Thursday, March 29, 2007

The National Football League – sports socialism at its very best

National Football League owners ended their annual meetings Wednesday evening in Phoenix with the “promise” of big news kept to an acceptable minimum. Why rock the boat, why when a business that sets the industry standard for the sports industry and offers a commitment to excellence any business dreams of achieving is doing as well as the NFL has done for the last 50 years. The NFL remains what it has always been, the goal every sports league dreams of reaching, but for a variety of reasons never will.

Much of the NFL success remains the commitment league owners have towards revenue sharing. The NFL generates more than $6 billion annually in revenues, with $3.75 billion from the league’s network television agreements. Major League Baseball teams share in baseball’s national TV revenues but franchises like the New York Yankees (owners of the YES Network) and the Boston Red Sox (owners of 75 percent of NESN, New England Sports Network) each manage to generate (an estimated total based on various media reports) more than $200 million in local television revenues. Among the reasons the Montreal Expos are now the Washington Nationals; the Expos couldn’t generate any local television rights fees. If the New York Giants or New York Jets had the rights to their football games they’d likely generate hundreds of millions of dollars annually while the Green Bay Packers would be forced to deal with the challenges the Expos faced. The NFL doesn’t share all of their revenues among the league’s 32 member franchises, but they do share more than 83 percent of their revenues, an ungodly total in an era where historically sports franchises and businesses remain focused on their own needs.

Revenue sharing can very much be a double edge sword. Each NFL franchise starts their year knowing full well it’s next to impossible for a team to lose money in a given season. However, as Daniel Rascher, the president of Sports Economics in Berkeley, California told The Economist last year the Cincinnati franchise was the NFL's fifth-most-profitable during the 1990s, despite winning the fewest games during the decade. The team simply skimped on avoidable costs, such as talent scouts, and raked in revenues from the rest of the league.

The only significant revenue NFL franchises don’t have to share with other NFL teams – the revenues generated from suites. With more than half of the current NFL teams playing in stadiums built in the last ten years (18), and new stadiums being built for all but a handful of the remaining teams having stadiums built for them. However, that may yet become an issue for smaller market NFL teams. The New York Giants and New York Jets are scheduled to move into a new state-of-the-art 82,000 seat stadium in time for the 2010 NFL season. The facility will include 150 suites and more than a handful of those suites will come with an annual price tag of $1 million a year. The two teams are looking at charging a one time PSL (personal seat license) fee of $5,000 per seat for at least half of the stadium’s 82,000 seats. The PSLs would generate more than $200 million for each team; money that would help offset the expected each team to carry $715 million in debt each team will carry for 25years.

With the Giants and Jets moving into a stadium with million dollar suites and the Dallas Cowboys likely looking at selling suites in their new stadium for more than $500,000 each, the need to increased revenue sharing among NFL teams is becoming critical. To that end, NFL owners earlier this week voted 30-2 to move forward with a plan that was first tabled at NFL meetings last March when Paul Tagliabue was still the NFL commissioner.

While the fine points of the latest revenue sharing plan will be finalized in the coming days, the plan agreed to Monday calls for the 15 highest-revenue teams to create a pool of $430 million over the next four years to subsidize the 15 lowest-revenue teams.

According to a report in The Dallas Morning News: to receive any of the money, a low-revenue franchise must have actual player costs higher than the league average of 65 percent of player spending.

But there are three qualifiers. First, if a team moves into a new or renovated stadium costing in excess of $150 million, it becomes ineligible for revenue sharing. Second, if ownership of a team changes, it too becomes ineligible. Finally, if a team's gate revenue falls below 90 percent of the league average, it also becomes ineligible.

"I thought it was a good compromise," said Cowboys owner Jerry Jones, one of the high-revenue owners. "It was a trade-off in the negotiations. The most important thing was the dollars. The only thing that really counts is the dollars. We needed to come up with a compromise on the amount of money that changes hands."

The high-revenue teams funded a pool of $100 million in 2006. That pool increases to $110 million in 2007, 2008 and 2009 for the low-revenue teams.

One of the teams that will qualify at least in the short-term will be the Buffalo Bills. The Bills will continue playing in Ralph Wilson Stadium for the foreseeable future and Wilson will own the Bills through at least the four years of the current proposed plan.

A year ago Wilson voted against the decision to extend the current NFL collective bargaining agreement. When Wilson voted against the CBA he came under a great deal of criticism from many circles, many football business pundits suggesting it was time for Wilson to get out of the NFL if he couldn’t accept how the league conducted its business affairs. Wilson’s determination proved to be a driving force behind Monday’s decision.

“Without this agreement, I’m not sure we could survive,” said Wilson, who was one of eight NFL owners on the committee that came up with the revenue-sharing formula in a Buffalo News report. “This is not the total solution. It’s sort of a Band- Aid situation, but it will help the clubs for a few years. It was something the medium- and smallmarket teams needed right now.”

“This is a strong testament to our teams’ willingness to do what is best for the league,” Bills Treasurer Jeffrey C. Littmann told The Buffalo News. “This wasn’t about a win. This was about making our case.”

