Over a two-decade entrepreneurial career ranging from chicken farming to oil drilling, Jerry Jones made himself and many other people rich -- only to gamble everything, in 1989, on the financially crumbling Dallas Cowboys
Jerry Jones, Dallas Cowboys
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Buying the Dallas Cowboys was never just another deal for Jerry Jones; he's willing to admit that. He told himself at the start that all he wanted was H.R. "Bum" Bright's controlling interest in the fiscally troubled team and no more, though financing even that would be a stretch. But he let himself get drawn in. The deal kept expanding. By the time he passed papers, on April 29, 1989, he wasn't buying out just Bright but all of Bright's partners and Texas Stadium, too. The final price came to $140 million -- $65 million for the team, $75 million for the stadium. Jones put up $90 million -- all the cash he had -- and borrowed the rest against personal assets. For Jones, who thought in terms of the interest he was paying and the interest he would no longer earn, that came to $40,000 a day. All for a franchise that in the previous year had lost almost $10 million on only $41 million in sales. "I really risked more than I should have," he says now.
The purchase complete, Jones and his accountant worked hard to clean things up. The National Football League makes available to each of its member franchises a $30-million line of credit on favorable terms, and Jones drew on that. He sought nonrecourse bank loans. And he quietly worked out an exit strategy, on the theory that we all make mistakes but that part of what makes some people rich enough to buy a football team in the first place is the good sense to nip those mistakes in the bud. In other words, as Jones cast it in his own mind, "there had to be a way to say, 'Whoops! This isn't working.' And shut it down."
Then again, a professional football team -- much less the Dallas Cowboys -- is not like a pizza parlor or a chicken farm or a gas well or any other business Jones had operated up to that point. You don't simply shut down the sport's most glamorous franchise, no matter how much money it eats. In retrospect, that seems obvious. But before he fully understood, Jones needed some words from his father, Pat, who telephoned one afternoon about a month after the deal had closed.
"He called me up and said, 'Son, you're a relatively young man. [Jones was 46.] I don't know if you ever want to do anything else with your life. You may not. But if you do, you'll never get the opportunity if you don't make the Cowboys work. This thing is too visible. You have to make it work or you're going to be recognized as a failure."
Assuming Pat Jones was right about the visibility bit, this hardly bears repeating, but yes, Jerry did make it work -- as he has made those other enterprises work on the way toward recognition as this year's Master Entrepreneur of the Year. His Cowboys -- a 1-and-15 flop just four years ago -- won the 1993 Super Bowl with the youngest roster in the NFL and a player payroll ranked 24th out of 28 teams, and in so doing helped put $21 million back in Jones's pocket.
Which is why Jones can smile now, telling his story. His eyes are silvery blue; his complexion is leathery; his thick nose is a little bit bent. (Football did it -- Jones, a former offensive lineman, was cocaptain of the University of Arkansas's team in 1964, the year it won the national championship.) His office at Cowboys Center -- a $20-million glass-and-sandstone monument built (by the previous owners) on 30 acres of landscaped prairie northwest of Dallas -- is large: longer than a first down, wider than running back Emmitt Smith's average yards per carry. The windows are floor to ceiling, wall to wall. Outside are a trellised patio, pleasantly shaded; a wide green lawn ringed with oaks; a creek winding through the trees; and tennis courts. Inside are reminders of the Cowboys' success: a trio of tricornered Super Bowl trophies ("That front one is the one we won; the other two are VI and XII"); a Waterford crystal football, somehow Super Bowl related ("That thing weighs about 40 pounds"); and over there on the end table next to the couch, in a black-felt display box, a silver- and-platinum Dallas Cowboys football helmet. "To my friend Jerry Jones," the inscription reads. "You said you would do it, and you did it. Bandar." Prince Bandar bin Sultan, the Saudi Arabian ambassador to the United States, is a big fan of America's Team.
