NBA News: Nets reach out to Shaun Livingston
July 2, 2013NBA News: Cavs on Oden’s short list
July 2, 2013There’s no denying that Jimmy Haslam’s Cleveland Browns ownership has gotten off to a less-than-ideal start for Browns fans since his family’s business was raided in April. The ensuing news stories about the lawsuits and guilty pleas of various employees has trickled out like a bad news Chinese water torture. The most recent of these stories was from the Wall Street Journal detailing the turmoil at the company in the last few months since the raid. Inside that story, there was talk of a $4 billion debt that’s been thrown around the news cycle for the last couple days. Some have considered it a major problem, and it might be, but let’s try to put the debt into a bit of perspective before we panic about how it could hurt our favorite football team.
First of all, this shouldn’t come off like a defense of Pilot Flying J. I don’t know what they’re ultimately guilty of or how high any wrongdoing might have gone in the company. I also can’t possibly vouch for other bits of their business or business practices. This is merely a discussion of debt. So here’s what we know.
- The company’s debt nearly doubled to $4 billion in a two-year period through last year
- The debt is (was?) due to be paid or refinanced between 2016 and 2019
- As of November 2012 PFJ had annual revenue of $29.23 billion
- They’re frequently described as having revenues “over $30 billion”
- Operating Income was reportedly $635 million (about 2.17% of sales)
- Profit was reportedly $442 million (about 1.5% of sales)
Now, it is kind of a ham-handed analysis, but I looked at CST Brands Inc (NYSE:CST) just to put a sanity check on some of the margins and percentages. CST bills itself as “the largest independent retailer of transportation fuels and convenience goods in North America. It was a spin-off company from Valero Energy Corporation. CST’s profit margin was 1.6% compared to PFJ’s reported 1.5% so that matches up. Higher up the income statement the “Operating Income” percentages vary a bit more as CST’s is 8.64% and PFJ’s is reported to be 2.17%, but the nature of “Operating Income” is kind of ambiguous anyway. You just never know where expenses are going to hit, particularly non-cash expenses like depreciation and amortization.
The bottom line for many companies, even below profit is cash flow. Pilot Flying J’s cash flow isn’t known, but let’s pretend that it is similar to CST’s from a percentage standpoint. If PFJ’s cash flow as a percent of revenue is the same as CST’s then it runs about 2.77%. It makes sense that actual cash flow would be higher than profit because of non-cash expenses like depreciation. If you take that number and apply it to PFJ’s $29.23 billion that’s $810 million for a year. All $810 million probably couldn’t be available to pay off debt, but having debts about five times cash doesn’t sound that terrifying does it?
So let’s take it to a worse case now that they’re having P.R. issues at best and real business issues at worst with all the fraud talk and lawsuits. Even if PFJ’s sales free-fall 25% to $22 billion, if everything else stayed the same, PFJ’s operating cash flow would still be somewhere in the $600 million ballpark for a year. All things probably wouldn’t stay the same of course, but there will always be wiggle room between reported profit and actual cash generation.
I know this is all speculation and I have nothing concrete to back it up, but it’s important to recognize just how big a financial playing field we’re dealing with here. Also keep in mind that PFJ’s assets were listed at $4.39 billion. We have no idea how much of that is liquid, of course and it’s not the best time to try and sell a bunch of buildings and real estate. I also wouldn’t guess they have a cash position relative to their total assets like Apple’s more than $10 billion on hand. Still, there are a few financially fundamental reasons that $4 billion isn’t necessarily the most terrifying debt number in the world.
That doesn’t mean that it couldn’t become a problem either, of course. If the company further falls into trouble with the investigation and the allegations climb the organizational chart and Jimmy Haslam gets indicted, well, we’ll cross that bridge if we must. Just know that $4 billion isn’t $4 billion isn’t $4 billion depending on which company it is that owes that money and to whom.
So as always we’ll see, but we don’t know yet the true meaning of the $4 billion in debt.
56 Comments
Good points. In my limited experience, total debt at 7x earnings is in itself nothing to either sneeze at or worry about. This truck-stop/convenience-store/fast-food-landlord business is it’s own animal though. Travel Centers of America is the only public one, where you can get a complete look at the financials. They’ve had negative earnings for a few years and just started to become profitable (on paper) on the heels of an expansion.
You can make $30B per year selling Slim Jims to truckers?!?!?
