them their team.THREE PHOTOSDICK RAPHAELSchaefer was the one beer to have when the stadium was built. Then the family gained control and renamed it in honor of Billy.PHOTOMAX AGUILERA-HELLWEGJackson's 1984 tour was anything but a resounding victory for Chuck.PHOTOANDY HAYTBilly's woes faded, if only briefly, as the Pats got to Super Bowl XX.PHOTOTHEO WESTENBERGER/SYGMA FOR TIMEBob Tisch (left) got into the picture as a potential Patriots buyer after ex-USFL owner Trump decided he'd had enough of the NFL.PHOTOGEORGE REMAINE[See caption above.]ILLUSTRATIONJOHN GRIMWADE

THROWN FOR SOME BIG LOSSES

DEBT

1959
Billy pays $25,000 for the franchise.

1975-76
The Sullivans spend $11 million to regain control of Patriots.

1981-82
It costs the Sullivans $15 million to buy and modernize stadium.

1984
Chuck loses at least $20 million on Michael Jackson's Victory Tour.

1985-86
The Patriots make it to Super Bowl XX but they still have losses of $9 millions.

TOTAL DEBT: $126 Million

1959
TEAM
PATRIOTS' VALUE: $75 Million

STADIUM VALUE

71'
$6.7 Mil.

88'
$15 Mil.