Dentist Money: Did John Elway Pass on the Deal of a Lifetime? – Episode 9

In 1999, after his second Super Bowl win, John Elway passed on an offer to acquire 20% of the Denver Broncos and decided to pursue a series of private business ventures instead. Seventeen years later, the outcome of his decision provides some useful insight into an investment strategy. In addition to deciding whether Elway made the right call, this week’s episode of the Dentist Money Show™ discusses when it’s okay to invest in high-risk opportunities, how to know when a private investment is right for you, and how private and public investments compare in the long run.

Podcast Transcription:

Reese Harper: Welcome, to the dentist money show, where we help dentists make smart financial decisions. I am your host, Reese Harper, here with my co-host Sir Ryan Isaac.

Ryan Isaac: Hey Reese, you having a chipper week so far?

Reese Harper: Dude, it’s been a really good week actually. Every time I say that intro., I feel like I am reading a memorized line, but I’m not.

Ryan Isaac: It’s actually not true though, no these are your real feelings. They have bubbled to the surface because it’s been a good week.

Reese Harper: It’s been a good week, my Broncs won the Super Bowl 50. I did smoke a lot of ribs.

Ryan Isaac: I didn’t know about the ribs.

Reese Harper: I had a lot of really good food.

Ryan Isaac: I saw the picture of your shopping cart, and I thought that was a joke because it seemed like a lot of food for a small family.

Reese Harper: I’m just trying to figure out how I spent that much money, on one meal! I think that was like at least a week’s worth of groceries, and it went to a meal. I don’t think I have anything left. I think we ate it all.

Ryan Isaac: Oh, it’s all gone?

Reese Harper: I think it was the kids. When you stack everything out on the table, in bowls, and you just kind of let everyone go at it? It just ends up in the carpet and somewhere in the room, but maybe it has not been ingested.

Ryan Isaac: Well, your Broncs won and you have been a fan for a very long time, since birth?

Reese Harper: Ya, John Elway was one of my heroes growing up.

Ryan Isaac: I actually always wanted the John Elway haircut when I was about seven or eight. You know the thing down the back? My mom wouldn’t let me.

Reese Harper: It was my first football I got gifted from the old Uncle. I think it was Uncle Gordon that gave it to me, a blue and orange rubber Denver Broncos ball. I was hoping for a leather one that actually made me feel legit.

Ryan Isaac: No, Uncle Gordon was testing out the waters to see if you really loved it. Well, it probably wasn’t always easy being a Broncos fan?

Reese Harper: Thats what I wanted to talk about. It’s not like I am a fair weather fan. You get your hopes up and then the Broncos crush your hopes every year.

Ryan Isaac: It’s a long term play right? Now they lost, three super bowls?

Reese Harper: Yes, within four years. In 87’ they lost the Giants, 88’ lost the Redskins, old Joe Montana took us down in 90’, and then uh…

Ryan Isaac: Joe Montana did it.

Reese Harper: John Elway didn’t have a great game that year.

Ryan Isaac: But he went out on top right?

Reese Harper: Ya, totally. He finally got a good running back, old TD, do you remember him? Did you see that on Sunday, they had the Vince Lombardi trophies being walked to the podium by like different guys. It was like, “Super Bowl 32, is Terrel Davis”. Then it kept going back older and older and it got back to like Superbowl 10. I want to say it was from the Steelers? I can’t remember who it was now. I was thinking, “who has been here, can we go back any further?”.

Ryan Isaac: What’s the cut off? When they can actually walk in the trophy?

Reese Harper: It was sweet, his last two seasons he had two Super Bowls. Then he retired in 99’.

Ryan Isaac: Then he had the helicopter. Should we take a moment and talk about the helicopter dive?

Reese Harper: No option, he had no options. Elway is not known for his running prowess, but he was running and kind of awkwardly dove and kind of collided and got a little head butt and it spun him around full 360 and he landed for a first down.

Ryan Isaac: He bragged about his five inch vertical.

Reese Harper: It really took the defense by surprise every time.

Ryan Isaac: And interesting enough, Elway’s final season was the rookie season for a young lad named Peyton. If Peyton retires this year, which he totally should…

Reese Harper: He should totally retire this season.

