Regulation of the NFL Case Study 34 pages

Regulation of the NFL

From Founding To Present

The objective of this work is to examine the American National football League (NFL) and specifically to examine the history of the NFL from its founding and its evolution to the present. This work will include a study of the structure of the NFL and the regulations of the NFL and the manner in which NFL clubs are governed and managed. Finally this work will contrast this with the Premier (English) league.

The research questions in this study include those as follows:

(1) What is the financial situation of the NFL and it clubs?

(2) What sort of turnover are the clubs achieving?

(3) Do the NFL clubs have large debt?

(4) What are the sources of income for the NFL clubs?

(5) What sort of profits are the NFL clubs making?

INTRODUCTION

The business models of the NFL Football League and the English Premier Football League are quite different as this work will demonstrate. It is likely that the differences in the business model of these two football leagues is the reason for the different financial track records of each of the leagues in terms of the financial stability of the two leagues. As well likely to be a factor in the financial success or lack thereof in these two football leagues are the regulations pertaining to ownership of the football clubs in the leagues.

I. NFL TEAM AVERAGE WORTH

It was reported by Forbes in the 2006 work entitled: “The Business of Football” that this year the average NFL team is worth $898 million” which is 211% more than when the first calculation of team values was conducted by Forbes eight years ago. The Forbes report states that football team values “have increased 11 more times than the S&P 500 since 1998. This year the average NFL team posted $30.8 million in operating income (earnings before interest, taxes, depreciation and amortization) versus $5.3 million in 1997.” (Badenhausen, Ozanian and Roney, 2006)

II. NFL TEAM OPERATING REVENUE

The following are the top-ranked NFL League Football teams along with each team’s operating income in millions for each team.

____Rank

Team

Operating income (%mil)

1

Washington Redskins

2

Houston Texans

57.6

3

Tampa Bay Buccaneers

56.9

4

Philadelphia Eagles

54.2

5

Chicago Bears

54.5

6

Tennessee Titans

48.3

7

Cleveland Browns

47.1

8

New England Patriots

43.6

9

Dallas Cowboys

37.1

10

Miami Dolphins

33.4

Source: Forbes (2009)

III. THE Business OF FOOTBALL (TAGLIABUE, 2004)

Paul Tagliabue writes in the work entitled: “The Business of Football” on the ‘State of the NFL’ that the NFL is “highly successfully. By almost any measure, we are the number one spectator sport in America by a wide margin. Our structure ensures a very strong product on the field that is attractive to a mass audience, continuing to attract and retain that mass audience is one of the key objectives of our business. The other sports leagues with which we compete may be losing their mass audience on television. We are the only league sport that continues to be prominent on broadcast television without heavily migrating to cable television.” (2004)

The NFL is stated “off the field” to have “unique structural elements unlike those of any other athletic league in the United States and probably the world.” (Tagliabue, 2004) Tagliabue writes that the League “controls the television broadcasts of our regular-season and post-season games, which have generated between 50 and 60% of our total revenue over the life of our current television contracts. We expect to have about $5 billion in revenue this year. Just over half (about $2.7 billion) will come from national television, with additional contributions coming from other national media. No other league has that kind of control over its televised product or the resulting revenues — in fact, because clubs in other sports have so many more games to telecast, it may not be possible for any other sports league to manage its television exposure in the way the NFL does.” (Tagliabue, 2004)

Tagliabue states that these arrangements with television serve to benefit the League in terms of its “competitive effect.” (2004) The League share the national media revenue “equally among the teams” so that ease club has a solid financial base on which to operate. The NFL’s player salary cap and the League’s free agency arrangements are stated by Tagliabue to be “predicated on this equal sharing of media revenue and broad sharing of the most of the rest of our revenue.” (Tagliabue, 2004) Tagliabue states that that revenue sharing in the NFL is more extensive than any other league and therefore the equal sharing of revenue and the League’s control of media exposure “are the two unique structural underpinnings” of the League that serves to differentiate the NFL from other sports leagues throughout the world. (2004)

In regards to the ‘Goals of the NFL’ Tagliabue states that just as in any other business it is “critical…to have a clear vision of its key goals and to pursue those goals with both vigor and rigor.” (2004) Tagliabue has more than 35 years of involvement with the NFL and 15 of these years as the NFL’s commissioner and he states that he has “for ten years…kept our strategic goals on one sheet of paper.” (2004) The NFL is stated to have six primary goals as follows:

(1) Continue to cultivate America’s passion for the sport of NFL football;

(2) Ensure that the game on the field is outstanding; on-field competition as the NFL’s core product;

(3) Guarantee great television that reaches a mass audience, which requires a substantial effort, especially in view of the digital and online technological revolution;

(4) To have fan-friendly stadiums for all of the teams in the League;

(5) To continue to support the development of the game at all levels — especially among America’s youth — to ensure that the game remains strong for future generations; and (6) To continue to expand our presence and fan base, both domestically and internationally. (Tagliabue, 2004)

Tagliabue states that the environment in which the NFL operates has “several over-arching considerations” and states those as follows: “First and foremost is maintaining the supply of great football-playing talent. Specifically, how do we ensure that we continue to have gifted athletes playing our sport to maintain the quality product that we supply? We do so by thinking ahead — making sure that football is as safe as it can be so that young athletes will choose football over other sports, and making sure that as demographics and as college and high school athletic programs change, football remains a viable option for the best young athletes in America and elsewhere. Many of the initiatives we have implemented to address these issues have been cooperatively devised with the NFL Players Association…” (2004)

Tagliabue states in regards to the already mentioned need for maintaining the appeal of the NFL sports for a mass audience that “In the current television environment, where the typical household may have access to between 60 and 400 channels on digital cable and satellite television, much programming, including sports programming, has been commoditized to the point where it is becoming marginalized and irrelevant. From both an advertiser’s and a sponsor’s perspective, audiences that other sports attract on 400-channel television are so marginal that the telecasts may become unattractive as an advertising platform. In many respects, the only sports that continue to have mass television audience appeal for spectators and advertisers alike are the NFL and the Olympics; they may well be the only sports that will continue to find it financially viable to use broadcast television as their main media delivery vehicle.” (2004)

