Friday, September 08, 2006

The National Football League – heading to Canada (sooner then you think)

The National Football League opened their 2006 season Thursday night at Pittsburgh’s Heinz Field. With 32 franchises and an average value of $898 million according to the latest Forbes Magazine NFL financial valuation; business never has been better for the NFL. The 2006 season marks the twelfth consecutive season the City of Los Angeles, America’s second largest city has been without an NFL franchise. 2006 also signifies another NFL season without a franchise in what is considered the third most important North American market – Toronto. Interesting corporate moves made in the last few days, bring Toronto a great deal closer to an NFL franchise then the city has ever been before.

"We're working together on a lot of initiatives and we'll continue to do so," Larry Tanenbaum the Chairman for Maple Leaf Sports and Entertainment announced Tuesday. "The NFL may be one that Ted and I might work on."

"I second the motion," Ted Rogers, the chairman for Rogers Communications added.

Tanenbaum and Rogers are two of the most important people in the Canadian sports industry.

The NFL continues to move forward with their plans for expanding into Los Angeles, a 33rd franchise. The NFL added a 31st franchise (the Cleveland Browns in September 1998). The NFL doesn’t like odd numbers; it means one team is forced into a bye situation each week. A year after the league expanded to Cleveland, October 1999, the NFL added a 32nd franchise, the Houston Texans. The NFL expanded into Charlotte and Jacksonville in 1994. Clearly as NFL history illustrates, when the NFL expands to Los Angeles (and there will be only one team added to the Los Angeles market), the league will need to find a second city to expand to, the only obvious choice being Toronto.

Each year when Paul Tagliabue held his annual Commissioner’s press conference he’s always asked about the NFL expanding to Toronto.

“What I said about possible expansion to L.A. is that to me that the only possibility in the foreseeable future for an expansion team would be Los Angeles. I could not see, at least now, a decision that would involve a two team expansion. So if there is expansion I would think it would leave us with an odd number of teams for some period of time, which we have had in the past, most recently when we had Cleveland back in the League, but not Houston. We had 31 teams and that's been a pattern that has been in the NFL in the past. So I don't see expansion in Canada as being related to what we might do in Los Angeles” Tagliabue commented at his Super Bowl XL conference.

It’s really important to understand speaking at the Super Bowl, or any public event, Tagliabue always said what was considered politically correct. It serves no purpose for Tagliabue (or Roger Goodell at his Super Bowl XLI conference in Miami) to suggest the NFL is interested in expanding into Toronto. It wouldn’t be considered politically correct.

Many believe (especially those who follow the Canadian Football League), the CFL would be at death’s door if the NFL expanded into Canada. Dismiss that misconception as a complete lack of understanding on the part of anyone making that suggestion. The Canadian Football League was near bankruptcy in the late 1990’s and has been at the edge of the abyss many other times. The CFL has managed to survive. The league will have its good years and will have to deal with doom and gloom scenarios irregardless of whether the NFL expands into Canada. And while it may not be politically correct to talk about expanding to Toronto, heading to the Frozen North would be a great business decision, and be very sure money is what drives NFL owners.

The NFL has an office in Toronto. The NFL has a quasi player agreement with the CFL allowing CFL players to negate the last year of their contracts for an NFL contract. If the player fails to make the NFL team the player can return to their CFL franchise. Just as NFL Europe serves as a feeder league for the NFL, so does the CFL. The NFL has Canadian broadcast agreements with Global (the Fox and CBS packages) and TSN (the NBC and ESPN packages). The DirecTV package is also available through Canada’s largest cable provider, Rogers. Canada’s six all-sports radio stations each carry a full slate of NFL broadcasts, as many as 75 each year.

Tagliabue was asked another question during his Super Bowl XL press conference concerning Canada. This question focused on the NFL’s interest in playing regular season games outside of the United States, a follow-up to the game Mexico City hosted last year.

“We do think the game in Mexico was very successful and we do think it's a springboard for doing additional regular season games outside of the United States, and certainly Canada would be high on any short list. And we've had discussions with individuals in Canada and also discussions with representatives of the Canadian Football League, including the commissioner, to make sure that if we did do that it would be consistent with the goals and the growing aspirations of the Canadian Football League. But right now I think it's going to be difficult to play a regular season game outside of the United States in this upcoming 2006 season, we're still exploring alternatives, but I would think over time we would do it in Canada in the right way, in the right place.”

Tuesday Canada’s two most important sports entities began the process that will in the not too distant future create one of the largest sports ownership groups in North America – a power that will demand and earn respect. Ted Rogers owns the Toronto Blue Jays and the Rogers Centre. Rogers also owns Canada’s largest cable provider, Canada’s number two cable sports network, and three all-sports radio stations, along with many more media properties. Maple Leaf Sports and Entertainment owns the Toronto Maple Leafs, the Toronto Raptors, Toronto’s MLS expansion franchise, the Air Canada Centre and the new soccer specific stadium being built on the campus of Toronto’s York University.