Ryan Isaac: If you were Peyton’s football advisor you would say “Dude..”

Reese Harper: Then him and Elway are going to be the only two QB’s to finish their careers with super bowl victories, both as Broncos too.

Ryan Isaac: Then you look forward to the rest of your career and you are like, am I going to be a spokesman for kind of old man products? Is that where it goes from here?

Reese Harper: Dude, wrangler jeans, is that where it goes from here?

Ryan Isaac: No, those are fine, its the copper bracelet things.

Reese Harper: Or Gold, selling gold, selling gold coins. That bothers me. No, I just see all these retired movie actors who are like, “ You need to balance your portfolio in Arkansas Gold, 100% backed by Gold!”

Ryan Isaac: It is a strong philosophy.

Reese Harper: Who are these people?

Ryan Isaac: Years in the movie business…

Reese Harper: Do you know that you have lost people millions of dollars in the last few years? How do you keep a straight face? You were like a Western Cowboy star, which is a trustworthy person! You rode a horse! You settled the West, and now you are telling people in their 60’s to buy gold.

Ryan Isaac: It’s fair, moving on. Well, we have also learned some interesting facts about Elway’s life beyond football. There is an article we have been talking about…

Reese Harper: Ya, this is what we want to get at people. The article was about how after the Broncos beat the Falcons for their second super bowl, Pat Bowlen was the owner. He extended Elway the deal of a lifetime, Ok? We talked about this in episode 4, so go listen to it. He offered Elway 10% of the Broncos for 15 million bucks.

Ryan Isaac: 10% for 15 million bucks, so if you are a Shark Tank fan, you can do the math and you figured out that they were worth about 150 million at that time.

Reese Harper: Wow, good math. You did that on the fly right?

Ryan Isaac: My kid is doing his times tables and we are currently working on the tens, so I’ve been brushing up.

Reese Harper: Ya, Bowlen offered him 10% for 15 million and then he offered Elway 21 million dollar deferred salary, this is on the books, but he said that Elway could use that option to forego the 21 million to get another 10% of the company. So he could have owned 20% of the company and he would have spent 36 million dollars. He would have been the special assistant to Pat Bowlen and what made the deal even sweeter though was that if Elway wasn’t happy with the money he spent, he could sell back his interest for 5 million bucks more than what he originally put in, for up to five year afterwards.

Ryan Isaac: He could take a guaranteed investment and if he didn’t like it..

Reese Harper: Now this is reported by ESPN, I haven’t read the contract.

Ryan Isaac: Ok, that’s fair. Disclaimer: we haven’t seen the contract. We will trust ESPN, they have a slightly better insider track.

Reese Harper: I didn’t know all of this until I read the article, I’m not going to pretend that I did. I haven’t been following Elway that close! Once we won, and I got to put up a little poster…

Ryan Isaac: This is why you got into the industry? It was the Elway deal gone wrong!

Reese Harper: Anyway, if Elway took the deal he is going to have the first right of refusal which is another deal point to buy any additional equity outside of the Bowlen family if they ever offered up any stock for sale, which is really rare because NFL teams hardly ever change family hands. But if anyone else outside of the Bowlen family wanted out, he would be able to buy it.

Ryan Isaac: He had a crack at it, ok, alright.

Reese Harper: But instead of doing that, he took nine months to think about it, and he didn’t do it. He went after a bunch of tech start ups. Which makes a lot of sense in the late 90’s . He started a website with Michael Jordan and Wayne Gretzky called MVP.com, which ran out of cash and failed.

Ryan Isaac: If you go there, you just go to a CBS sports domain where they are still selling jerseys.

Reese Harper: I mean he lost somewhere between, I don’t know, but somewhere between the three of them it was about 10 million. There were a few other interesting deals that went bad at the time as well.

Ryan Isaac: He was diversifying.

Reese Harper: He sold part of his car dealerships for about 80 million in stock with a company called auto nation, it’s hard to know how much he lost on that stock. He lost a lot once the stock crashed. It was a tech focused stock and it went down to like 6 bucks a share from 42.

Ryan Isaac: And his entire pet was in shares of the company

Reese Harper: He doesn’t ever talk about how much he liquidated or if you could have or anything. I think he could liquidate the stock. That’s why Pat Bowlen was offering him to buy stock in the Broncos and he could have taken some off the table…

Ryan Isaac: But this was .com time, so it was exciting.