Both the NFL and the Olympics are stated by Tagliabue to present 17 days of programming and he additionally states that “their programming is concentrated in terms of when it occurs (thereby generating huge fan interest), and that they continue to have broad reach on broadcast television. The Olympics last for two and a half weeks; our regular season is 17 weeks. About 125 million people watch our games every Sunday; the Olympics draw on a similar sized audience when they are at their peak. Other sports attract audiences that are only a fraction of that number…Therefore, retaining the mass appeal needed to attract such an audience is an over-arching consideration that shapes much of what we do and what concerns us.” (2004) Stated as the biggest competitive advantage that television has been for the NFL is that the NFL’s product “…is offered only one day of the week, through a broad array of regional telecasts, with key matchups of national interest featured as late games on Sunday afternoon and Sunday evening and with one Monday telecast — Monday Night Football — which has become an American television institution. Many current and potential television partners have noted this concentration of product and have proposed NFL television packages to air other nights of the week. We have approached such suggestions with caution because scheduling large numbers of games on other weekdays could conceivably fragment our audience and commoditize our product. On the other hand, we might be able to “incubate” a cable network by playing a Thursday night series of cable games, and such a network could be a long-run success that would strengthen our product as well.” (Tagliabue, 2004)

Tagliabue states that prior to proceeding with a new package it is necessary to ensure that this new package is based on “sound television premises and that it is structured to complement our other television packages rather than to cannibalize our Sunday and Monday night audiences and move us down the road to commoditization. As previously mentioned, commoditization is ultimately very negative in a 400-channel universe, and the challenge we face is how to balance the need for revenue and viewers to ensure the long-run success of our sport. In theory, greater revenues are available from cable television, which is both advertiser and subscriber supported, than from broadcast television, which is only ad-supported, but despite cable channels’ gains in viewership over the years; more viewers are still available from traditional broadcast television.” (2004)

The third stated consideration is the NFL’s ownership structure and Tagliabue states that there are some unique rules which include “…debt ceiling limits and clear limitations in terms of how teams can be financially structured with debt and equity. We are the only league that continues to prohibit companies with outside business interests from owning teams. Teams must be owned by individuals, corporations, or LLCs that are owned by individuals. For many years, in order to ensure that owners were football-focused, we even prohibited owners from owning teams in other sports leagues. (Now we allow our owners to own teams only in other sports leagues in their own community, but for both governance reasons and others, we do not allow an NFL owner to own a team in a community served by another NFL owner’s club.) We have a governance structure that requires all decisions to be made by a three-fourths vote of our membership. Whether we are voting on a playing rule, on a new owner, or on some of the most fundamental economic decisions that affect the long-term future of the sport, it takes a three-fourths consensus and vote of the membership to be adopted as League policy.” (Tagliabue, 2004)

Tagliabue states that the NFL spends a great deal of time considering the structure of the NFL and that recently addressed was the structure of the NFL’s sponsorship and retail licensing business. Tagliabue states that the owners voted on a master agreement for conduction of this business including “…everything from apparel manufacturing to soft drink advertising and distribution.” (2004) It is stated that the NFL has a “equity joint venture with Reebok through which a League-wide apparel business is conducted in addition to sponsorship agreements “at both the local club level and the League level — with a variety of business entities.” (Tagliabue, 2004)

Tagliabue cautions that the NFL needs to be careful in its pursuit of these business opportunities and in pursuit of all business opportunities to ensure that the long-run interests of the League are not imperiled. As an example Tagliabue states that “some clubs have sponsorship arrangements with hospitals, with the hospital sponsors receiving as part of the sponsorship arrangement both advertising privileges and the responsibility of providing medical care for the players. However, these arrangements raise ethical issues that must be considered — including but not limited to our need to ensure that quality medical care is being delivered to the players.” (2004) The result, according to Tagliabue is that the NFL has “…strongly discouraged some of these arrangements and have restricted these sponsorship agreements in a way that has dramatically changed the local sponsorship model originally conceived seven or eight years ago.” (2004)

Tagliabue states that he feels sure that the “new master agreement will be refined in a similar manner over the next seven or eight years as circumstances change. This evolutionary approach — refining our business models to reflect changing circumstances and to address new and previously unforeseen issues as they arise — is in many ways driven by our structure, in which both individual clubs and League-level businesses seek out new opportunities that must be harmonized with existing lines of business and overarching long-term interests.” (2004)

Tagliabue states that his role of “shepherding” the NFL which is a “diverse organization…is in many respects probably more akin to being the majority leader of the United States Senate and less like being the CEO of a typical corporation. Any time you need a super-majority vote among 32 owners, each of whom is operating in his or her own economic context and his or her own market and stadium, you have a federalist model that involves an element of consensus building and politics in the best sense of the word. All decision-making requires being responsive to the varying interests of the different constituent members of the League.” (2004)

The economic interdependence of the NFL League is stated to be the fourth over-arching consideration of the teams in the NFL. The NFL teams each share equally in more than 50% of the total NFL League revenue and additionally share approximately 80% of the total revenue in some manner. However, Tagliabue states that the revenue from non-media is not shared equally and states as an example that “…66% of ticket revenue belongs to the team that generates the revenue by selling the tickets and the remaining 34% is divided equally among all the clubs.” (2004)

There is some revenue which is in no way shared and included in that non-shared revenue is that of ‘in-stadium advertising’. (Tagliabue, 2004) However, Tagliabue states that collectively recognized is “…the importance of growing all revenue streams and increasing the League’s and clubs’ exposure throughout the nation. This recognition has produced some new and innovative policies.” (2004) The NFL is the only among all sports leagues to have invested as a league in stadiums including the new stadiums in Philadelphia, Chicago, New England and Green Bay. A stadium investment has been “in recent years…in the NFL…a three-way investment.” (Tagliabue, 2004) Monies include those which are:

(1) Public money;

(2) Team money; and (3) League money. (Tagliabue, 2004)

The League money generated for these investments have over the past five years been has been through means of assessing each team up to the money of up to $1 million each year from the annual television revenue of the team totaling $32 million. The NFL next obtained a loan in the capital markets which were supported by the revenue assessments of teams in addition to “incremental shared revenues that will be produced by the new stadium, and used the proceeds to make grants to the teams building or reconstructing stadiums.” (Tagliabue, 2004) Tagliabue states that the maximum grant amount is set at $150 million “…for a team in one of the top six television markets, and other grants are for up to $102 million. Through this subsidy program we have invested television revenue in stadiums throughout the League, with an eye towards keeping strong local presences in all our markets — especially the largest — which will, in turn, produce a continued mass audience for our games and strong television revenues over the long run. In the last five or six years, we have invested about $750 million, which we will amortize over the next 25 years. We are still making such grants to spur construction of new stadiums and will seek to devise means to continue to do so for a number of years, until every team has a new stadium. For teams in smaller markets we try to make certain that both direct and indirect economic returns are positive. Public authorities considering investing in stadiums in the context of a broad array of community obligations want — and need — to examine each potential investment carefully.” (Tagliabue, 2004)