"It may be an exaggeration, but I don't think so," says Jones, getting back to the story about his father's ominous warning. "For the rest of my life, whenever I would walk into a room and say, 'My name is Jerry Jones,' bells would go off, and people would say, 'That's the guy who fumbled the ball on the Dallas Cowboys."* * *
Attempting the Cowboys turnaround was risky, but Jones has always been a willing risk taker. Perhaps too willing, he says. "At times I've felt like hiding assets from myself because I didn't want to be tempted and risk them." He likes to tell people he has "a high tolerance for ambiguity," a characterization he supports with descriptions of the oil and gas business, where he made his fortune: the high failure rates, the long wait for an uncertain reward, the role played by luck.
"Some people have to have everything all tied up or they can't function," says Jones, thinking perhaps of his stiff-haired head coach (and former Arkansas teammate) Jimmy Johnson. Others, like Jones, are always juggling. He was raised in North Little Rock ("Dog Town" to those who lived on the better side of the Arkansas River), worked all through college, played football, and earned two degrees. Fresh out of school, he made a vague bid for the San Diego Chargers, then part of the old American Football League. Owner Barron Hilton wanted $5.8 million for his 80% stake, and at one point offered Jones a $50,000 option good for 120 days. At the time, Jones had no real money of his own. He was working for his dad at Modern Security Life, in Springfield, Mo., drawing a $1,000 monthly advance against sales commissions and, in his spare time, rounding up backers for his more ambitious ventures. It was his dad who finally persuaded him that to take on so much debt so early in life was perilous, that worrying about it would only sap his energy and stifle his natural salesmanship. So Jones passed on the deal, which was too bad. For within the option period the AFL merged with the NFL, and the Chargers changed hands for $11 million.
Jones started in with oil and gas in the early 1970s, but it wasn't until he teamed with Mike McCoy, in 1981, to form Arkoma Production Co. that drilling became his primary activity. Jones was the lead partner, the money man, the deal maker. McCoy was the driller. Working for a company called Texas Oil and Gas, McCoy had perfected a low-risk strategy based on drilling holes that others felt would not meet their investment criteria. "We do not drill wildcats," says McCoy, now a Cowboys vice-president. "We do not go looking for elephants," or vast, untapped fields. "We drill close-in wells that others ignore." The success ratio on wildcats is about 5%. But over the years, Jones and McCoy have sunk some 2,000 wells and made money on more than 500 of them.
In December 1982, in a deal arranged by Jones, Arkoma paid $15 million to Arkla Gas Co., a public utility, for a half interest in 28,500 acres in gas-rich northwest Arkansas. Arkoma further agreed to spend $30 million over three years to develop the field and reserve most of what gas it might find there for Arkla. Later Arkla agreed to buy 75% of Arkoma's production at premium prices, whether Arkla needed it or not. The deal backfired on Arkla when gas prices plummeted and hoped-for new markets failed to materialize. In 1986 Arkla cut its losses, agreeing to pay Jones and McCoy $175 million for Arkoma.
All that became an issue during the 1990 Arkansas gubernatorial campaign, when incumbent Bill Clinton raised questions about the role played by his Republican opponent, Sheffield Nelson, who, as president of Arkla, had negotiated both the original deal and the buyout with Jones. Nelson and Jones were longtime friends and business partners. A subsequent investigation by the Arkansas Public Service Commission exonerated Jones. Arkla, however, was ordered to refund more than $22 million to its customers as partial compensation for the higher rates it had charged so it could satisfy the contract with Arkoma.
The deal had far-reaching implications -- for Nelson, who lost his bid for governor; for Clinton, who won his and went on to greater things; and for Jones, who, according to his son Stephen, "had lived all his life owing money and being at risk and facing the possibility of waking up one morning and not having anything," but who was suddenly, spectacularly, solvent.
Afterward Jones bought his own Lear jet, a sign that he meant to stay active. And together with McCoy, he began drilling again. But to those who had known him for years, Jones seemed somehow changed in the wake of the Arkoma sale. Perhaps it was because for the first time in his life, he had a lot to lose. "He never wanted to touch it," Jack Dixon, his accountant and his brother-in-law, says flatly. "Once he sold his gas company and paid his taxes, he never wanted to touch that money."
