The NFL means (big) business

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The NFL means (big) business

With $5.8 billion in revenue last year, pro football is the king of sports in Detroit and the nation.

BY JOHN GALLAGHER
FREE PRESS BUSINESS WRITER

January 28, 2006

As the National Football League brings its annual Super Bowl to Detroit next week, the nation will revel in what has become America's favorite sporting event.

But peek behind the bunting of this all-American extravaganza and you'll find a financial underpinning that is, well, pretty un-American.

No matter that the Detroit version of the Super Bowl will be played in one of capitalism's greatest cities, home to some of the world's largest companies. The NFL's family secret is that for decades the league has conducted its business according to a rigidly uncompetitive share-the-wealth formula.

The NFL's 32 teams equally split most of their annual revenues. That means even mediocre teams like the Detroit Lions suffer little or no financial penality for failure on the playing field. A stringent salary cap keeps down teams' expenses.

The irony of 32 millionaire owners like the Lions' William Clay Ford agreeing to run their sport this way is lost on no one, least of all the owners themselves.

"We're 32 fat-cat Republicans who vote socialist," Baltimore Ravens owner Art Modell quipped a few years ago.

Outsiders can only marvel at the league's success.

"Revenue sharing has led to every team having a good shot at winning and that generates competitive balance," says Phil Porter, a professor of sports economics at the University of South Florida.

"So you've got fan interest in every market in the game because in any year, anybody can win. That drives the demand side, and then you've got cost containment because you've got a salary cap. That's a great way to run a league."

NFL Commissioner Paul Tagliabue makes no apologies for the league's share-the-wealth formula. In a world of iPods, DVDs, 24-hour cable and other forms of entertainment, it's the NFL against the world.

"This kind of revenue sharing is inconsistent with the manner in which independent economic competitors conduct themselves," Tagliabue acknowledged before Congress a few years back. "It is the way business partners conduct themselves, seeking to compete not with each other, but with other outside, independent competitors in the marketplace."

Make no mistake, this system pays big-time. The NFL is America's richest sport. Lucrative TV revenues, worth more than $3.7 billion a year to the league, make up most of the bounty. So do the many new stadiums like Ford Field that communities help to build to keep or attract an NFL team.

Thanks to those factors, the NFL's total revenues have soared to $5.8 billion in 2005, up from $970 million in 1989, the year Tagliabue took over the league's front office.

The league's 32 teams share the television and radio money, revenue from national sponsorships and a portion of all ticket sales. Teams get to keep their parking and concession revenue and money from sales of luxury suites and stadium naming rights.

Under revenue sharing, each team got $87.5 million from TV revenue during 2005. Since the league's salary cap for 2005 was $85.5 million, the 32 owners almost have a built-in profit.

"The way the NFL is set up, an owner really has to work at it to lose money," Gene Upshaw, executive director of the NFL Players Association, said recently in an interview.

Most valuable sport

To show just how odd the NFL's economics can be, consider this: The doormat Detroit Lions franchise is valued by Forbes magazine at $780 million. That makes the Lions more valuable than the Pistons, the Tigers or the Red Wings. The Lions, in fact, are worth almost as much as those three Motor City professional teams combined, according to Forbes' calculations.

Here's another indicator of NFL dominance: The least-valuable pro football team, the Minnesota Vikings, is worth more ($658 million) than the most valuable pro basketball team, the New York Knicks ($543 million), according to Forbes' estimates.

The NFL's markers of success are everywhere. The Harris Poll reported in December that 33% of Americans name pro football their favorite sport, a wide and increasing margin. Just 14% of Americans now say pro baseball, the next highest, is their favorite sport, the poll found.

Moreover, 20 of the NFL's 32 teams have gotten new or substantially renovated stadiums since 1992, and four more stadiums are in the works. New stadiums typically increase attendance and sales of luxury suites and concessions, a boon to the bottom line.

Even in this monetary paradise, though, some cracks have appeared. The league needs to negotiate a new collective-bargaining agreement soon with its players, who naturally want to share more in the league's wealth.

And the issue of unshared revenues, coming from local teams' share of ticket sales, concessions and so forth, has become an issue. Richer teams want to share less with poorer teams. The league needs to resolve the dispute or risk letting greed spoil things for everybody.

Contact JOHN GALLAGHER at 313-222-5173 or gallagher@freepress.com.

Copyright © 2005 Detroit Free Press Inc.

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