In addition, the NFL shares investment models of stadiums to help public authorities in other cities in their decision-making and the preferred business model is one in which should be one that sustains the individual team. The example given is that the Super Bowl will be played in Jacksonville, Florida the February following this 2004 report that that the reason was because the community had “…invested a significant amount of public money in the stadium and convinced us that we should put the team there as part of our expansion process in the mid-1990s. Jacksonville is the smallest community with an NFL team; with the Super Bowl there next year, both the team and the community will be able to realize many of the types of benefits they anticipated when they invested.” (Tagliabue, 2004)

The stabilization of the relationships that the NFL has with its’ player’s association is stated by Tagliabue to be “one of the biggest accomplishments of the past decade…” (2004) This stabilization is stated by Tagliabue to be the fifth over-arching consideration of which he speaks and states specifically that this relationship’s stability has meaning “…not only in terms of the allocation of talent and the rigor of the competition on the field, but also in giving us an element of cost stability and an invaluable comparability of player costs among clubs. Currently, each club spends about $90 million annually on player compensation and benefits. The average club has approximately $160 million in revenues (including its equal share of national media revenues), so roughly 57% of the average club’s revenue goes directly to the players. This number can vary from year to year, but over any given five-year cycle, each team in the League will spend approximately the same amount on total player compensation. Thus, one way of expressing the challenge facing each NFL team, coaching staff, and owner is to note that they must decide over the next five years how to invest half a billion dollars in playing talent in an effort to win the Super Bowl.” (2004)

This investment, in terms of its “magnitude…and the public scrutiny that attaches to a club if such an investment is not made wisely, have a huge impact in terms of the skill sets that our teams bring to bear, how they are organized, and how they are able to compete for players.” Tagliabue, 2004) The player’s union has been used to address “other key issues…we have created a youth football fund to which we have allocated about $200 million over a 5- to 10-year period to promote interest in the game among young athletes. We have also funded and conducted a number of studies on safety issues, some of which have been peer reviewed by scientific organizations and are being published in professional journals, such as the Journal of Neuroscience. We have encouraged outreach efforts with our players in many areas of their communities and have worked extremely hard to align our interests with the players’ career development, education, and degree completion. Frequently, people say that our league distinguishes itself from the others because of the strength of our relationship with our players’ union.” (Tagliabue, 2004) In Germany the business audience was addressed in a speech given by Tagliabue that the NFL has a “social system of economics in a capitalist society. We have codetermination — “mitbestimmung” — with our players union and are proud of our system and its success.” (Tagliabue, 2004) The past decade the NFL has continued in its development of economic policies which are ‘integrated’ in nature. The following facts are emphasized by Tagliabue:

(1) The NFL League has supplemental revenue sharing arrangements, through which we make transfer payments of about $40 million a year to lower revenue teams to help them meet their player costs — which are the same in raw dollars as those of the highest-revenue clubs in the League — on a basis that does not stretch their economics.

(2) The debt ceiling limitations include policies requiring deferred payments to players to be pre-funded, to ensure that player commitments do not get so large as to threaten a club’s financial viability.

(3) The NFL League has continued in its development of new business models and in new areas of activity including the Internet. We continue to develop new business models in new areas of activity, such as the internet. For the most part, these models involve pooling the assets of the teams and the League and then sharing the revenues.

(4) The NFL League has an internet network, which has a portal relationship with AOL that generates traffic to our League site and to all the club sites that are linked to it in the NFL Internet Network. Other business models that are in the process of being created or expanded include the use of satellite television and satellite radio to supplement our basic over-the-air media plans; these new satellite opportunities are controlled by the League with all the revenues being shared equally. Through such measures we believe we are staying ahead of the technology that most directly affects our core League and team economics and laying the foundation for a stable future. (Tagliabue, 2004)

Tagliabue (2004) states that the NFL League needs to adapt its electronic media distribution “to new technologies” and additionally that the NFL League should “maintain the public’s respect for the athletes and everyone else involved in the game.” Other challenges stated are those which “reflect that our society is changing.” (Tagliabue, 2004) Specifically Tagliabue states that before World War II the American society was industrial in nature and one in which “…individuals did a lot of the heavy lifting in steel mills, automobile manufacturing plants, coal mines, and construction sites. In that context, football developed and thrived as a form of relaxation and entertainment. In the last half of the 20th century, as our economy became more service based, many of these formerly blue collar jobs were done either by machines or robots or some combination of the two. As a result, some of the traditional geographical sources of our playing talent have challenges sustaining participation in football at high school and intercollegiate levels. Therefore, we need to make our game more attractive to young people to encourage participation. That is a challenge because our changing national values and demographics also include increased participation of women in sports. For these reasons, both collegiate and professional football must now share a broader stage with other men’s and women’s sports, such as soccer and basketball.” (Tagliabue, 2004)

Stated as a specific need for the NFL League is adaptation to the “…changing role of America in the world.” (Tagliabue, 2004) Tagliabue relates that in the recently published book of Joseph Nye entitled: Soft Power it is argued that “…not from its military and not necessarily from its economic strength, but from the appeal of its culture, which includes entertainment and sports. Considering the increasing importance of globalization, the NFL is investing in football internationally, including an NFL-owned league in Europe. We have probably invested approximately $200 million over 10 years, and a significant part of that is being underwritten by our players’ union, which recognizes this commitment as a very important investment in both domestic and international talent development. Expanding the popularity of uniquely national sports on an international basis is a long-term process — culturally, in athletic terms, and in business terms. Professional soccer has been investing for almost 40 years in the United States and is still at its early stages of public appeal, at least at the commercial level. Basketball took 30 or 40 years to develop internationally, beginning in the late 1950s and early 1960s when European national teams started to compete successfully in the Olympics. Their development may have peaked in the 1990s and the result is a number of very talented international players. We too will eventually have a global talent pool and business opportunity if we are patient and if we understand the global environment, but it will require major long-term investment and a lot of talent development to expand our sport globally. This will probably require several generations.” (Tagliabue, 2004)