Then, in the fall of 1988, while vacationing in Cabo San Lucas after a gas drillers' convention in San Diego, Jones awoke one morning (hung over, if you must know) and read in the newspaper that the Dallas Cowboys were for sale. So ended Jones's prudent phase.* * *
Like a lot of property in Dallas in the late 1980s, the Cowboys were a distressed asset. First of all, they were losers, coming off a 3-and-13 season in 1988, their worst since the franchise was born, in 1960. Attendance, slipping for the previous five years, was lately averaging 49,000 a game, which in Texas begins to look like a high school crowd. Not surprisingly, both the team and the stadium were losing money: a total of $9.5 million in Bum Bright's final year, 1988. Steve Matt, a partner in the Dallas office of Arthur Andersen and the national director of the firm's sports-valuation service, ran the numbers at Jones's request and warned him that he might very well end up losing $25 million a year by 1993. "Don't do it," Dixon said, after he, too, looked at the books. "It could be financial suicide."
Why go ahead then? Jones figured there were two factors Dixon and Matt couldn't quantify. Number one was Jones himself: his commitment, his resourcefulness, his creativity -- basically, his willingness to devote all his time and energy to making the Cowboys go. The Cowboys had never had a hands-on owner before. For nearly three decades general manager Tex Schramm had run the team as he saw fit, spending first Clint Murchison's and later Bright's money. Schramm's motto, says Dallas sports columnist Skip Bayless, was, "This is not a business. This is a lark." The sort of talk that makes Jones cringe. What Jones likes to say instead is, "Have a big front door and a small back door, OK? Let a lot in and a little out." In short, he meant to change the way the Cowboys did business. Projections based on business as usual were meaningless.
Number two was that aspect of the Cowboys Jones calls "the sizzle": the glory; the prestige; the aura that attaches itself to 20 straight winning seasons during the 1960s, 1970s, and 1980s, to 18 (now 20) ventures into postseason play, to five (now six) Super Bowls; heroes like Don Meredith, Roger Staubach, and Tom Landry; and institutions like the Dallas Cowboys Cheerleaders. All that sizzle, Jones reckoned, had to be worth a lot more juice than the Cowboys were squeezing out. And he wondered, given the vast sums corporate America spends on sports marketing and promotion, given the public's insatiable appetite for licensed merchandise, Was there a chance here that the Dallas Cowboys could go to another level when it came to the juice?* * *
Included with the purchase of the Dallas Cowboys was a $10-million note on Cowboys Center. Conceived by Schramm as a state-of-the-art headquarters and training facility, Cowboys Center was nevertheless flawed, a symbol of the Cowboys in their decadent stage. It has a sumptuous workout room for the cheerleaders, conveniently located just down the hall from the executive wing and visible through a picture window, but it didn't even have an indoor weight room for the players until Jones built one, a year after he moved in. Actually, his first inclination -- once he saw the squash courts, the pond-size whirlpool, and the $14,000 monthly electric bill -- was to exercise his $3-million buyout option on the property and consolidate operations at Texas Stadium. But this was Dallas in 1989, and Jones persuaded the bank to retire the Cowboys Center note for $5 million. Then he had the maintenance staff remove every other bulb from the floodlights that ring the complex; a token gesture, perhaps, but one that helped him sleep at night.
By that first summer, Jones had let the old guard go, including Landry; Schramm; and Gil Brandt, the player-personnel director, whose departure all by itself removed a quarter-million-dollar expense-account item from the Cowboys' budget. When Jones asked Dixon, the new team treasurer, to search for other items he might cut, Dixon was at first hesitant. What did he know about the football business? But what Dixon quickly found was that he could save tens, even hundreds, of thousands of dollars simply by putting jobs out to bid -- everything from printing tickets and programs to providing training-room supplies, hotel rooms, and insurance. Dixon thought it odd, for instance, that the Cowboys were paying $1 million for a workers' comp policy from which the total benefits received averaged just $30,000 a year; today they pay $300,000 for similar coverage.