“I’m certainly sympathetic to Ralph’s situation in Buffalo,” said Denver Broncos owner Patrick D. Bowlen. “From what I saw, he was pretty persuasive in, No. 1, keeping the team in Buffalo, and, No. 2, having some better revenue-sharing arrangements than we do. Ralph’s been around since Day One. So I think what he had to say and his input was very important.”

One point Wilson made clear to The Buffalo News Wednesday, he wasn't looking for anyone to tell him he was right after Monday’s vote.

“I wasn’t looking for vindication,” Wilson said. “I just wanted a deal that was fair.”

Wilson’s biggest concern a year ago remains, guaranteeing the players 60 percent of the revenues the NFL generates.

“I’m not totally satisfied, but I’m happier with this plan,” Wilson said. “It took a lot of work to make this happen.”

Reaction from most NFL owners ranged from support to a sense of resignation that the Lords of the Pigskin did what they had to do for the good for their business.

“We looked over that ledge, and we didn’t like what we saw,” New England Patriots owner Robert K. Kraft said during an interview at the Arizona Biltmore Resort, where the NFL’s annual spring meetings are being held. “Ultimately, our job, our responsibility as owners, is doing what is best for the National Football League. This is not the best plan, but it is a plan that is in the best interests of all our teams.”

“Nobody is happy,” said Robert C. McNair, owner of the Houston Texans. “So, I guess, maybe it’s a good deal that way. The important thing is, the deal got done.”

Art Rooney one of the more respected leaders in sports ownership, like his father Dan Rooney one of the founding fathers of professional football has always been about seeing the big offering his vision on where the NFL is and where it needs to be going.

"There's no question we have a problem in the league that I'm very concerned about on a going-forth basis," Rooney said during the annual NFL spring meetings in a Pittsburgh Post Gazette report. "I think the biggest problem with it really is the attitude of some of the high-revenue teams. I think the only way to say it is that they have a different attitude than some of the big-market people from the old days."

Learning from his father, Rooney reminded those ready to hear his message, in the early 1960s when New York Giants owner Wellington Mara agreed to give up his lucrative local TV contract to share national television rights with his fellow NFL owners equally. It was that revenue sharing that put virtually all of the league's teams on equal footing to compete financially and competitively.

"My fear is that we start to approach things more like some of the other leagues than the way the NFL has approached it," Rooney told The Pittsburgh Post Gazette. "To me, why change the business model that has been pretty successful? But some of these guys have a different approach to it and that worries me."

"Then you have another 10-12 teams -- some of them are doing fine, some are doing big money. That's where the revenue-sharing situation has to kick in to equalize things out."

The two teams that voted against the plan, the Jacksonville Jaguars and the Cincinnati Bengals both made it clear following Monday’s decision why they believe nothing was accomplished with the increased revenue sharing opportunity.

Jaguars Chief Financial Officer Bill Prescott told jaguars.com on Monday afternoon that he was satisfied with the plan’s qualifiers and its subsidies to the Jaguars. Owner Wayne Weaver voted “no” because the plan did not include 2010 and 11.

“If we extend the labor deal, we’re back at the negotiating table. We would’ve preferred that these qualifiers apply to 2010 and ’11,” Prescott said.

Prescott has said that his biggest concern for the Jaguars’ financial future is for when new stadiums come on line in Dallas and New York. That’s expected to occur in 2010 or ’11. Those new stadiums are expected to spike revenue to previously unimagined heights, meaning the salary cap and player costs will also spike.

“We’ll do fine for 2006-09, but when these new stadiums come on line, it’s going to drive (the cap) up,” Prescott said.

The Jaguars won’t be moving into a new stadium anytime soon, if ever. The concerns make perfect sense – the Jets/Giants stadium with suites priced at $1 million annually will have a negative impact on teams like the Jaguars who by the start of the 2010 season will be playing in outdated stadiums.

"It's a stop-gap solution," Bengals owner Mike Brown said after emerging from a meeting according to The Cincinnati Enquirer. "We have deeper problems than qualifiers. We have problems with subsidies in the league."

The Bengals a team playing in a new stadium would not qualify for the additional revenue sharing. However it’s also important to remember the Bengals made a great deal of money during the 1990’s but lost more games than any other NFL franchise. That said Brown is the son of Bengals founder Paul Brown, like Dan Rooney one of the founding fathers of professional football.

At the end of the day there is no easy answer. There are two sides to this coin. The NFL does share more than 83 percent of all of their revenues, but so called ‘new-age’ owners like Washington Redskins owner Dan Snyder and Dallas Cowboys owner Jerry Jones believe they should be rewarded for being creative in dreaming up new revenue sources for their teams. Who will win this battle – count on the common sense and belief in sports socialism will continue to be how the NFL conducts its business affairs for many years to come.

For Sports Business News this is Howard Bloom. Sources cited and used in this Insider Report: The Buffalo News, The Pittsburgh Post Gazette and the Cincinnati Enquirer

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