Tagliabue states in his ‘Concluding Observations’ that it appears that broadcast television while delivering the viewers may not maximize long-term revenues due to “dual advertiser and subscriber revenue streams, but the audience may eventually be less inclusive and actually shrink over time. Adapting to this changing market will be crucial to the future success of all sports.” (2004) Stated as another principal challenge for the NFL League is maintaining and continuing the “relative cohesiveness of our ownership because we have a very complex business partnership. We are doing business on a global basis. The NFL is a $5 billion enterprise with 32 team owners, each of whom is entitled to sit as a Board member-owner of the League enterprise. As three-fourths of them have to agree on any decision, building consensus, aligning interests, and maintaining cohesiveness are critical. We will be tested as we go forward on the television issues as to choices between revenues and viewers — short-term resources vs. longer-term investments. Our relationship with the players and the players association will also be tested in a variety of ways.” (2004)

Tagliabue believes that the NFL’s future is one in which the NFL will be ultimately required to “…maintain an allure and a uniqueness to our product, and this means that sometimes we may need to operate on the premise that less is more so that we will have a successful business for the long-term. If you succumb to the short-term pressures to commoditize, you will ultimately become just that: a commodity that may languish in the competition for leisure-time entertainment with other attractions, including computer screens, video games and other technology-based attractions.” (2004)

Tagliabue states that a good friend of Georgetown University, Domenico De Sole and who received the Georgetown Wall Street Alliance Award this year and CEO of Gucci was quote in The Washington Post as saying that “Gucci’s success depended on acceptance of the notion that sometimes the cash register should ring less often rather than more and that the mere volume of sales is not necessarily the ultimate barometer of the health of your business. He emphasized that the image, quality, and exclusiveness of your product are as important as weekly sales. As one example, in talking about licensing arrangements as a business model, De Sole said, in his own inimitable way, “I do not have anything against licensing,” in reference to Yves Saint Laurent, which had granted almost 200 licenses to use its brand on other products, but noted that licensing is a form of brand rental; over-licensing an otherwise attractive product “is not a business, it’s a pizza franchise.” The NFL will do everything necessary to maintain its distinctive form of sport, which is uniquely attractive to a mass audience, and we will seek to continue delivering our product as something special to both sports fans and the larger public. We will not depart from our values of intense athletic competition or allow our annual football competition — culminating in the Super Bowl — to become a commodity. And we will continue to nurture the wonderful relationships that currently exist among our owners, players, fans, and audiences. This will be increasingly important as we seek to address the challenges facing us in the future.” (Tagliabue, 2004)

IV. REVENUE GENERATORS FOR THE NFL LEAGUE CLUBS

The report entitled: “Welcome to the Club” states that the one of the biggest revenue generators as new stadiums is “club seating.” (Brenner, 2004) In fact it is reported that Chicago’s historic Soldier Field after a $655 million renovation opened in 2003 and that the original 1924 pillars were left in place but that practically everything else in the renovated stadium was brand new. The stadium now has 8,500 extra-wide, padded club seats which cost on the average $250.00 as compared to the general price of $65.00 for regular seats. These new seats are stated to have generated $18 million for the Chicago Bears in 2003. The Green Bay Packers stated to play “in the league’s smallest TV market, added more than 3,000 club seats priced at $200 last season as part of their renovation of Lambeau Field. Like the Bears, the Packers sold out their club seat inventory and generated $8 million for the team. Club seats are loosely defined as seating with added benefits like access to a private club, seat cushions or extra roomy. Only three NFL teams remain without club seats.” (Brenner, 2004) Those three are stated to be the “…Dallas Cowboys, Minnesota Vikings and San Francisco 49 ers” all of which are stated to be “…clamoring for new stadiums loaded with high-priced club seats. ” (Brenner, 2004) Presently the Jets and Giants, both New York teams are seeking “…better stadium situations that include more than the 142 club seats at Giants Stadium where both teams currently play.” (Brenner, 2004)

Brenner (2004) states that the popularity of NFL club seats arises from the economic model of the NFL in which what is the largest revenue source of the NFL ($17.6 billion in 2004) is split with Fox Entertainment, Viacom and The Walt Disney Company. Equally shared as well are the licensing revenue and gate receipts. Because of this teams are stated to be “…forced to find alternative revenue streams if they want to differentiate themselves financially.” (Brenner, 2004)

The premium on top of the base ticket price with club seats “can fall under different revenue sharing rules than general tickets. ” (Brenner, 2004) Approximately half of the NFL teams including “the Bears and Packers are exempt from doling out the normal 34% share of club seta revenue to the league’s other teams. This money gets redirected towards paying off debt on the new or renovated stadiums. So, the teams get a new stadium and the other NFL teams foot the bill for a big chunk of it. In addition to the rich ticket premiums that go along with club seats, teams earn 25% to 50% more concession revenue per person in club seats vs. general seating thanks to waiter service and higher-priced items.” (Brenner, 2004) The Redskins are stated to have 2,300 more club seats than other teams and the Patriots are stated to sell ten-year $7,500 leases on their club seats. The following table lists the best and worst club seat revenues for NFL League teams in millions.

Figure 1

Best and Worst Club Seat Revenue for NFL League Teams

Club seats can generate millions in extra revenue for NFL teams. All the teams on our worst list are seeking new stadium deals.

The Best

The Worst

Team

Club Seat Revenue ($mil)

Washington Redskins

$33

New England Patriots

26

Tampa Bay Buccaneers

20

Denver Broncos

20

Chicago Bears

18

Team

Club Seat Revenue ($mil)

Dallas Cowboys

$0

Minnesota Vikings

0

San Francisco 49 ers

0

New York Jets

.4

New York Giants

.4

Source: Brenner (2004)

V. NFL LEAGUE Business MODEL

The work of Teson, Platt, and Alexakis (2005) entitled: “Collapsing Stakeholder Groups: Insights Into Professional Sports Organizations and Competitive Positioning” states that the business format of the National Football League “is comparatively simple” when compared to the “business model of most privately owned and publicly held companies.” The NFL is stated to be “a tightly held consortium of franchises. With the exception of the Green Bay Packers [a non-profit organizations], they are privately owned entities that retain control of organizational ownership. While communications corporations have been precluded from direct club possession, it is a fact that each franchise and the media exist in symbiotic and interdependent partnerships. Together they are viable informal joint ventures, whereas separately they would not be positioned to benefit from the huge revenue opportunities currently afforded to both industries. The NFL system could not survive in its current state without constant print and electronic media coverage. While at the same time, the media organizations are reliant on the vast programming opportunities associated with the NFL. This leads to the question as to the source of these vast revenue streams. The answer to this question brings into play a third stakeholder group that would be identified as “customers” in regular commercial parlance, which are referred to as “fans” among NFL enterprises. Fan support of the NFL franchises is stable and enthusiastic.” (Teson, Platt, and Alexakis, 2005) The following figure illustrates a representative stakeholder force field diagram for each of the organizations within the NFL League.

