Jerry Jones Outsized Returns; Interesting Reads
I was listening to the Founders podcast episode on Jerry Jones and wanted to jot down some key characteristics of what made some of his investments so great as well as a brief summary of the podcast. I highly recommend listening to it. I wasn’t aware that Jerry’s Cowboys purchase was a deep value turnaround.
Jerry Jones had always wanted to purchase an NFL team. He had told everybody all his life he wanted to. But first he had to make some money to finance it. He made a bit of money when his father sold his insurance company that Jerry helped build and which netted him about $500,000. Since he was extremely hungry to become rich, he then moved to Little Rock, Arkansas and wanted to get into the oil business. His first deal was when he met someone who was shopping an oil deal that everyone had turned down and had said no to. Jerry was the only person who had said yes, while at the time he was selling mobile homes.
The result?
The group hit their first well that was worth more than $4 million dollars. And they kept hitting wells each time they drilled for 15 consecutive times. He ended up selling 1 of his oil production companies in 1976 for $50 million.
What allowed him to make an outsized return on this investment that I think can apply to public markets or any type of investment is 1)When people turn their nose up at it and think it is dumb/crazy, 2) There is an ick factor associated with the investment and 3) Everyone doesn’t want to touch it and says no to it. When any of these characteristics apply to an investment you are being pitched, I believe it would pay to do more work. Or to look for investments that people think are dumb/crazy to invest in to. I don’t mean to go look for huge cash burning non-revenue generating businesses, but real businesses with downside protection that others don’t or can’t touch for whatever reason. A good example wold be General Growth Properties in 2008.
2nd and 3rd Investment
After his first success, in 1980 he decides to drill for natural gas with a partner and they take a shot drilling at 2 wells. One near San Francisco and one in South Eastern Oklahoma. Right away, the production was a disaster as an employee made a half a million-dollar mistake by accidentally dumping cement in the well ruining it at their Oklahoma location. They then invested another $500,000 and moved the drill bit 100 feet and the next day hit a natural gas well worth over $40 million. While this was happening, the San Francisco well was going to be worth $40 million over a two-year period. In total, they made $80 million on their first two natural gas drills.
The last deal he does before buying the Cowboys is extremely interesting. Jerry’s friend was the CEO of Arkansas-Louisiana Gas Company, which is the state regulated utility company. In 1981, Jones forms a new gas drilling company called Arkoma Production Company. He then enters into a deal with Arkansas-Louisana Gas Company (which people say is one of the greatest sweet heart deals of all time) that allows Jones’ company to sell gas to this utility company (which his friend is the CEO of) at a price much higher than what the utility company was currently paying other gas companies for their gas. The deal was for $4.50/thousand cubic feet, which meant Arkoma was getting more than 9x the price that other natural gas producers were selling their product for.
Then in 1985, the natural gas industry was deregulated and the price of natural gas went down significantly. But because of the terms of the agreement between Arkoma and the utility, the utility company had to purchase from Arkoma the most amount of gas it could produce at the maximum legal price. Jones then decides to purchase other natural gas producers that didn’t have this sweetheart deal because he has a guaranteed price he can sell to the utility company compared to what all the other natural gas producers could currently sell at. Thereby buying more supply and selling the gas at the inflated rate. The end result of all of this: the utility company was paying Arkoma $40 million a year for gas it didn’t need. Because this was a terrible deal for the utility company, it decided to purchase Arkoma in 1987 for $175 million. The total value to Jones and his partner based on money taken out of the business and sale price allowed them to pocket over $300 million. These articles here, here and here give a good background of the deal. This leaves Jones with about $90 million in cash at this point in his life.
Cowboys Purchase
The current owner of the Cowboys in 1988 was forced to sell the team because he had a severe cash crisis with all the businesses he owned. The owner was never really interested in owning the team but wanted to own it for the depreciation it threw off to cover his profitable oil business. When he decided to sell, he pitched 75 people who all had said no and financial advisors at the time had said buying the cowboys was “ridiculously overpriced, and financial suicide”. Enter Jerry, who buys the team in 1989 for $140 million. He used all of his $90 million in the bank and borrowed the remaining $50 million at high interest rates.
With that, he got a football team that just recently lost $9 million, couldn’t sell a majority of the luxury suites as only 6 of 188 were sold, attendance dropping 25% from the prior year, and only one home game had sold out.
Within a few years from taking over they were averaging more than $30 million in profits per year and are now doing over a billion in revenue. As of 2024 they were valued at $10.1 billion, earning 112 times his initial $90 million investment.
Here’s how he earned outsized returns on his Cowboys purchase:
Purchased from a forced seller
The owner had shopped the team to 75 other parties who all said no before Jones came into the picture and said yes.
Took advantage of low hanging revenues opportunities.
If you sell the luxury suites in your stadium, you don’t have to share the revenues with other NFL owners as you do the typical ticket revenues. The suites could sell for $400,000 to $1.5 million and after a few years he had 95%-98% of them filled. This turned into $50 million profit just from selling these.
Moved the free press seats that were the best seats on the 50 yard line to the 5 yard line and sold these 50 yard line seats.
There were no ads inside the stadium. He placed ads inside the stadium and sold these ads to local businesses.
At the time they couldn’t sell beer and alcohol at the games. Jerry lobbied and wined and dined the city council to grant him a stadium license to sell alcohol. This turned into $1.5 million to $2 million per game in profit.
Hired sales and promotion people and cut positions that weren’t generating revenue.
His cowboy purchase can be boiled down to a few key characteristics: 1) There was a forced seller, 2) The cowboy franchise is a scarce asset as NFL franchises are rarely if ever expanded. This creates a lack of supply with all demand growth going to the limited franchises in existence and acts as a tailwind, 3) No one wanted it as it was shopped to 75 other parties, 4) Extremely low hanging revenue opportunities that were just common sense to implement.
These key characteristics in his investments are what everyone should be on the look out for and has made Jerry Jones one of the richest men in the world today.
Interesting Reads
A couple of interesting reads this past weekend:
1) Tom Murphy 2000 HBS Interview
2) Ben Graham 1955 testimony before congress