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March 3, 2006

Careful With That Golden-Egg-Laying Goose

The NFL owners bicker over sharing their taxpayer-funded profits

After further review, the NFL and the NFL Players Association (the union) decided to extend their negotitating deadline from Thursday to Sunday afternoon. The two sides are trying to sort out a new labor agreement (their current deal is set to expire after the 2007 season), and were hoping to get it done before the scheduled start of free agency, which was ostensibly March 3 at 12:01 am.

Given the NFL's recent track record of business success (it's far and away the most successful and well-managed professional sports entertainment entreprise in history), the lack of a labor agreement is a bit unsettling. This is the NFL, after all. They have the best TV deal, the largest and most loyal fan base, and a positively merciless approach to how they manage their product. Surely they wouldn't want to go the way of baseball, basketball, and hockey, all of whom have had crippling (to varying degrees) labor stoppages over the past twelve years. Shouldn't the NFL's act be just a little bit more together?

Despite the absence of a deal, no one's gone so far as to suggest a work stoppage is lurking. At worst, we'll go into the 2006 season without a significant increase in the salary cap (the amount of money that each team is allowed to spend on players) and then (GASP!) the 2007 season would have no salary cap. That's the doomsday scenario: no salary cap in 2007. It'll be just like baseball! (Though, given the rewards that the league and its players have enjoyed over the past 10 years under the current system -- revenue sharing + salary cap = TV-friendly any-given-Sunday competitive parity -- this is definitely a suboptimal outcome.)

Without going into all of the details of the negotiation (ESPN has posted a good summary here), I feel empowered to cut directly to what appears to be the actual issue: whether local revenues should be part of the pool of money that is shared among the owners and is included in the calculation of the salary cap (summarized nicely by the Washington Post here).

Why all the hubbub about local revenues? The short answer is that those local revenues might be "a lot of money" (something like $2 billion) and the players want a chunk of it. More importantly, local revenues are the bright line dividing the NFL owners who make boatloads of money from the ones who only make $15 million of profit for just showing up (that's the $100 million each owner gets as a part of revenue sharing minus the $85 million salary cap).

Under the current collective-bargaining agreement, local revenues are excluded from the pool of money that is shared by the owners and the players. You'd be shocked by what the owners share; not just the TV money, but also the ticket, the merchandise and licensing sales. They're a bunch of commies!

But local revenues aren't shared. As a result, over the past 10 years, the more savvy owners have figured out that the only way to really make money is to monetize the hell out of your local market. The best way to monetize the hell out of your local market is to get a shiny new stadium. A shiny new stadium allows you to sell gobs of clever sponsorships, personal seat licenses, special luxury suite memberships, and all sorts of nifty invented membership and subscription products. Thus, the most profitable (and valuable) franchises in the NFL right now are those that have a shiny new stadium and have been aggressive about marketing it. Perhaps coincidentally, these also tend to be teams that are fairly successful on the field as well: New England, Philadelphia, Dallas, Washington, and Denver. NFL commissioner Paul Tagliabue's argument for this strategy is pretty sound: new buildings are good for the league as a whole, so why not encourage owners to get them built?

The flipside of this arrangement is that if you don't have a shiny new stadium, you're small market. Ironically, that means that along with the Saints and the Raiders, teams like the Giants, the Jets, and the Forty-Niners are all considered small-market teams. (Only in the NFL -- the league with no presence in Los Angeles, mind you -- would the two New York teams be among the have-nots! I guess that's why the League feels compelled to cheat on the Giants behalf -- enjoy the extra home game, boys -- as it's really only through the New York teams' generosity that we could have the NFL as it exists today.)

Thus, at this very moment there's a hotel conference room in New York filled with NFL owners arguing about how they should divvy up their loot. And the loot in question mostly comes from shiny new stadiums. Stadiums that, for the most part, were built with public funds. That would be the money of the citizens of their respective cities, which has subsidized the construction of the cathedral-like structures (in case you were wondering, these things run around $400 million) that are used around ten times per year. That's it. Ten times. Your taxpayer dollars at work!

I can understand the position of the owners who've invested in their business and gotten the stadia built -- wait, I go and figure out a way to make all this money and put a solid product on the field, and then the jackasses from the Forty-Niners are going to show up and ask for a cut? But do we really need to screw up my favorite TV show over this? The peoples paid for those stadia -- and the peoples want free agency to start! We like the TV show (I caught myself watching video from the NFL Scouting Combine online the other day) and we would prefer if you folks could figure out a way to keep it on the air. Do us a favor and try to figure out how to share. We all funded your cathedrals; kindly don't give us the finger.

Posted by thatkid at March 3, 2006 7:03 PM under Sports

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Posted by: Thorles at March 7, 2006 7:53 AM

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