Figure 2

NFL Governance Force Field

Source: Teson, Platt, and Alexakis (2005)

The NFL business enterprise model contains only three forces around its perimeter as compared to the standard business enterprise model which is four-dimensional. Stated as the balancing factor in the NFL’s business model is that of an external source or the media which is “…internalized by all stakeholders due to its value to each individual constituent group.” (Teson, Platt, and Alexakis, 2005) Dual arrows illustrate the mutual reliance “between the media and each governing force of an NFL franchise…” (Teson, Platt, and Alexakis, 2005)

According to Teson, Platt, and Alexakis the “customer loyalty factors are attributable to the opportunity for fans that support any specific club to witness the thrill of NFL action along with the potential to have their team emerge as champions in any given season. Contrary to the belief system of the average fan (customer), this scenario is not by chance. Instead it is orchestrated through the ‘cartel mentality’ of the 32 franchise owners within the league.” (Teson, Platt, and Alexakis, 2005) It is stated that this model, while working quite well in the sports world, “in other commercial industries would incur the wrath of the social and legal community stakeholder group if it were to attempt to replicate this model.’ (Teson, Platt, and Alexakis, 2005)

NFL franchises are said to be very lucrative for their owners guaranteeing a “substantial revenue stream and effective leverage for negotiating residual incomes beyond the ticket office.” (Teson, Platt, and Alexakis, 2005) The NFL organizations are said to have rules that are very strict geared toward protection of their interests which are collective in nature. Teson, Platt, and Alexakis states that “opportunities and freedom in the area of labor, sales of league related merchandise (licensed products), competition for fans, and media revenues are all regulated to provide barriers to entry and to eliminate competition.” (2005)

The NFL system uses a player draft that makes new players agree to a structure allowing them no opportunity to choose their first employer and in which new players are not able to seek the highest bidder. New team franchises as well must be approved by the existing owners before they can purchase a new team franchise. Added to this are the enormous entrance costs following league approval. The Cleveland Browns had to pay approximately $600 million for the right to join the NFL League. This amount was then divided among the already existing NFL franchises.

VI. ENGLISH PREMIER FOOTBALL LEAGUE

The English Premier Football League is enormously popular and enormous describes as well the investment in stadiums and facilities that have been made in this league. There are however, stated to be “doubts about the way the game is governed in England…serious concern was expressed throughout the inquiry that English football doesn’t have one single federation strong enough to govern the support.’ (All Party Parliamentary Football Group, 2009) The UEFA’s submission is reported as having stated: “There is (and should be) a single governing body responsible for English football and that is the Football Association.” (All Party Parliamentary Football Group, 2009 The argument is stated that the strength of the federation is crucial to the strength of a nation’s football and that a strong federation means strong governance.” (All Party Parliamentary Football Group, 2009) There are also recommendations stated for:

(1) Supporter-led governance;

(2) Greater representation of supporters on the FA Council;

(3) The progressive policy in setting affordable season ticket prices shown by some clubs is acknowledged and other clubs are urged to follow their example;

(4) Support for the recommendations for an independent access audit of all clubs, their facilities and services, with the necessary improvements identified and costed and a clearly defined business plan prepared;

(5) Funds should be made available from the Football Stadia Improvement Fund in cases where funds are an issue for individual clubs;

(6) We recommend that NADS should be appointed as the game’s disabled supporter consultants and extend the services they currently provide to the FSIF in which they are consulted on all improvements and additions at a club that is awarded an FSIF grant;

(7) We recommend that NADS should be afforded the same level of financial support from the game as that enjoyed by their non-disabled peers;

(8) We recommend that the Football Association and Leagues adopt FIFA’s 6+5 proposal. Whether this is to be FIFA’s 6+5 proposal or UEFA’s Home-grown proposal was a source for much debate throughout the course of the inquiry. FIFA’s 6+5 proposal states that, at the beginning of each match, each club must field at least six players who are eligible to play for the national team of the country of the club. This compares to UEFA’s Home-grown proposal which states that a certain number of players in the squad of 25 submitted to UEFA at the start of the season must be trained by the club’s own football academy and a further number of players must be trained by that club or other clubs from within the same association of the said club. Whilst we support UEFA’s efforts to formulate and implement their Home-grown proposal in the Champion’s League, as well as the Football League’s similar proposals, we must recognize that FIFA’s 6+5 proposal is more efficient and more desirable in the long-term. It is for this reason that we recommend that the Football Association and Leagues adopt FIFA’s 6+5 proposal. UEFA’s home-grown proposal is currently being used in the Champion’s League competition, with little effect on the make-up of the competing teams. The proposal to ensure that a certain number of home-grown players are included in a squad of 25 simply does not go far enough. Whilst a number of home-grown players may make the squad, still, too few are included in the starting line-ups. This proposal may well also open the door to an increase in the trafficking of young players between clubs and across countries, as clubs rush to obtain players before the age of 16, as to ensure that they qualify as ‘home-grown’. FIFA’s proposal shuts this door, as players must be eligible to play for the national team, as well as ensuring that domestic players get the opportunities to play at the highest level, week in, week out. The All Party Football Group recognizes that, at present, the proposal may contravene current EU treaties on free movement and discrimination based on nationality. Because of this, we urge the Minister for Sport and the Secretary of State for Culture, Media and Sport to lobby the EU to facilitate the adoption of FIFA’s 6+5 proposal by football associations in member states;