What shouldn’t get lost in all of this talk about what $4b of debt means is that whatever it means, Jimmy Haslam is still the worst.
Snap into a Slim Jim – oh yeeeeeeeeeeeeeeeeeeeeeeeea!
I think the problem is with Jimmy Haslam not his company, right? I mean hasn’t the big question been what exactly did or didn’t Jimmy Haslam know as far as all of the alleged illegalities? It’s only because of this that Pilot Flying J’s health as a business is even being discussed.
For me the bigger issue is with the NFL and how they could allow something, anything, to even remotely look bad be associated with the Cleveland Browns. You’d have thought after all of the Modell mess followed by the decade of drivel (The Lerner Years) the least the NFL could have done since it was stewarding the sale would be to make sure the new owner was beyond reproach. But what do I know I’m just a sports fan!
After the last two (Modell and pick a Lerner either Lerner) owners I’m hesitant to call Haslam the worst. I think, so far, what he appears to be is not a savior. Alas if the team does well on the field none of us will probably care what Haslam is or how much PFJ is worth.
Item: Dan Gilbert, no longer the worst.
Nooooo. It’s official: WFNY and my work have officially collided into one. I come to WFNY to escape depreciation and other components of company financials, not read more about them.
Outside of a few things here or there, and considering the lack of publicly available historical Pilot Flying J finances, this is some pretty good analysis.
Considering the fact that Haslam owns a 35% stake in the company, I’d consider the two to be essentially one in the same at this point. If the company flounders, then Haslam won’t be sitting too pretty anymore.
I completely agree with your second point. It seems to me that this “protecting the shield” ideology the NFL has is a one-way street. The NFL goes to great measures to ensure the players/coaches keep up its image, but when it’s the NFL’s turn to manage its image directly through the selection of ownership, it fails miserably.
They are both the worst.
Haslam makes Modell and Lerner look like baby koala bears.
Off-the-field matters shouldn’t be of concern until they matter on the field. We care about Josh Gordon’s drug use or Kellen Winslow’s motorcycle usage because those events have direct influences on the teams win-loss record.
Until this Pilot Flying J business somehow changes the daily operations in Berea, I don’t see what the fuss is about. I don’t care if Haslam runs naked around downtown Cleveland or mischievously underpays rebates as long as it remains separate from the on-field product.
“I don’t care if Haslam runs naked around downtown Cleveland or mischievously underpays rebates as long as it remains separate from the on-field product.”
This is interesting. What if instead of “mischievously underpaying rebates,” he was scheming to defraud his weakest customers? Would that make a difference? Or what if he was using his immense wealth and political influence to destroy the planet for his own private gain? Would you care then, or no?
The amount of debt does not matter as much as the ability to generate enough revenue to meet debt obligations (ie: if you can make your mortgage payments, the loan amount isn’t that much of a concern). That being said, the 4 billion is a drop in the bucket compared to annual operating expenses (which i’m guessing are around 25B+). This is why Jimmy went against legal sanity and tried to personally take care of his customers. If he loses too many of them, he can’t generate enough revenue to pay his expenses/debts, and bankruptcy becomes eminent (and could happen sooner than people think). The other potential kill shot is the very large sums of money that must be paid to cover legal fees, settlements, and Government fines, which combined could be crippling. Of course if Jimmy is found guilty of anything, the ball game is over regardless.
Item: Larry ‘Wahoo’ Dolan, best owner in Cleveland.
Also, the worst.
Obviously there is a line to be drawn – I wouldn’t want our owner to be some rogue, murdering psychopath – but the point of my statement was that all non-extreme non-Browns affairs should only matter to the point that they influence Browns-related matters. Yes, the publicity is bad, but as long as the organization remains unharmed we as fans should not worry.
So it would be bad if he murdered people in the traditional Aaron Hernandez way, but not if he risked doing so by using his immense wealth and political influence to personally profit off of systemic water pollution and the reckless release of heat trapping greenhouse gases? Is this where the line is to be drawn?
First off, I hope the US judicial system will start using “the traditional Aaron Hernandez way” as a classification from now on. Manslaughter < Murder < 'Aaron Hernandez way'.
Secondly, the location of this proverbial 'line' is something we as Cleveland Browns and more generally NFL fans overall have to decide on. We tolerate stars who engage in frowned upon activities already (Michael Vick, Josh Gordon, etc.), but we choose to not tolerate others (Hernandez, Burress, etc.), so the line with players has been drawn. The Haslam situation is new ground for us fans; we haven't come to a conclusion about what's tolerable with owners. It's something we all have to decide.
