Papa Johns Franchise

Kennon-Green & Co. Fiduciary Financial Advisor, Wealth Management, Global Value Investing

Feel good story for the day: Peyton Manning, the 36 year old legendary quarterback, bought 21 Papa John franchises in the Denver area a couple of weeks ago, according to Bloomberg.  It looks like he is borrowing from the Jamal Mashburn and Ulysses Bridgeman, Jr. playbook.  Those two former sports stars took their paychecks and, as their teammates spiraled into bankruptcy, invested the cash into established businesses that were simple and threw off money each year.  They now control hundreds of millions of dollars in wealth.

With the average Papa John’s franchise location costing $220,000, a decent ballpark estimate of the total investment would be $4,620,000.  Of course, I have no idea what the locations are so I can’t tell you if that is accurate but the law of averages would say it should be relatively close, give or take 10% to 20% either way.  

I could be wrong here – again I am going completely based on averages rather than specifics, which is always fraught with danger especially since I don’t know the capitalization structure of the entity he setup to operate the locations – but if he negotiated a fair price and used an all-equity approach, Manning should have added at least $40,000 in pre-tax profits to his family’s household income every month in the transaction.  As time goes on and he is able to rise prices, the original cost basis long since expended, it should be a very nice source of passive income for decades, which he can use to live on once he’s left football.

Peyton Manning Papa Johns FranchiseMany men and women seem to think celebrities such as musicians, pro athletes, and movie stars make up a majority of the rich, even though every study done by every private bank in the United States shows they are an insignificant minority of the ultra-high net worth.  People don’t get that because these folks are visible.  They also tend to be terrible stewards of wealth so whenever I see a story like this, it makes me happy.  As long as he hires good operators and doesn’t make stupid mistakes, given his age, Peyton Manning should be a billionaire by the time he is in his 70’s or 80’s.  There is no excuse for him not to be short of a cataclysmic economic collapse.

I keep an eye on Papa John’s because, although I have never bought a share, it is one of the first companies I remember analyzing in-depth and really understanding it.  I would have been 12 or 13 at the time.  It’s one of those companies that can be really attractive when the valuation is low, but otherwise, doesn’t hold much appeal given that it doesn’t distribute any cash in the form of dividend income.  A franchise would be much more appealing if you had operating skills or a big enough portfolio to hire an excellent operator as a minority partner.  That way, you control the cash.  It’s all about the cash.  I want checks flowing in every month.

It’s so nice to see good decisions when the world is full of so much folly.  Basic compounding is so interesting that based on the math alone, if the Papa John franchises are well run, Peyton Manning should generate more cumulative earnings from these franchises than he did during his football career.