(9) We recommend that all Local Authorities should consider giving free or reduced-rate lets of council owned pitches to junior football teams. This should include ensuring that school pitches, particularly those renewed under the Building Schools for the Future program, are available for use by community football clubs and their junior teams. By 2010 every young person between the ages of five to 19 will be offered the chance to participate in five hours of sport every week. Although a number of local authorities already employ football coaches to work in secondary schools, we recommend that this offer should be extended to primary schools. We also recommend that those League Clubs that do not have active youth development programs should work with their local authority in order to put into place schemes that will inspire talented young footballers from their local communities, and enable them to fully develop their abilities;

(10) An important aspect in the development of the national game is the development of women’s football. At the moment the women’s game suffers from under-funding and is often not given the respect and attention it deserves. The domestic structure provides little incentive for our elite players, who are now increasingly likely to move away to countries with a more sustainable and incentivized league structure, such as in the U.S. We recognize the recent achievements of the England women’s team who have just qualified for their third major tournament in succession but we believe that, with the right resources and the introduction of a sustainable domestic structure to drive interest, participation and success, the women’s team could aim to not simply qualify in these major tournaments, but to win them. It is with this aim that we welcome the Football Association’s plans to overhaul the current league structure in the women’s domestic game, creating a new FA Women’s ‘Super League’. We sincerely hope that this League does achieve its objective of supporting and strengthening the commercial viability and sustainability of women’s football clubs, but also that it stimulates a renewed public interest in the women’s game. In order to ensure fairness and equality, as well as maintaining this renewed public interest in the game, we agree with the FA’s proposals that ‘top’ players should play for different teams across the various regions and hope that this is rigorously enforced. We look forward to seeing whether the FA’s proposal to introduce a salary cap will be effective in ensuring that this is the case. (All Party Parliamentary Football Group, 2009)

The work of Lupi and Barrio in the work entitled: “Efficiency Measurement of the English Football Premiere League with a Random Frontier Model” that the financial underpinnings of the Premier League “has created four sub-groups of clubs” which are stated to be the following four sub-groups:

(1) An elite group of three clubs that dominate the league

(2) Four or five aspiring teams that struggle to qualify for the remaining places in European competitions;

(3) Nine or ten middle-table teams whose main goal is avoiding relegation; and (4) A group of teams (in which the newly promoted clubs are usually present) that are engaged in a fight to retain category. (nd)

It is stated that it is “not unusual for teams to be relegated after one year and even to sink without trace, owing to the financial adjustments they are obligated to make afterwards. This emphasizes the importance of middle-rank clubs attracting players commensurate to their aspirations, in an attempt to prevent drifting into the relegation zone.” (Lupi and Barrio, nd) The Premier league is stated to be the richest of the European leagues “attaining revenues of approximately €1.79 in the 2002/03 season.” (Lupi and Barrio, nd) It is additionally stated that “match-day income in England still represents an important portion of revenues (around 30%)…” (Lupi and Barrio, nd) It was reported on July 24th, 2009 that “Third-party ownership is expected to cause further problems within the upcoming football season, despite a recent attempt made by the English Football Association (FA) to curb the issue.” (Lupi and Barrio, nd)

It is stated that the latest change “…may not be enough of a resolution. Last month the FA modified its regulations to help stop third parties from assuming financial stakes in particular players. The FA’s decision came on the heels of changes made by the Premier League, which banned third-party ownership as the result of a convoluted deal involving Carlos Tevez. With the latest report from Telegraph Sport suggesting that the Football League is involved in talks with the Hero Global Fund, a division of power remains uncertain. Hero is expected to issue capital to clubs in exchange for a share of their transfer fees, which could prove to be a positive experience for the League. However, concerns have been raised about the possibility of Hero influencing those clubs. Clubs have been responsive to the available assistance, based on reports that several Premier League members have contacted the organization to discuss loan possibilities. Should the clubs choose to pursue their options further, the funds would be repaid using transfer income.” (euFootballbiz.com, 2009)

Nick Hely-Hutchinson and Damien Roberts, established Hero and have as a result been “…under scrutiny since their first business model was unveiled. The first system assumed stakes in the commercial rights of young players, a method that was deemed a breach of Premier League rules. In order to avoid any players from being ‘singled out’, contracts will remain in the hands of the respective clubs and third parties will be prevented from retaining control over individuals.” (euFootballbiz.com, 2009) The Manchester, United Football Club is one of the worlds most popular. The Premier League was founded in 1992 with Manchester UFC being a founding member. Manchester UFC won the 2008-09 Premier League, the 2007-08 UEFA Champions League, and the FIFA Club World Cup. It is reported that the club has “been one of the richest in the world with the highest revenue of any football club, and is currently ranked as the richest and most valuable club in any sport, with an estimated value of £897 million (€1.333 billion / $1.8 billion) as of September 2008. Manchester United was a founding member of the now defunct G-14 group of Europe’s leading football clubs, and its replacement, the European Club Association.” (Sportsbusiness Marketplace, 2009)

It was reported in May 2009 that the English Premier League “plans to strengthen its financial regulations. The proposals come in response to a request from Sports Minister Andy Burnham and the English Football Association, who have put pressure on the Premier League to curb debt and increase financial transparency.” (Sportbusiness International, 2009) Included in the proposals in an “independent audit of club accounts” for the purpose of determining a club’s financial viability as well as being inclusive of “an annual requirement to demonstrate that a club does not have outstanding debts to other clubs, improved ownership rules requiring the disclosure of any interest in a club over a 10 per cent shareholding and an extension of the rule whereby conviction for certain offences renders a person ineligible for club ownership.” (Sportbusiness International, 2009)

If the league’s 20 clubs approve the proposal it should come into force during the next season according to this report. Transfer fees are stated to have shot up on the Premier League by 100% following a static period for four seasons at the £300 million mark and the KPMG Forensic Football Transfer Monitor is stated to show last season transfer fees to have “rocketed to over £600 million.” (Sportbusiness International, 2009) It is stated in the report that leading to litigations are “increasing levels of investment in playing staff…when disputes arise over player valuations.” (Sportbusiness International, 2009) New owners are stated to have been cited as the “key drivers of the unprecedented rise in spending. The January 2008 transfer window saw a particularly high number of big-money transfers, such as Nicolas Anelka’s move from Bolton Wanderers to Chelsea for £15 million. The window saw more than double the amount spent than in any previous January period.” (Sportbusiness International, 2009)

Figure 3

Transfer Fees Paid (English Premier Football League)

