When Kraft bought the Patriots franchise in 1994, the team had suffered through 5 straight losing seasons and a combined record of 19 wins and 61 losses.
In the 25 years under Kraft's ownership the Patriots have become one of the great dynasties in American sports. Ten Super Bowl appearances. Five Super Bowl wins. Fourteen AFC championships. Thirty-two playoff wins. Twenty playoff appearances.
Kraft is one of the most successful owners in professional sports history off the field as well. Kraft paid a total of $227 million for the franchise, the stadium, and the parking lots around the stadium.
Today, the Patriot franchise is worth an estimated $3.8 billion.
But how did Kraft manage to buy the Patriots?
It's a story of belief, perseverance, and a willingness to take huge risks.
In short, it's a classic entrepreneurial story. (One told in great detail here.)
Kraft made his first fortune by purchasing a paper mill at a time when the packaging industry was in a slump. In time, International Forest Products became one of the largest privately owned paper companies in the world.
Later he turned his sights on the Patriots. To make a long story short, the Patriots organization was made up of three different pieces: the team, Foxboro Stadium, and the parking lots surrounding the stadium. Each was owned or controlled by Billy Sullivan, but each was also, in effect, a separate entity.
Money problems forced Sullivan and his son Chuck--the primary investors in the financially disastrous Jackson Family Victory Tour--to consider selling assets. Naturally they put all three pieces of the team up for sale as a unit. To get around league debt rules, most of the team's revenue actually went to the stadium.
Bottom line: If you wanted the team, you needed to own the stadium. And in order for fans to be able to come to your stadium, you had to own the parking lots.
So when the Sullivans defaulted on the lease for the parking lots, Kraft swooped in, paying the owners of the land $17 million for a 10-year option, plus an additional $1 million per year.
On paper it seemed foolish. The parking lots generated approximately $700,000 per year in revenue; over ten years, that meant Kraft would spend $27 million to generate $7 million.
But it also meant Kraft now controlled one of the three pieces.
Two years later Sullivan sold the Patriots to Victor Kiam for $83 million, and the stadium was placed in a bankruptcy auction. Kiam hoped to someday move the team. And he figured no one would want the stadium. So he bid $17 million.
But Kraft wanted it: He bid $25 million and was awarded the stadium by the bankruptcy court.
Now Kraft owned two of the three pieces--but not the team. And if Kiam moved the Patriots to Jacksonville, then Kraft would be stuck with a worthless stadium and worthless parking lots.
But he didn't have to worry. The stadium's lease with the Patriots included an operating covenant that required the team to remain in the stadium through 2001. They couldn't just leave and keep paying rent; if you agree to an operating covenant, you have to operate your business from that location. If Kiam broke the lease, in Massachusetts the repercussions would not just be civil--they could be criminal.
So Kiam, and the Patriots, were stuck in Foxboro Stadium.
Which Kraft owned.
Kraft now controlled two of the three pieces.
In 1992 Kiam ran into financial trouble of his own: The Patriots were losing money and so was Remington, his primary business. So he sold the Patriots to James Orthwein. Orthwein, a member of the Busch family and major shareholder of Anheuser-Busch, hoped to move the Patriots to St. Louis.
But Kraft held the trump card: The stadium's operating covenant still had 8 years left to run. Orthwein offered Kraft $75 million to get out of the stadium lease, three times what he had paid. But he wouldn't budge. And eventually Orthwein grew frustrated and put the team up for sale.
After a long bidding process, Kraft's winning bid was $172 million, a then-record amount for an NFL franchise.
Which meant Kraft now controlled all three pieces.
But in many ways that was just the start. He needed to turn the franchise around, both on and off the field. He needed to pay down the huge loans required to finance the purchase. And he needed to build a new stadium.
Here's what Drew Bledsoe, the Patriots quarterback prior to Tom Brady, says about Kraft:
"One of the most important things that he ever said to me, and this was after I left football and was in business, I asked him at one point, 'What's the one thing that's allowed you to be so much better than everybody else?'
"He said, 'Everything. Everything we do, we're trying to be better than everybody else in everything. From the way we analyze players, to the way we practice and coach, to the way that we eat, to the way that we travel, to the way that we take care of our players, to the way we take care of our retired players.'
"Every single thing they do, he's trying to be the best in the world at it. And if he's not the best in the world, he's going to figure out how to be the best in the world at it."
And that's how Kraft turned $227 million into $3.8 billion:
One piece--one step--at a time.
Which is the same way every entrepreneur builds a successful business.