Reese Harper: In 99’ he sold shares in a company called quepasa.com, which was apparently a hispanic internet start up.

Ryan Isaac: Used to be..Which seems to be a dating app right now. It points you to a dating app, ya.

Reese Harper: Anyway, then he launched a laundromat. He did that in Fort Lauderdale, it was an upscale laundry thing. It washed up, if you know what I mean. Like that?

Ryan Isaac: Hold on. Did we just make a washed up joke on a laundry mat start up?

Reese Harper: Then more recently there has been a Ponzi scheme with a company in Denver, apparently he invested money like a month or two before it blew up. Then he started a Colorado football arena team in 02’? The entire league shut down eventually.

Ryan Isaac: At this point, you are listening or reading this kind of stuff and you are wondering why didn’t he just stick with the stuff he knew? The guarantee?

Reese Harper: Ya, ESPN talks about the value of the Broncos today, which is close to 2 billion dollars and they say that Elway could have earned a 646% return. So, his 36 million dollars would have been North of 400 or 500 million had he taken the offer to purchase the 20% of the team. That might be a teeny bit off, anytime I see a number like that, I get pretty skeptical. Annualized, compounded, and it would be a littler over 15% a year. Which is a pretty good return, but you wouldn’t call a small NFL franchise a really safe investment so it is more comparable to a small capped value stock. We might call that in the financial business. So, I went back and I was checking on the returns of small cap value stocks from 99’ to the end of 2015. If you just took all of the investments in this category and you said take his money and throw it into this group of investments, what would the return have been? It would have been over 13% annually which is really close to the 15% annually as “the deal of a lifetime”.

Ryan Isaac: So what you are saying is that it is pretty close to it? Is ESPN trying to sensationalize the story?

Reese Harper: Well, they would NEVER do that. News media? They would never sensationalize anything.

Ryan Isaac: We aren’t saying that…

Reese Harper: But you have got to remember also that the Broncos evaluations are very, illiquid.

Ryan Isaac: Ya it is different from holding mutual funds.

Reese Harper: NFL franchises rarely change hands so for him to get his money out? Today it would probably be pretty easy to do that, at the height of the Broncos performance, but I don’t know about then.

Ryan Isaac: This week someone might be willing to buy it.

Reese Harper: It is interesting just to see that if you run the numbers you can see that ESPN is calling “the missed opportunity” of a lifetime is actually pretty comparable to the return of a broad index of stocks.

Ryan Isaac: Something pretty ordinary, and boring, and normal…

Reese Harper: It is some good perspective for people who are in a position to invest in opportunities beyond their primary business. I think it is good to think about that.

Ryan Isaac: And the Dentists we work with, no one is pulling in 20 million dollar salaries, yet, I’d give a few of them some time. However, they are often in a good position to invest excess income. What can we learn and what can we take away from this Elway piece?

Reese Harper: Well, first , you should diversify wisely. The entire premise of ESPN’s story was that Elway passed up on this once in a lifetime fortune. Maybe that’s true, but he would have done almost as well just by diversifying.

Ryan Isaac: Ya and he wouldn’t have had to spend any time or additional stress to achieve this. I’m sure a laundromat or the spanish internet start up might have been a little more stressful than what he knew, but the other was totally passive. I guess it just depends how much value you want to put on piece of mind.

Reese Harper: Totally, and I am not saying that Elway should have passed on the Broncos deal and put all of his money into small cap value stocks, but the return he could have made inside of a much riskier venture wouldn’t have been a lot higher. But don’t get me wrong, the difference between the 15% he would have made with the Broncos and the 13% is real.

Ryan Isaac: Ya, the spread makes a difference over that much money.

Reese Harper: But it would have been an extra 25 or 50 million and he still would have had 400 million.

Ryan Isaac: Ya, we are talking about figures close to 400 million dollars and there was just so much more uncertainty at the time with the Broncos deal.

Reese Harper: In hindsight it is easy to say that it was the better deal, right? But it could have turned out that Elway’s helicopter dive resulted in a broken neck?

Ryan Isaac: Ya, when I was watching that video again..