Source: Sportsbusiness International

VII. ENGLISH PREMIER FOOTBALL LEAGUE — INTERNATIONAL TV RIGHTS

It is reported in the article entitled: “International TV Rights: English Premier League” that the selling of “international television rights for top European football leagues is a rapidly-growing, big-money business. In the last five years, international rights fee revenue for Europe’s top five domestic leagues has risen over 150 per cent, from about $286 million in 2003-04 to about $730 million for the 2008-09 season. By the time English football’s Premier League concludes its international sales, revenues are likely to comfortably exceed $1 billion annually.” (Sportbusiness International, 2009) The English Premier League is stated to be ready to “come to market in 2009 to “…sell its international TV rights. Bidding will be fierce as the rights are part of an elite group of properties which act as killer content for broadcasters and media groups around the world. Knowing the rights fee for what was paid for the rights last time round will be crucial information for any major player in the sports rights market.” (Sportbusiness International, 2009)

VIII. APPFG SUGGESTIONS FOR ENGLISH FOOTBALL FINANCES

It was reported in March 2009 that the All Parliamentary Football Group (APPFG) had “delivered a frank set of suggestions regarding the finances of top English football clubs, in publishing the findings of a six-year report. Speaking to BritSport Weekly, the Premier League expressed its disappointment with not only some of the Group’s suggestions, but also its exclusion from elements of the Group’s research.” (Sportbusiness International, 2009) While complimenting the Premier League “on its status as the top domestic club competition in the world” however criticism was launched at the League in regards to “the levels of debt in English football.” (Sportbusiness International, 2009) Specifically it is stated that the level of debt is the result of “…clubs being taken over using borrowed money, and clubs are increasingly building up debt in their own right by being run without any operating profits whatsoever. Manchester United has debts of over £750 million and Chelsea £736 million, £578 million of which came from an interest-free loan from its billionaire owner Roman Abramovich. Prior to United’s takeover by the Glazer family in 2005, the European champions had no debt at all.” (Sportbusiness International, 2009) The emphasis of the Premier League in its response to the inquiry was that more focus should be invested toward the “commercial success of the League and its reinvestment of money back into sport in the country. Specifically stated is: “[The Premier League’s] levels of success are the product of a virtuous circle, whereby high playing standards generate high levels of interest, which in turn drive commercial revenues which are then invested in football’s fundamentals — players, youth development, coaching, stadium facilities, and training ground improvements.” (Sportbusiness International, 2009) The APPFG further expressed concerned of what is called ‘financial doping’ that is occurring in the Premier League clubs “…suggesting that club finances should be brought in line by limiting expenditure to a proportion of revenue, thus stopping the top sides “buying success.” (Sportbusiness International, 2009)

It was stated by the Head of Communications at the Premier League, Dan Johnson that “…that the League is working with Secretary of State for Culture, Media and Sport Andy Burnham on issues of finance and questioned the ability of the APPFG to make meaningful suggestions about club finances. It is difficult for these groups to devote the resources and the time necessary to consider these issues in the kind of detail required to reach meaningful conclusions that reflect the scope and nature of the business of football at the highest level. We made [the APPFG] aware of the significant steps made in the last decade in terms of governance and our commitment to this going forward – especially in respect of the Burnham process. What was disappointing was the focus of elements of the report on areas that weren’t included in the Inquiry’s Terms of Reference – specifically the 6+5 recommendation.” (Sportbusiness International, 2009) Johnson also noted that the APPFG “…has no statutory powers and say themselves that the purpose of this report is to stimulate a debate rather than change any laws or tell the football authorities how to run the game. All I would say is this is a debate we are already fully engaged in at both a national and European level,” Johnson added.” (Sportbusiness International, 2009)

VIII. POSITIVE REPORT APRIL 2009 – TOP OF THE FOOTBALL MONEY LEAGUE

In an April 2009 report entitled: “EPL Tops the Football Money League” it is stated that the Deloitte Annual Review of Football Finance 2009 has stated that the English Premier League Football clubs “are once again the most profitable in the world.” (Sportbusiness International, 2009) It is related that the clubs “returned collective profit of €234 million, beating into second place the Bundesliga, whose clubs returned a €136 million profit, which had been the top earning league in 2006-07. The Premier League clubs generated €2.4 billion of revenue in 2007-08 — a 26 per cent increase, spurred by the beginning of a new period of football rights deals. Deloitte predicts continued revenue growth for the league in 2009-10, although at a lower rate.” (Sportbusiness International, 2009)

It is stated that attendance at games are holding up well and that many of the clubs have either “frozen or reduced ticket prices”…However, the stepped increases in the current domestic broadcast deal and the new UEFA Champions League TV deal make it likely overall revenues will edge up. The total European football market was worth €14.6 billion in 2007-08, according to Deloitte. This represents a €1 billion increase on the previous season, driven by a €0.7 billion increase in revenues in the ‘big five’ European leagues — England, Spain, Italy, Germany, France — and the staging of Euro 2008. Spain’s La Liga and Germany’s Bundesliga came joint second after the Premier League in revenue-generation, with €1.4 billion each. For La Liga it was an 8 per cent increase; for the Bundesliga it was a 4 per cent increase.” (Sportbusiness International, 2009)