Revenue ain’t income. Not by a long stretch in this business. It’s really easy to generate 30BB in revenue selling $1 bills for 98 cents, just really hard to stay in business. Haslam is just a smidgen on the other side of that equation. He basically sells $1 of diesel for 102 cents.
And 103 if his salespeople (the ones who’ve already admitted guilt at least) thought the customer was dumb enough to not catch it…
OK, well if a consensus that Jimmy is the worst isn’t reached soon enough, we are all doomed.
I would argue for a 3rd way. It’s starts with “civic sports teams are a public trust that have been stolen and are being held hostage.”
I don’t need to determine who among this pack of rats is the most or least virtuous. Nor do I need to renounce my care and love for the hostage just because said hostage is currently serving the needs of these social parasites. Hopefully, one day, the hostages will be freed. Until then I will root for them to thrive as much as posible under the terms of their imprisonment.
That’s how I solve it anyway. Haslam, by his position, is the worst of the worst. But the Browns are mine.
You can’t meet debt obligations with revenue. You need free cash flow. The 30BB number is worthless, the 600MM number is closer.
Which means he now might have to sell for 101 cents for a while to get folks back in the fold. But diesel and showers and wifi and slimjims are all commodities, so I don’t see much long term “brand” risk here.
You think the customer at McDonald counts their change after the machine spits it out? Do you send in mail in rebates, and if so do you track them or treat them as a crap shoot?
Craig did it!!!
What, exactly, makes Dan Gilber the worst owner?
Ken Babby?
Take that liberal garbage somewhere else this is a sports site.
Seriously… What more could you ask for in an owner? He spends money and wants to win and he’s involved. Some people are just insatiable I guess.
you’re addressing this to the wrong person.
here’s what i wrote about gilbert.
Personally, I don’t give bad people a pass just because they’re athletes or own sports teams that I like.
http://www.clevelandfrowns.com/category/dan-gilbert-is-the-worst/
Wishes he was the worst.
You do realize that Pilot Flying J’s cost of borrowing likely skyrocketed since S&P downgraded them and that the reason S&P downgraded them is that they overstated, possibly criminally overstated, profits. The better comparison therefore might be Enron. They had a pretty impressive set of books too, before they went out of business after criminal fraud was discovered.
I guess I look at this a little differently than you do. I view him as Dan Gilbert (the owner), Dan Gilbert (the businessman) and Dan Gilbert (the person.)
The owner is a passionate man who is willing to spend money to keep the team competitive…
The businessman is a savvy and intelligent man.
The person is a cold, calculating shark who will eat whatever is within reach.
The Owner is still a good owner. The person…a bit more heartless.
I see this…I took your response the wrong way! I’m in full agreement with you.
I would suggest that the divisions between these neat little categories you’ve devised are a lot more imaginary than you’re giving them credit for being.
jkqwefjiopaw239123412asderpq23234awefsdfd
That metaphor requires a lot of unwarranted assumptions about just how much (or how little) the hostages serve the needs of these particular social parasites. The assumptions about how important or worthy of care and love these particular hostages are or what “care and love” even means in this context are questionable as well.
You can suggest it all day long, won’t really matter to me. At the end of the day, the Cavs are his investment and he will do what he can to ensure that it brings in money…which (long term) means he’ll have to spend money and this team will have to have success.
This is where the Owner meets the Businessman and the Person has a little tie in with it. But ultimately, we all have these little divisive lines that separate us. For most people, it’s simpler, because it typically ends up being a work life vs a home life. For the owners, there’s a little more to it. Adding politics in to it (which all owners doe) adds another little divisive line. The lines get blurred…but they are still present.
Ben wins
We’ll take this jibberish over you’re political points any day.
Dan Gilbert does more in one day for Cleveland than you will in you’re entire life. You are the second worst (you’re anti-Cleveland sports blog is the worst). Go away, this site is great without you butting in.
Commie rag….
link please on the possibly criminally overstated profits.
It’s an opinion/viewpoint…nobody “wins” with an opinion…but I appreciate the gesture.
C’mon – that’s completely uncalled for. We can disagree without being entirely personal against eachother.
PFJ is a private company. They only report their income to the IRS and I don’t think they would overstate income to them