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Storied Investor's Football League Fumbles
By JOHN LETZING and JUSTIN SCHECK
Cal Sport Medi/Zuma Press Las Vegas Locomotives running back Marcel Shipp (26) avoids two Sacramento Mountain Lions defenders during a September 2011 United Football League game in Sacramento.
William Hambrecht is a storied Silicon Valley financier who helped take companies including Apple Inc. public. But as one of Mr. Hambrecht's recent investments makes clear, not all of his plays turn out as intended.
Mr. Hambrecht founded an alternative professional football league called the United Football League, which started play in 2009 and now has four teams. His goal has been to eventually stage initial public offerings for individual squads.
To make the league a reality, Mr. Hambrecht, now 77 years old, pitched it to some of his friends: New York-based private-equity investor William Mayer and Paul Pelosi, a San Francisco real-estate investor and venture capitalist whose wife is House Minority Leader Nancy Pelosi.
Messrs. Hambrecht, Mayer and Pelosi have invested a total of $120 million to $140 million in the UFL, estimates Mr. Mayer. The teams are based in Sacramento, Las Vegas, Omaha, Neb., and Virginia Beach, Va.
But things haven't worked out as planned, as the UFL has devolved into a morass of cash-flow problems and legal hassles. Many of the league's players say that despite personal guarantees from Mr. Hambrecht, they have yet to be fully paid for the 2012 season, according to interviews and documents from a lawsuit players have filed.
The UFL's number of regular-season games dropped to four a team last year, down from eight in 2010, with each of the past two seasons ending prematurely due to cash shortages. Mr. Mayer says the league will resume play in spring 2014.
In January 2012, then-UFL Commissioner Michael Huyghue resigned and shortly thereafter sued Mr. Hambrecht in a Duval County, Fla., court over unpaid salary; court documents show he was awarded a nearly $3.2 million judgment last April. Mr. Hambrecht said a settlement, for a sum he declined to disclose, has since been worked out, but not finalized. Mr. Huyghue declined to comment on the litigation.
Earlier this month, more than 70 UFL players sued Mr. Hambrecht in Nevada state court. In the suit, seeking unspecified damages, players alleged Mr. Hambrecht failed to honor personal guarantees they would be paid for their services last year.
"I tried to be very honest with everybody," says Mr. Hambrecht, noting that he intends for all UFL players to get paid eventually. He says he didn't discuss with players "deadlines" to make payments "so much as estimates of when we thought we'd come up with the money." He added, "It's just taken longer."
Mr. Hambrecht says he had wanted the UFL to launch with a broader group of investors, but the 2008 financial crisis complicated matters and the proper financing didn't materialize. Now, he says, "nobody seems to want to let this thing die."
Mr. Hambrecht says he may be able to free up funds to pay UFL players and other personnel due to a planned IPO of Sonoma County winery Truett-Hurst Inc., in which he owns a stake. Truett-Hurst filed IPO papers earlier this month. Mr. Hambrecht is also an investor in at least one other firm that he says is a potential IPO candidate. "I hope by next spring to be very liquid," he says.
Mr. Hambrecht's partners acknowledge the UFL situation is awkward. "You might ask, 'Mayer, you actually have a reputation of being a fairly sensible guy, what are you doing here, what's the matter with you?' " says Mr. Mayer, 72. "This is an expensive sport, more than I think we understood."
Adds Mr. Pelosi, also 72: "We're working diligently to pay our bills and clear the decks for next season."
Players for Mr. Pelosi's Sacramento Mountain Lions were the only ones who were fully paid after the 2012 season ended in October, according to Lions players and Mr. Pelosi. Mr. Mayer says the league is making further payments this week to players for the three other UFL teams, though they are yet to be fully compensated.
The problems Mr. Hambrecht and his partners are having underline the business hazards of pro sports. Expenses related to workers' compensation insurance for players were about twice what the three men anticipated, says Mr. Mayer. And initial efforts to gain local fans for the UFL were undercut by stationing the league's teams at an Arizona facility and flying them out to their respective cities only for games, hurting publicity and attendance.
"What we realized after the first year is, no one knows who the hell you are," Mr. Pelosi says.
Mr. Hambrecht formed investment bank Hambrecht & Quist in the late 1960s, with a then-novel focus on the technology industry. The firm underwrote IPOs for companies including Apple and Amazon.com Inc. After Chase Manhattan Corp. agreed to buy Hambrecht & Quist in 1999 for $1.35 billion, Mr. Hambrecht formed San Francisco-based WR Hambrecht + Co., an investment firm that offers an alternative auction-based model for IPOs.
In the UFL, Mr. Hambrecht owns the Las Vegas Locomotives and Omaha Nighthawks, Mr. Mayer owns the Virginia Destroyers, and Mr. Pelosi the Sacramento Mountain Lions.
The UFL initially tapped management with NFL experience like Mr. Huyghue, whose Jacksonville, Fla., UFL offices had about 30 employees. Former NFL standouts such as quarterback Jeff Garcia also signed on.
Mr. Pelosi says the Mountain Lions drew as many as 20,000 fans a game in 2010, the UFL's second season. That year, the league also began having players and coaches live in their host cities during the season.
But attracting a sufficient number of paying ticket holders proved difficult. Many attendees showed up with free, promotional tickets. "They did come," Mr. Pelosi says, "but it didn't give you revenue."
As the UFL faltered, it sought to cut costs. The Florida headquarters was replaced by local staff in the teams' host cities.
Chad Kilgore, a linebacker who signed with the Mountain Lions for the 2012 season, says the effort to curb expenses was apparent. Occasionally, he says, the team would stage so-called walk-through practices inside its hotel. "Sometimes it was the lobby of the hotel, sometimes it was a little 50-foot patch of grass by the parking lot," says Mr. Kilgore. "The whole demeanor of the team was, 'This is a joke.' "
Mr. Huyghue says he ultimately realized the UFL was becoming "a boutique league" for its owners. He says he urged the owners to suspend operations until they could secure a sufficiently lucrative television contract.
Mr. Mayer said the TV contract the league secured in July, with CBS Sports Network, while not a big money maker, is "an important building block" for the UFL. The owners say they want to press ahead and can yet capitalize on football's popularity, harvesting players on the NFL's fringes, and by staging games in non-NFL towns. "It still remains the most profitable media product there is," Mr. Hambrecht says of the sport.
After Mr. Huyghue's departure, a 2012 UFL season began belatedly last September, giving players only several days between initial practices and opening games. Former Virginia Destroyers quarterback Chris Greisen says when his team took the field for that season opener, all but one of the offensive linemen there to protect him were new.
"I got pretty battered," says Mr. Greisen, who has had stints with NFL teams including the Arizona Cardinals. He adds that he has only been paid a portion of what he is owed for last year. He hasn't joined the lawsuit filed by his fellow UFL players earlier this month.
"We will pay the balance that we owe the players shortly," says Mr. Mayer, the Destroyers owner.
In theory, the UFL will one day have between six and eight teams, Mr. Pelosi says, with possible new locations in cities like San Antonio. "Our idea now is to come back with a completely different economic model and run it like a bootstrapped startup."
Some fans are awaiting the UFL's return. "I really do love the league," says Tommy Scott, a computer programmer in Henderson, Nev., adding he enjoyed Las Vegas Locomotives games with his daughter—and even paid for the tickets.
Write to John Letzing at john.letzing@dowjones.com and Justin Scheck at justin.scheck@wsj.com