SUMMARY & CONCLUSION

This study has sought to answer several questions as follows: (1) What is the financial situation of the NFL and it clubs? (2) What sort of turnover are the clubs achieving? (3) Do the NFL clubs have large debt? (4) What are the sources of income for the NFL clubs? (5) What sort of profits are the NFL clubs making? This study has informed the reader that the average NFL team is worth approximately $898 million with an average operating income of $30.8 million before interest, taxes, depreciation and amortization. The top-ranked teams in the NFL League has been related with the Washington Redskins ranked number one with an operating income of $108.1 million. The structure of the NFL League is one that ensures a strong product on the field that a mass audience finds attractive and will continue to find attractive as the NFL retains its mass audience which is stated as one of its key objectives in business. The NFL League controls the television broadcasts of its regular-season and post-season games, which have generated between 50 and 60% of our total revenue over the life of its current television contracts. No other league has that kind of control over its televised product or the resulting revenues — because clubs in other sports have so many more games to telecast, it may not be possible for any other sports league to manage its television exposure in the way the NFL does. The League share the national media revenue “equally among the teams” so that ease club has a solid financial base on which to operate. Revenue sharing in the NFL is more extensive than any other league and therefore the equal sharing of revenue and the League’s control of media exposure “are the two unique structural underpinnings” of the League that serves to differentiate the NFL from other sports leagues throughout the world. Stated as goals of the NFL League are those as follows: (1) Continue to cultivate America’s passion for the sport of NFL football; (2) Ensure that that game on the field is outstanding; on-field competition as the NFL’s core product; (3) Guarantee great television that reaches a mass audience, which requires a substantial effort, especially in view of the digital and online technological revolution; (4) To have fan-friendly stadiums for all of the teams in the League; (5) To continue to support the development of the game at all levels — especially among America’s youth — to ensure that the game remains strong for future generations; and (6) To continue to expand our presence and fan base, both domestically and internationally. There are unique rules for the NFL League owners and teams which include rules concerning debt ceiling limits and clear limitations in terms of how teams can be financially structured with debt and equity. Additionally, teams must be owned by individuals, corporations, or LLCs that are owned by individuals. For many years, in order to ensure that owners were football-focused, we even prohibited owners from owning teams in other sports leagues. The NFL governance structure is of the nature that requires all decisions to be made by a three-fourths vote of our membership. Stadium investments have been in recent years a three way investment which includes: (1) public money; (2) team money; and (3) League money. The NFL is making grants to drive construction of new stadiums and will seek to devise means to continue to do so for a number of years, until every team has a new stadium. For smaller market teams the NFL is trying to ensure that that both direct and indirect economic returns are positive. The NFL shares investment models of stadiums to help public authorities in other cities in their decision-making and the preferred business model is one in which should be one that sustains the individual team. Each NFL club spends approximately $90 million annually on player compensation and benefits. Each club has the average approximate amount of $160 million in revenues. Over the past ten years the NFL has continued in its development of economic policies which are ‘integrated’ in nature. The NFL League has supplemental revenue sharing arrangements, through which its makes transfer payments of about $40 million a year to lower revenue teams to help them meet their player costs — which are the same in raw dollars as those of the highest-revenue clubs in the League — on a basis that does not stretch their economics. The debt ceiling limitations include policies requiring deferred payments to players to be pre-funded, to ensure that player commitments do not get so large as to threaten a club’s financial viability. The NFL League has continued in its development of new business models and in new areas of activity including the Internet. The NFL League has an internet network, which has a portal relationship with AOL that generates traffic to its League site and to all the club sites that are linked to it in the NFL Internet Network. This study has shown that club seating is the number one revenue generator for the NFL League Clubs. The NFL business enterprise model contains only three forces around its perimeter as compared to the standard business enterprise model which is four-dimensional. Because of the guarantee of a substantial stream of revenue and leverage that is effective in the negotiation of residual incomes the NFL franchises are very lucrative. In contrast the English Premier Football League is enormously popular and enormous describes as well the investment in stadiums and facilities that have been made in this league. However, there are governance problems with the Premier English Football League clubs and recommendations have been recently stated by the UEFA which have been related in this work. These recommendations have included more supporter involvement in governance of the clubs as well as including more opportunities for women in this league. The English Premier Football League from all appearances has realized the flaws that are inherent within its business structure and is making a move to become structured somewhat more like the NFL Football League.

REFERENCES

Badenhausen, Kurt, Ozanian, Michael K. And Rondey, Maya (2006) The Business of Football. Forbes. 31 Aug 2006. Online available at: http://www.forbes.com/lists/2006/30/06nfl_NFL-Team-Valuations_land.html

Barros, Carlos Pestana and Barrio, Pedro Garcia-del (nd) Efficiency Measurement of the English Football Premier League with a Random Frontier Model. Ministerio de Ciencia y Tecnologia.

Brenner, Adam (2004) Welcome to the Club. The Business of Football. Forbes 2 Sept 2004. Online available at: http://www.forbes.com/2004/09/02/cz_ab_0902nflclubseats.html

English Football and its Governance (2009) All Party Parliamentary Football Group. April 2009. Online available at: http://www.fifa.com/mm/document/affederation/federation/01/05/04/18/apfgreportonenglishfootballanditsgovernanceapril2009.pdf

EPL Tops the Football Money League (2009) Sportbusiness International. 6 Apr 2009. Online available at: http://www.sportbusiness.com/news/169582/epl-tops-football-money-league

International TV Rights: English Premier League (2009) Sportsbusiness International. 13 Mar 2009. Online available at: http://www.sportbusiness.com/reports/169017/international-tv-rights-english-premier-league

Investment Fund Gaining Acceptance from Premier League Clubs (2009) euFootballbiz.com 24 Jul 2009. Online available at: http://www.eufootball.biz/finance/7352-investment_fund_gaining_acceptance_from_premier_league_clubs.html

Litigation ‘inevitable’ following high-value Premier League Investment (2009) Sportsbusiness Interntaional 14 May 2009. Online available at: http://www.sportbusiness.com/britsport/169407/litigation-%E2%80%98inevitable%E2%80%99-following-highvalue-premier-league-investment

Manchester United Football Club (2009) SportBusiness Marketplace 25 May 2009. Online available at: http://www.sportbusiness.com/marketplace/organisation/manchester-united-football-club

Most Profitable NFL Teams (2009) Forbes. Online available at: http://www.forbes.com/2006/08/29/06nfl_profitable_slide_11.html?thisSpeed=20000

Premier League Critical of Parliamentary Report (2009) Sportbusiness International. 34 Apr 2009. Online available at: http://www.sportbusiness.com/britsport/169289/premier-league-critical-parliamentary-report

Premier League to Bolster Finance Rules (2009) sportbusiness International. Brand and Marketing. 12 May 2009. Online available at: http://www.sportbusiness.com/news/169385/premier-league-bolster-finance-rules

Tagliabue, Paul (2004) The Business of Football. Executive Policy Seminar Series. Capital Markets Research Center. Georgetown University. Online available at: http://faculty.msb.edu/prog/Cmrc/seminars/TagliabueAddress.pdf

Tesone, Dana V., Platt, Alan, Alexakis, George (2005) Collapsing Stakeholder Groups: Insights Into Professional Sports Organizations and Competitive Positioning. The Journal of Applied Business Research. Vol. 21 No. 2. Spring 2005. Online available at: http://www.cluteinstitute-onlinejournals.com/PDFs/2005247.pdf

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