Reese Harper: The whole franchise could have gone caput!

Ryan Isaac: It could have been bad.

Reese Harper: You could have had 5% annually because the Broncos didn’t win any super bowls after that and Denver got hit with some kind of natural disaster like what happened in Jacksonville and you end up with a franchise that is worth half as much money as you thought it was going to be. Or new Orleans right?

Ryan Isaac: We have spent some time now comparing the return on an NFL franchise, which is something we do a lot with dentists right, to the returns on a stock investments. Now we don’t have access to Elway’s investment portfolios, but we have to assume he has been making some decent money somewhere along the way in addition to these things. Because like you said, one of the last things he did was put quite a bit of money into a big Ponzi scheme, and so it looks like as you are looking at this we are kind of throwing the legend under a bus a little bit. But he went after some really high risk opportunities, at the expense of some more predictable ones. What say ye, Reese?

Reese Harper: I don’t know, youngblood. I would say that Elway’s portfolio though, while super exciting it was probably a lot more complicated than it needed to be. His finances could have been simplified by following two principles. One we have already talked about, but let’s re-hash it here. I would diversify the majority of your net worth into public market until you have achieved a level of financial independence which we will call net worth, or a total worth of between 20-40 times, what you spend in a year. A lot of people will never achieve that, if you have not yet achieved that, I would focus on that and not speculate on your way there. If you have already achieved that, then you can use your excess to go for home runs and pursue more exciting ventures like Elway did. But it just doesn’t seem like he did follow that advice if he took a GM job and no equity sixteen years later. He has no stock in the company? It doesn’t seem like he had plenty of extra cash because he is suing to get out of the Ponzi scheme and has a salary job.

Ryan Isaac: He might be there out of necessity, maybe?

Reese Harper: Now I would love to have an interview with him because if you are going to pursue any high risk venture this is the number two principle. I would invest in opportunities that you clearly understand. Things that are within your wheelhouse.

Ryan Isaac: If you are a career football guy, like John Elway, maybe laundromats are not in your wheelhouse?

Reese Harper: Though I can’t say for sure, right? But I would say that he was more familiar with football and with how an NFL organization functions, for sure. He understood the salary negotiation process, he knew how to evaluate players and coaches, and how the business operated. He had been around it his whole career and he had earned the respect of almost everyone else in the business and that was definitely within his wheelhouse.

Ryan Isaac: Are you saying that dentists should only invest in dental related things?

Reese Harper: Of course not, but we get dentists who want to develop apps, invest in coffee shops, dump a bunch of money into their buddies tech start ups. In a lot of cases maybe they have some experience in that area, but more often than not they are throwing money into businesses that they don’t understand at the expense of things they do understand and passive opportunities public markets give them.

Ryan Isaac: Nothing is a guarantee and it kind of seems like your chances are better when you have some inside knowledge. Like if you actually know what you are doing with the business you are investing in, or it’s your expertise.

Reese Harper: Yes, again, if it is in your wheelhouse and you have some level of control or knowledge that can help influence the future of the company then that is much different than something where you are depending on someone else knowledge.

Ryan Isaac: But to Elway’s credit, he did open a steakhouse in Denver. Have you ever been?

Reese Harper: I drive past it all the time, I am going to go when I’m back in town.

Ryan Isaac: I wonder if Elway will be there, we could ask him our questions?
We could just bring the equipment and ask him if he could just join us at the table.

Reese Harper: I would love to do an Elway interview, as far as I know, it worked out for him. Who knows, did he have any experience with restauranteering? But he has done fairly well with that, and I think at the end of the day, I still want to give a shout out to Elway for 97’, 98’ and making it happen. This is no offense to you, you are a good man, we respect you still and I am just glad I got to talk about my Broncos today.

Ryan Isaac: And I am glad that we got to talk about it, I know it made you pretty happy to eat all those ribs and watch him go out on a high note. Well, thanks for listening, remember to leave us a review on this podcast. For more information you can visit dentistadvisors.com. You can sign up for our free newsletter and we have our phone number there on the web site. We would be happy to answer any questions you have. Also, our link to the calendar is right at the top and you can schedule an appointment that way.

Reese Harper: Thanks Ryan, Carry on!

Ryan Isaac: Carry on.

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