Final Projects

The finishing graduate students in our Masters of Sports Business program at NYU do a final-semester research project to graduate. Last Friday, I sat through those presentations. I do a lot of grading at this time of year. My colleague, Dr. Fred Mayo, has done a marvelous job teaching our students how to do valid and reliable research, and he had the timely idea to have groups of our sports students look at the economic health and strategic plans of the major sports leagues for weathering the current financial storm. With an NHL team in bankruptcy, with fans coming disguised as empty seats in the $1.5-billion Yankee Stadium and with a marquee player in baseball suspended 50 games after testing positive for using a banned a female hormone, it’s easy to think that the NFL is in better shape than most other sports leagues, and that nearly every commissioner would trade places with Roger Goodell. 

Unfortunately, that’s what our students said -- that football has the rosiest outlook of the major sports. I disagree. The NFL faces as big a range of challenges as it has faced at any time since 1961 with the passage of the Sports Broadcasting Act, which allowed the NFL to pool broadcast revenues.

The Problems Looming

1. A Tale of Two Cities

The NFL and its teams have come to be in two very different businesses in recent years. The league manages broadcast, commercial and financial activities. Teams generate money from the gate but bear almost all the costs of creating the football product. Ask someone on the league level and they will say things aren’t so bad, and they aren’t, with $10 billion of licensing and broadcast revenue flowing through the league headquarters at 280 Park Avenue. However, ask somebody on the team level and they’re worried. Player costs have risen more than 45 percent in three years, and there hasn’t been a similar increase in revenue. While teams share in league revenues, they pay all the costs -- and players aren’t getting cheaper.

2. Two Different Customers

The teams are also nervous watching those empty $2,500 – now marked down to $1250 -- seats in Yankee Stadium because they only make money when people come to their games and, more importantly, buy their pricier upgrades like club seats and luxury boxes. If they aren’t coming for the Yankees, the dominant team in their sport in the nation’s largest market, what does that mean to football teams in smaller markets? The New York Giants have mostly sold their personal seat licenses (PSLs) for their new stadium, but they decimated a 30-year season ticket waiting list in the process. The Jets are struggling to sell theirs, and the need to sell PSLs has been a big factor in their trading for Brett Favre and trading up for Mark Sanchez. 

This isn’t as much of a problem for the folks in suits at the league level because their primary customer is a bigger audience than just the folks who come to games. It’s everybody who uses a credit card, buys a jersey and watches a game on television. The league and its teams have not been in sync for a while on who their customer is, and that split shows up on an almost daily basis. But it’s hard to grow a fan base or expand interest if the games are so costly that regular people can’t go to them.

3. Broadcasting Ain’t What it Used to Be

Advertising revenues figure to decline in the near term as auto makers struggle and beer makers consolidate. Thank heaven for fast food and cola wars or nobody would be advertising at all. It’s ad revenues that support the NFL, and it will be good if they remain flat. They could fall, and fall hard.  Expect more and more of the NFL to move off free television and end up on cable, where subscriber fees help make up for lost advertising.

4. Debt, Debt and More Debt

The NFL has the highest team valuations, but those valuations are, to a degree, carefully inflated and manipulated because they also support a high debt level. Debt is carried by the league and its teams. It is mostly good debt because it helped teams build stadiums and raise revenues, but in the face of falling or flat revenues those debt service costs will take a bite out of the product on the field. We’re already seeing coaching staffs downsized and expensive older coaches put out to pasture or opt out on their own. Players will be next. The NFL is essentially a development of “McMansions,” where all the owners have big mortgages. As long as values stay up, things will be OK, but if the overall value of franchises drop, even just a little, paying those mortgages get harder and harder.

5. Coming Labor Issues

My students thought lockout. I don’t, as the television contracts are too important to the league not to play and are up for renewal in 2011. But I see the uncapped year in 2010 being an experiment a lot of owners welcome because it also removes the salary floor. The key question is, will some teams electing to pay less and a few electing to pay more (Washington) create the kind of competitive imbalances that football hasn’t faced since the 1960s, when television revenue sharing and the common draft gave every team a chance to be competitive?

6.  Commissioners Need Accomplishments

The most successful commissioners, even the ones who just survive, usually are able to point to a remarkable accomplishment early in their tenure.  Rozelle did the television deal and Tagliabue the G3 program. Goodell is waiting for his. He might say the disciplinary policy is that defining accomplishment, but even today, there were rumors, promptly denied by the club, that the Jets had an interest in repeat offender Adam “Pacman” Jones.  The mere fact that we’re still talking about Jones -- or where the soon-to-be-free Michael Vick might be playing -- means the disciplinary policy hasn’t done enough to make it too expensive or too difficult for keep teams from giving the worst offenders their 439^th last chance. No, Goodell’s test of leadership is coming. It will be in how he steers the game through the next 12-24 months.

7.  Football Will Survive, but is it Thriving?

I’m not talking about the NFL but the health of the game at its lower levels.  There are not as many young people playing now as in the past. The regard young players are held in has changed. Maybe I just want to live in a Chip Hilton fantasy world, where the high school hero is a paragon of virtue, but how many people out there see football and football players that way today? A sport can make money off the chaos and violence of “Any Given Sunday.” Just ask Vince McMahon. But we can’t preserve a game without heroic players who represent the best of who we are. I heard from one today; they’re out there if we look -- Newark, N.J., Mayor Cory Booker, a former Stanford tight end, Rhodes Scholar and a young mayor trying to fix a long broken city. The NFL needs protect the game and the opportunity of young people to play it.

Comments

Add a Comment