Earlier this week Rogers replaced Bell as the supplier of telecommunications services to MLSE when officials from both companies mentioned the corporations would embark on more "joint ventures." On the surface the agreement doesn’t mean a great deal. However, as the two key players for both companies indicated, the initial ‘supplier agreement’ doesn’t begin to scratch the surface as to what these two companies believe they can accomplish together.

"I'm highly interested in an NFL team and Ted is too," Larry Tanenbaum, chairman of Maple Leafs Sports and Entertainment, said Tuesday. "We hope to pursue it more rigorously as soon as the NFL gives us the word." Ted is Ted Rogers, owner of the Jays.

The NFL doesn’t permit corporate ownership of franchises. There is nothing to indicate the NFL will consider changing that principal. Al Lerner paid $540 million for the Cleveland Browns expansion franchise in 1998. Bob McNair paid $700 million 13 months later for the Houston Texans expansion franchise. Every indication has the price for 33rd and 34th NFL franchises at $1 billion each. Remember each NFL team is guaranteed hundreds of millions each year from the NFL’s revenue sharing agreements. The NFL generates more then $6 billion annually and shares 83% of their revenues. If Forbes Magazine’s subjective valuation is close being right (an average value of $889 million, and there’s no reason to suspect otherwise) paying a $1 billion expansion fee might seem like a bargain.

"Rogers Communications is certainly not prepared to spend a billion dollars bringing the NFL to Toronto," Rogers said Tuesday.

That may indeed be true but there is nothing preventing Rogers from fronting a Toronto NFL ownership group that included Tanenbaum. Before Tanenbaum became the CEO for MLSE he was considered a leading contender for the NBA expansion franchise (the NBA awarded instead to John Bitove) in 1994. Together Rogers and Tanenbaum could come very close to being able to raise the $1 billion expansion fee.

"I think there's a lot of things we can do together that would be better than if we did them separately," Rogers said.

If you talk to Ted Rogers you’d believe he is soft spoken. He’s not a bombastic business person/sports owner in the tradition of a Jerry Jones. Rogers has a several key abilities the NFL looks for in potential owners. First and foremost he delicates authority. A hallmark of a Rogers’ company is Rogers hiring the right people and delegating those people the responsibility to run that company for him. He’s a man with vision and a risk taker – as long as the risk has a reasonable chance of succeeding.

Interestingly the one man who’s dreamed of bringing an NFL franchise to Toronto for decades, Paul Godfrey, is the President of the Toronto Blue Jays. As the head of Toronto’s City Council and then as Toronto’s Mayor Godfrey was a key person when the American League awarded an expansion franchise to Toronto in 1976. He also played an important role in getting the SkyDome (now the Rogers Centre) built in 1989. Godfrey has the innate ability to bring people with money together and move forward on major and very costly projects. Given that Godfrey has wanted to secure an NFL franchise for Toronto for at least the last 25 years, now that he has the right people interested, Paul Godfrey finally is nearing the red zone. He knows how to get the ball into the end zone, with the end result being the awarding of an NFL expansion franchise to Toronto.

Currently the biggest stadium capable of being home to an NFL franchise is the Rogers Centre. The home of the Blue Jays and the CFL’s Toronto Argonauts seats 56,000 for football. There are more then 140 suites and a level of club seating two important revenue generating amenities NFL stadiums need. The 56,000 seats are a very big issue. NFL teams need at least 65,000 seats to have a reasonable chance to be financially viable. Heinz Field, the home of the Super Bowl Champion Pittsburgh Steelers, opened in August 2001 seats 65,050. One end of the Rogers Centre features a hotel. The hotel which has changed financial hands several times since it opened along with the stadium in 1989 has always lost money, a great deal of money. Many believe it’s an albatross, a burden for anyone who owns the property.

Although it hasn’t been made pubic, architectural plans exist (Godfrey has access to the plans) whereby the hotel would be torn down, and replaced by at least 14,000 additional seats. It would be costly but far less expensive then building a new stadium. If Toronto had been awarded the 2008 Summer Olympics, a stadium would have been built for the Games that could have become home to an NFL team. Retro-fitting the Rogers Centre will be a costly undertaking, but one that can be accomplished and in a short period of time – retro fitting the Rogers Centre, increasing the capacity to close to 70,000 good enough for an NFL expansion franchise.

Godfrey carefully stepped into the debate Wednesday afternoon appearing on a Toronto radio station.

"It seems to be that some people at least are discussing the possibility that the NFL would like to improve some of the cities that they're in now by taking out some of the weaker ones and putting in stronger ones," he told AM680. "That would auger well for Toronto in that case."