Meanwhile, Jimmy Johnson and his staff were systematically ridding the Cowboys of high-priced, underperforming veterans like Herschel Walker (traded to Minnesota in 1989 in exchange for a handful of players and several draft picks) and replacing them with players who were young and hungry and (happily for Jones) willing to work for less. The Cowboys spent money when they had to: $11.2 million on quarterback Troy Aikman, their first-round draft choice in 1989; and an undisclosed amount on running back Emmitt Smith, another first-rounder, in 1989. But nearly everybody else, Jones pinched. According to agent Leigh Steinberg, the Cowboys under Jones have perfected an innovative draft-day tactic that both holds down salaries and eliminates holdouts. "They'll call you up in the five minutes between rounds," Steinberg says, "and offer x dollars, which is probably fair market value minus 10%. And they will not draft you unless you agree."
All of which is part of closing the back door. But what about opening the big front door? The largest source of income for virtually every team in the NFL is something over which no individual owner has any control: the national television contract. Negotiated jointly, divided evenly among the 28 teams, network-television money is the great equalizer in professional football, the reason a franchise in Green Bay, Wis., can compete successfully with franchises in New York City, Chicago, and Los Angeles. In 1989, the Cowboys' first year under Jones, each team received $17 million in television money. That was the final year of the old contract, and the question of what lay ahead was one of the great unknowns Jones faced. As it turned out, the new four-year contract was a better one and provided a solid revenue base going forward: $26 million in 1990, rising each year toward $39 million in 1993. After television come ticket sales, which bring in about $13 million per team. Again, football, unlike baseball, tends to spread the wealth around. The home team splits the gate 60-40 with the visiting team, after deductions for day-of-game expenses. But here, at least, Jones had some room to be creative.
Texas Stadium was built by the city of Irving in 1971 on land donated by Clint Murchison. It was financed in part with 40-year, zero-interest bonds bought by the original season-ticket holders and suite owners. In 1985 Bright "defeased" the remaining debt on the stadium with federal bonds, so Jones came in debt-free. In fact, what Jones bought from Bright was not the stadium itself but something better: the operating rights -- all the benefits of ownership minus the obligation to pay taxes. That means Jones pays the city a modest fixed lease and picks up the operating expenses, about $5 million. In exchange, he captures 100% of the revenue streams from parking, concessions, novelties, stadium advertising, and suite sales; the last is the key.
Of the 105 new suites Bright built in 1985, only 6 had been sold by the time Jones took control of Texas Stadium. Worth an average of $85,000 a year, the empty suites were a significant revenue opportunity for Jones. Under a program called Partners with the Cowboys, Jones and marketing director George Hays have tried to capitalize on the Cowboys' sizzle -- and start the juices flowing. Besides receiving tickets, VIP parking passes, stadium-club membership, and other game-day necessities, Partners (and their clients) are invited to accompany the team on road trips, are visited by former players in the suites, are offered the use of Texas Stadium or Cowboys Center for private functions, and are allowed to watch the Cowboys practice (even, sometimes, when the media aren't).
In three years Jones sold or leased all 99 empty suites, worth $50 million in present and future revenues. Then, last winter, with the Cowboys on their way to the Super Bowl and the sizzle building to a roar, Jones decided to build 68 more suites at Texas Stadium. Among them are 9 he calls Platinums, each with a nine-foot-high ceiling, a private bathroom, a curved bar topped with Italian marble, six television sets tuned to other games around the league, power windows, and air-conditioning -- all yours for $200,000 a year. By opening day, he had sold 6. Sales and lease arrangements on all the new suites Jones built have so far brought commitments worth an additional $22 million.
