In Praise of Wellington

Recently, the NFL owners walked out on negotiations with the NFL players demanding a 50% revenue share proposal.  But is the biggest issue between the owners and the union?  Or is there a schism amongst the owners?

At first glance the NFL owners appear to be doing quite well given they had an “average annual return of 17.6%” between 1998 and 2008.  Yet the owners “appear to be claiming that they are not earning enough to be able to afford their labor costs.”  They appear to be focused on net operating income which they claim is “too low.” Yet they fail to take into account the above regarding the increase in the value of NFL teams.  In reality,  “the true economic return to team ownership includes both net operating income and the increase in team value.”

The owners point to Green Bay as an example of the burden of the current CBA, who by the way is the only publicly held NFL team, which is the only team required to publish an annual financial statement.  Recently as reported in the NY Times “their operating profit fell 71 percent from $34.2 million in the year ended March 31, 2007 (which coincides with the start of the current collective-bargaining agreement), to $9.8 million in the year ended last March 31. Revenue rose 18 percent in that period to $257.9 million.’’

But let’s really look at the underlying issues as it relates to small market teams, like the Packers above, versus the large market teams.  In an interview in 2007 Dan Rooney expressed his concerns about the coming rift and the ultimate fraying of revenue sharing in the NFL.  The simple equation is “Local revenue, generated primarily by the building of new stadiums” in addition to apparel, corporate sponsorships, and now  cellphone subscription revenue.  For example, Dan Snyder so far has been a terrible football owner but a great business man. Since leveraging his purchase of the Redskins “Snyder saw opportunity where others did not.”  He “has been able to more than double non-broadcasting revenue to $202 million since taking the helm by selling the stadium’s naming rights to FedEx ( FDXnews - people ), increasing the building’s capacity and maximizing premium seating opportunities.”  The Patriots have “developed the real estate near Gillette Stadium, and led the NFL in mastering social media to get feedback from fans, keeping them involved with every twist and turn of the franchise’s story, year-round.”  In addition outside of football the Patriots also own an MLS team “to help keep a steady inventory of events at the stadium.”  Finally, Jones the master marketing guru has filled his colossal Jerry Jones Palace with NBA, Super Bowl, College games/Bowls and concerts to keep generating his local revenue that should expand after this past year.  Bottom line, “the ability of larger-market teams to produce more of it has caused great imbalance in the league.”  These local revenues the larger market teams “produce is used to help determine the salary cap — and the salary floor each team must pay its players.”  Thus you have a team like the Redskins who make in excess of $300,000 in revenue and the Jaguars who make $150,000 in revenue.  Thus “sooner or later, that floor will rise high enough — because the high-revenue teams produce so much — that the Jaguars’ income won’t be enough to cover their losses.”  In addition, while the larger market teams has see a increase on value and well as local revenue “the NFL’s 10 least valuable teams all declined in value over the past year.”  This fact is exemplified by Jacksonville whose  value “fell 16% to $725 million” in the past year.

Rooney back in 2007 feared that “stadium funding in the future as a major factor as well.” For example, since Heinz Field was built with public and private money, the NFL devised a so-called “G3″ which helps fund stadium construction for its teams.”  Both Jones’ palace and the new PSL stadium were given a $150 million dollar loan on very favorable terms.  Yet we know “the costs have become enormous: The new Giants/Jets proposed stadium in New Jersey is estimated to cost $1.6 billion” while Jerry’s palace was 1.15 billion.”  This of course leads us to the “teams at the bottom of the rung (who) do not want to help fund a stadium such as that, knowing their money would go toward further enriching a top-level team and make matters worse for them.”  Yet again the NFL office cries wolf with “the increased amount of debt that the teams are currently carrying.” But from the Chicago Partners analysis if you consider “from an economic perspective, debt cannot be evaluated in absolute terms; it should instead be considered in light of the overall value of the enterprise that has incurred the debt.”   The chart in the attached link reflects the “debt- to-equity ratio.” 

Yes, debt for the owners has “increased in absolute terms”,  but “it has increased more slowly than has team value.”  In summary,  debt is now less of an issue that it has been in the past. Of course the majority of this debt was incurred by the erection of the monstrosities in Dallas and New York.  They also are not revealing that “these stadiums will generate revenue streams that will not be recognized in team income until some time in the future. In sum, NFL owner complaints about increasing debt do not appear to be well founded.”

 In the end, the biggest long term health issues appear to be within the league ownership group as a whole not between ownership and players association.  The haves and the have-nots of the ownership have a major disparity to overcome.  Wellington Mara in the 1960’s  forfeited his lucrative television contract and was thinking about the long term financial benefits of a more competitive league.  Can this be attributed to why the NFL is so popular when you think of how a team can go 5-11 one season and be a playoff contender the following season? Now we have a new age of owners who desire maximized cash flows to the detriment of the long term health of the league.  Jerry Jones and his palace wish to do away with revenue sharing as well as the salary cap.

Who is really getting screwed the most here?  

The large market owners are leveraging the popularity of the game to increase their cash flows to extreme levels through colossal corporate friendly stadiums and now proposing an 18 game schedule.  These new stadiums have been sterilized with corporate fans and pricing out long time dedicated fans.  Now they want to water down the game to an 18 game season, further proof of their short-sighted greed.  What’s not surprising is one of the smaller market team owners is against the 18 game season, Dan Rooney.

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