Earlier Wednesday, Toronto’s Mayor David Miller when asked by reporters how he felt about the possibility Toronto could be home to an NFL franchise, offered the politically correct response.

"My understanding is the NFL doesn't seem overly interested in expanding into Canada," he told reporters. "My concern is the viability of the CFL. It's our Canadian league and the Toronto Argonauts have to be a flagship franchise in that league for the league to succeed."

Separating fact from fiction, here’s why the NFL’s 34th franchise will end up in Toronto:

The NFL is going to expand to Los Angeles. Despite comments Paul Tagliabue made at Super Bowl XL, the NFL has always expanded by two. It makes no sense whatsoever to add only one franchise, the scheduling headaches are enormous. The NFL’s bye weekends allow every franchise to open and close their seasons at the same time. History dictates the NFL will continue to follow that thought process

By moving into Canada the effect on the American television market would be nil, properly positioned a Toronto based NFL franchise could be marketed as a ‘national’ franchise. Canadians do not react well to Torontonians believing they are the center of Canada’s universe. The team could play a pre-season game in Montreal, Toronto or Edmonton and hold their training camp in the Ottawa area. In other words, build the teams’ brand as Canadian and be sensitive towards Canadians. A Toronto based franchise will be great for the business of the NFL and the franchise can be positioned as a national franchise. That would give the NFL access to more then 35 million people.

There are those who believe American markets exist that could be home to an NFL expansion franchise other then Los Angeles. San Antonio’s Alamodome seats just over 58,000 for football and the good citizens of San Antonio won’t build a new football stadium. Orlando, don’t kid yourself. The Citrus Bowl isn’t big enough and Orlando has a tourist driven economy, a transient population has never been a good formula for supporting a football franchise. Hartford, that plan died on the vine when Robert Kraft used the interest the Connecticut city had in building a new stadium for the Patriots to leverage Hartford’s interest in keeping the team in Massachusetts. Las Vegas has long been interested in an NFL franchise – as long as Vegas sports books allow betting on football (more then $40 million a year), that will never happen.

There has also been some discussion about two expansion franchises being added to the Los Angeles market. That doesn’t make any sense. There are enough concerns regarding the viability of the NFL in the Los Angeles market. Many believe the market is well served by the USC Trojans and the UCLA Bruins. Putting two franchises into a market doesn’t make any sense. That said, the NFL needs to put one franchise into the Los Angeles market and it needs to do that sooner rather then later. It will be challenging enough to make one franchise work in the Los Angeles market, two expansion teams is nonsensical.

There have been talks about placing an expansion franchise in Mexico City. The Hispanic market is very important to the NFL but the security concerns a team in Latin America would represent to the players and their families it’s never going to take place. With all due respect, the NFL Players Association will never allow the league to expand to Mexico City without the league and/or the team assuming astronomical personal security for athlete and their each family member. Imagine Denzel Washington’s 2004 film “Man on Fire” in a real life situation with an NFL player or a member of his family.

Ted Rogers represents the perfect ‘front man’ or lead owner the NFL loves. He offers the league the largest media platform any individual can provide the league in Canada. In Larry Tanenbaum, the NFL has a partner already fully vetted by the National Basketball Association. The NFL doesn’t like their owners to own other major sports franchises. The Toronto Blue Jays, Maple Leafs, Raptors and the expansion MLS franchises all closely linked to Rogers and Tanenbaum are owned by corporations and ownership groups, not by Rogers or Tanenbaum personally.

Rogers understands content is king. An NFL franchise would represent untold content for his all-sports radio stations, cable sports network and other media platforms. When Rogers (the company) purchased the Blue Jays, Ted Rogers (the CEO) made it clear he believed a tremendous synergy could be created between the Blue Jays and every facet of the Rogers media empire.

Tanenbaum has consistently shown a strong interest in playing with the ‘big boys’. When Larry Tanenbaum wants something he has the drive and determination to find a way to get it done.

Paul Godfrey has proven on numerous occasions he has the ability to bring people and money together to create what he believes are world-class opportunities for Toronto. His biggest dream has always been an NFL franchise – he’s consumed by that goal, and with a proven track record he’ll find a way to get the deal done.

The Rogers Centre can be retrofitted to meet NFL standards, increasing the seating capacity to around 70,000. There are logistics in getting this done, but none of them are insurmountable.

The NFL can make whatever politically correct statements they believe they need to make about the future of the CFL and expanding into Canada, but at the end of the day Roger Goodell as the NFL’s eighth commissioner is responsible for creating new revenue sources for his 32 bosses, the 32 men who hired him. During Paul Tagliabue’s 17 years the NFL added four teams who collectively paid expansion fees totaling $1.54 billion. Two franchises each paying a $1 billion expansion fee will make Roger Goodell look like God to his 32 bosses. Goodell has every incentive to make it work.

For Sports Business News, this is Howard Bloom.