Thursday, November 01, 2012

The National Football League shouldn’t be calling London

The New England Patriots and the St. Louis Rams met in the National Football League’s annual “International Series Game” at London’s Wembley Stadium Sunday. The NFL has played a regular season game at Wembley beginning with the 2007 season, and have an agreement play at least one regular season game through the 2016 season in London. In the days leading up to and following the league’s annual pilgrimage to England there has been more and more suggestions the NFL will either expand or relocate a franchise London in the near future.

"You're already hosting the premier league, and we believe we're the premier sport in the world," New England Patriots owner Robert Kraft told thousands in attendance on Saturday. "I think London has shown, with the way they've handled the Olympics and every other major sporting event, that it's time for you to have your own NFL franchise, based in London.

"As these things develop and there's a permanent home team now, I'm sure they'll develop a great following," Kraft said, before broadening his thoughts to the league-wide level according to ESPN.

"Whatever we can do to cultivate playing football throughout the world ... We've been discussing that the NFL, I don't know if we've done as good a job as we could educating the rest of the world what a great game it is."

Robert Kraft is one of the NFL’s more important and influential owners. However for many reasons the NFL should not consider placing a team in England.

Forbes Magazine offered one very good reason the NFL will not be calling London anytime soon – the “U.K. Tax on Nonresident Athletes”.

According to Forbes: “What has been the subject of considerable scrutiny, however, is a law that allows the U.K. to tax a portion of a non-resident athlete’s worldwide endorsement income. This type of income is traditionally only taxed in the athlete’s home country, but in two high-profile deviations from this general rule, the U.S. and U.K. extract their pound of flesh from the endorsement income of any athlete who competes on their soil. And until recently, it was the formula employed by the U.K. taxing authorities to allocate a portion of a nonresident’s endorsement income to the country that was widely considered unjust.

Prior to 2012, this formula required an athlete to divide the number of days he or she competed within the U.K. by the number of days spent competing worldwide, before multiplying the resulting percentage by the athlete’s worldwide endorsement income.”

Forbes offered one example, one example why the National Football Players Association will never allow an NFL player to relocate to England.

Marathoner Paula Radcliffe, a former U.K. resident who relocated to Monaco primarily to avoid the oppressive tax system of her former home country. The demands of covering 26.2 miles limits Radcliffe to only two races per year, one of which is always her “hometown” London Marathon.
While Radcliffe would justifiably be subject to U.K. tax on any prize winnings from the London race, under the previous allocation system, she would also be forced to allocate an unfathomably high 50% of her worldwide endorsement income to the U.K. under the following formula: Events in U.K. (1) / Worldwide Events (2) = 50%.

Assuming Radciffe was paid $1,000,000 annually from her endorsement contracts, a staggering $500,000 would be taxed in the U.K., despite the fact that she only competed within the country for one day.

Obviously, the shortcoming of this formula is that it fails to account for the many days Radcliffe spent training for her sport, nearly all of which were logged outside the U.K. To fail to account for those training days is to take an unfair measure of the percentage of time Radcliffe spent performing her sport within the U.K.

Exacerbating the impact of this unfair allocation, the tax rate applied to a non-resident athlete’s U.K. income reaches a high of 50%. As a result, in sports where the inherent demands limits its athletes to an infrequent competition schedule, there existed a very real possibility that unless a trip to the U.K. proved particularly fruitful, it could yield more in U.K. tax than it did in winnings.

The crippling tax issue aside – there are many more reasons the NFL shouldn’t consider London.

As has been the case London regular season NFL games, the teams that participate in the game have their bye week scheduled the week after the game. Athletes traveling and competing on different continents, in this case Europe and returning to the United States, as a rule generally need one day of recovery for each hour of time difference between the city they are competing in and the city they play most of their games or live in. When a London based NFL franchise played games in North America they would face a competitive disadvantage, and when American teams played London they similarly face a competitive disadvantage.

That wasn’t how Kraft saw the reality a London based NFL team would face.

"It's part of the challenge of organizing yourself. You get different time zones, you get players sick, you get players injured," he told ESPN. "It's just part of the operating experience. We only look at the positive side and we think the way we've set things up, hopefully we have a competitive advantage week in, week out, home or away.

"I think every football coach in America that coaches in the NFL would prefer to have every one of their games at 1 o'clock Sunday at home. But that's not the way the world works."

NFL commissioner Roger Goodell has “talked” about the NFL holding a Super Bowl in London – that will never take place. The NFL believes the Super Bowl has an economic impact in excess of $400 million every year. Bidding for a coveted Super Bowl is very competitive with the NFL leveraging the right to host a Super Bowl as a reward for cities that build new stadiums (Indianapolis 2012, Dallas 2011).

Wednesday The London Telegraph reported NFL officials have contacted London Mayor Boris Johnson regarding an NFL franchise relocating to the stadium that hosted the 2012 London Olympics opening and closing ceremonies and the Games track and field events.

“Given the ever-growing popularity of gridiron this side of the Atlantic the mayor and his team have held a number of meetings with senior executives in the last few days to explore further opportunities for NFL in London.

"The talks were exploratory and we are at an early stage but the signs are encouraging.” a spokesperson for the mayor’s office told the paper.

“Sunday’s game at Wembley, in front of more than 80,000 fans, further cements London’s reputation as the natural home of American football outside of the US,” the mayor’s spokesman added. “Only last week the mayor, in conjunction with the NFL, announced an expansion from one to two regular-season matches in London from 2013. That means in total an additional $71 million in revenue for the capital from next year.”

It makes sense that one or two games be played in London each year. The NFL has two games scheduled for London next year; the Jacksonville Jaguars have agreed to move one of their home games to London for each of the next four NFL seasons.

Londoners may support one or two NFL games annually, however a team calling London home will represent much more of a commitment from a sports population who loves football, but not American football. The football Londoners and Europeans adore is called soccer in North America.

Selling 80,000 tickets for one NFL regular season game in London is no surprise. The London Monarchs were members of NFL Europe from 1991 to 1998 (the league suspended played between 1993 and 1994). The London based NFL football team failed in the British capital. While NFL Europe was a minor football league, Londoners did not support the product.

Taxes, travel and a lack of support are all good reasons why the NFL will never pursue a team relocating to London on a permanent basis, there are at least two more very good reasons why the idea doesn’t make a great deal of sense.

Los Angeles is working with the NFL to first build an NFL stadium. If that stadium is built, one or two teams will need to move to Los Angeles, or the NFL will add one or two teams through expansion and base those teams in Los Angeles.

The second issue – professional sports leagues do not like moving their franchises, they like to keep their teams where they are and work through local issues teams are facing (stadiums and attendance), moving team’s is regarded as the last choice. There are three NFL teams that “could” move in the next five years – San Diego, Jacksonville and Buffalo. A lot has to happen before any team moves and the teams will try and work through their local issues and then if they do relocate the teams will look first to Los Angeles. The NFL could add two franchises through expansion but again Los Angeles will be the likely destination of any expansion franchise.

Taxes, travel, a lack of support and Los Angeles – four simple reasons why Londoners will satisfy their NFL interest with one or two regular season games for the foreseeable future.

Sources used and cited in this insider report: ESPN and For Sports Business News this is Howard Bloom

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