One hundred thirty-five million Americans, a record television audience, watched the Cowboys win the Super Bowl last January. The worldwide audience totaled nearly one billion, more people than have witnessed "any other event in the history of mankind," or so says a Cowboys marketing brochure. "When you're dealing in the realm of that kind of emotion and that kind of interest," Jones says, "and when you ask yourself, What is the potential of a franchise that can get involved in things like this -- " Jones pauses for effect. "There's no telling what the opportunities could be."* * *
Most teams have a hard time after winning the Super Bowl. The Cowboys were no exception. Emmitt Smith, the league's leading rusher in 1992, held out for more money at the beginning of the 1993 season. Jones resisted. He talked about the salary cap that will take effect next year in the NFL and the need to sign Aikman, his quarterback, too. But when the Cowboys lost their opener to the Redskins and got beaten the next week by the same Bills team they had punished in the Super Bowl, Jones gave in and signed Smith to a four-year contract worth more than $13 million. Overnight, the Cowboys went from the bottom of the NFL's salary scale to the middle of the pack.
Fundamentally, though, the Cowboys are in good shape. Attendance at Texas Stadium has risen each year under Jones. It won't go up again next year, but that's because this year, for the first time in franchise history, the Cowboys sold out Texas Stadium before the season started -- despite a 20% increase in ticket prices. These days the Cowboys sell 17,000 more tickets per game than they did in 1988, which means an extra $6 million annually in revenues. Subtract about a third for the visiting team, says Jones, "and I can say that the difference between having the stadium full and having it like it was when I bought it would amortize close to 60% of what I paid for the whole franchise -- the team and the stadium. And there's no more expense. The tickets are printed, the ushers are there, security's there. It's all right there." The beauty of a sold-out house -- whether you credit marketing or the performance of the team on the field -- is that it makes everything you sell that much more in demand. Jones has moved aggressively to sign up corporate sponsors, creating a fresh revenue stream worth, he says, $1 million a month. More sizzle, more juice.
Jones turned the corner with the Cowboys and Texas Stadium in 1991, when he made more than $10 million exclusive of suite income. In 1992 he doubled that. In 1993 one thing is certain: he will not lose $25 million, as Steve Matt of Arthur Andersen once warned that he might. Today, as far as Matt is concerned, what Jones has accomplished is "the most remarkable turnaround in the history of professional sports."* * *
Once a month Cowboys treasurer and Jones confidant Jack Dixon runs a fresh set of numbers. He looks at the income generated so far by the team and the stadium, subtracts the initial investment, adds the tax benefits received, and subtracts the interest paid on borrowed money. That's one column. Then he looks at the cash Jones had in hand at the time of the purchase and assumes a conservative 5% net return, after taxes. That's the other column. He does all this in code, in case it should fall into the wrong hands. And then he prints it out on an adding-machine receipt -- two inches by two and a half -- and gives it to the boss.
Jones calls it his report card. He carries it with him everywhere he goes, folded in his money clip. The report card tells him exactly what it will take to get him back to where he was before he made the leap into professional sports; in other words, what it will take to make him whole again. And it reminds him of his purpose. "There is no inner pleasure in winning unless it's done on a sound, prudent basis," Jones says. "There is no inner pleasure. None."* * *
David Whitford writes frequently about business and sports. His most recent book is Playing Hardball: The High-Stakes Battle for Baseball's New Franchises , published by Doubleday.* * *
Before and After
Jerry Jones's turnaround of the Dallas Cowboys football franchise, by the numbers
|Network TV revenues||$16,000,000||$33,600,000|
|Local TV/radio revenues||$1,700,000||$7,816,000|
|Local advertising revenues||$441,000||$6,261,000|
|Total stadium revenues||$10,458,000||$18,223,000|
|Number of employees||135||120|
|Rank of payroll in the league (out of 28 teams)||14||24|
|General and administrative costs||$6,218,000||$2,728,000|
|Other operating expenses of the club and the stadium||$28,272,676||$31,976,000|
*last year before Jones acquired the team
**most recent fiscal year's performance
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