When all is said and done - sports biggest bang for your buck, the NFL
The National Football League continues unparalleled growth as the $4.9 billion business concludes one of the most colorful years in its 82-year history. This column was written by Rick Harrow and appeared at SportsLine.com
The 2004-2005 season opened with a $20 million musical extravaganza promoting the Thursday night opener: New England Patriots vs. Indianapolis Colts. Of 256 games, attendance increased 1.2 percent; over 17.2 million people attended NFL games at a 96 percent capacity.
Major corporate sponsorship increased over 40 percent; the blockbuster television deal with Fox and CBS improved the $17 billion revenue by at least 25 percent -- and more is on the way with the Sunday, Monday and perhaps Thursday night package left to be negotiated.
At the same time, the average ticket price for a game this season was more than $54, a 4.9 percent increase from 2003. Controversies surrounding Terrell Owens, Randy Moss and others dominated playoff headlines. And as we look toward Super Bowl XXXIX on Feb. 6 in Jacksonville, Fla., pundits are already yawning over the toned-down entertainment package, the politically mandated response to the Janet Jackson "wardrobe malfunction" last year. (Which could be considered the ultimate hypocrisy given the constant hawking of erectile dysfunction drugs during games by the league's bread and butter pharmaceutical advertisers.)
In any event, the NFL always faces major challenges, which we will analyze over the next three weeks. This week Part I explores NFL business challenges; Part II looks at the three major marketing challenges facing the league; Part III explores the specific business and marketing challenges surrounding the Super Bowl.
Preserve 'gold standard' business model
The salary cap has been in place for over a decade, and the partnership between commissioner Paul Tagliabue and NFL Players Association executive director Gene Upshaw is the major reason for labor peace and stability in the National Football League.
Players receive 65 percent of the designated gross revenue (basically, radio and television revenues plus ticket sales). The salary cap rose to approximately $80.5 million this season, up $4 million from last year and up $45 million since 1994. The official 2005 salary cap will be released in February, but most expect it to exceed $85.5 million.
Needless to say, salaries have increased substantially during this period, rising over 20 percent the past two years. Total compensation for players exceeds a whopping $2.5 billion; with a $1.3 million average salary. The Collective Bargaining Agreement has also allowed the NFLPA to generate its own sponsorship revenue. As a result, the NFLPA reported a 33 percent increase this last year to a record $76.3 million (most revenue from licensing fees and player appearances).
Nevertheless, Tagliabue and Upshaw are looking toward a March 1 deadline for negotiations to extend the Collective Bargaining Agreement in order to avoid the prospect of a 2007 without a salary cap (a feature of the old agreement).
Players have asked for a tweaking of the system, including sharing stadium, naming and other revenues that are not included in the current calculation. Players are also looking at such other issues as life-long healthcare -- given that season-ending injuries are up 20 percent from four years ago. This column was written by Rick Harrow and appeared at SportsLine.com
The league has streamlined a $650 million fund for about 3,000 retired players, which goes a long way in this regard.
The afterglow of Super Bowl XXXIX should provide substantial momentum for player/owner business partners to resolve outstanding labor issues and guarantee labor peace through the foreseeable future. Tagliabue was recently awarded a new $8 million annual contract through 2007 -- testimony to his vision in resolving these issues.
Resolve market, stadium issues rapidly
The second underpinning of the NFL gold standard involves the largest revenue-sharing plan in all of professional sports.
Since the early 1960's, NFL teams have shared all national television revenue and home and away tickets, accounting for nearly 85 percent of total revenues. This allows teams like the Green Bay Packers to remain in business. Operating income for the Packers last year was up from $153 million to $179 million -- largely because of new Lambeau Field renovations.
Important to note is that teams local revenues are not shared -- these include skyboxes, naming rights, concession and parking revenues and other stadium-related income. Published reports speculate that these local revenues for teams in the league's top quarter are between $90 million and $100 million, compared with a $50-$60 million range for the bottom-quarter teams.
It is clear that stadium and market stability is critical to the league.
Since 1995, 24 stadium deals have been completed at a total cost of well over $7 billion -- compressing the revenue game between have and have-not franchises. The list of stadium challenges continues to shrink.
The Minnesota Vikings and New Orleans Saints are campaigning for new facilities. The Indianapolis Colts reached a major agreement with the city in December. The New York Jets deal largely rests on the city's 2012 Olympic bid to be decided in July. And the San Diego Chargers will place their hopes on a 2006 stadium referendum -- the Chargers' AFC West Championship and 25 percent increase in merchandise sales may help this process. The National Football League has relocated fewer franchises than almost any other sport -- seven in the past 25 years. In any event, the NFL is analyzing a number of sites in the Los Angeles market in order to resolve that stadium situation before the end of 2005.
Overall, teams in most markets appear to be stable.
The Jacksonville Jaguars increased attendance 29.8 percent with an unexpectedly strong season. Similarly, the hot Pittsburgh Steelers saw a 6.2 percent increase, and the Cincinnati Bengals a 9.3 percent increase. Teams like the Miami Dolphins and San Francisco 49ers reduced their attendance only 1.2 percent and 3.2 percent, respectively, largely because a solid and loyal season ticket base minimized any wholesale business disruption from horrible on-field performances.
Maximize, exploit traditional, new revenue sources
Extending the bedrock TV agreement remains the key stabilizing force in NFL economics.
Pundits predicted that the $17 billion NFL television deal that expired this year could never be topped. Morgan Stanley released a report last May noting that networks would lose over $2.2 billion on the NFL through 2005. However, these predictions of doom were met with a 25-30 percent increase in the next package -- Fox and CBS will keep their respective NFC and AFC games, paying an average $2 billion annually beginning in 2006. This column was written by Rick Harrow and appeared at SportsLine.com
As the Sunday and Monday packages are finalized, and as Thursday Night Football is contemplated, the NFL can bank on more national television rights fee money annually than the NBA, Major League Baseball, NASCAR, and the NHL combined. While ratings in some areas have decreased (Fox down 1.9 percent; ABC down 4.3 percent; ESPN down 2.6 percent), television revenue continues to increase.
The NFL Network continues to expand its reach after the league invested nearly $100 million in developing coaches shows, player interviews and live NFL features. Recently, the NFL inked a carriage agreement with Adelphia for the NFL Network, NFL Network on Demand, and NFL Network HD, which will place the network in over 20 million homes, consistent with major profit projections.
Internet revenues continue to increase. During last April's draft, NFL.com drew 6.6 million unique visitors, making it fifth among monthly traffic for sports sites. Revenue from E-commerce, advertising, and rights fees (for fantasy games, and the like) will allow NFL.com to generate $140 million in revenue and over $40 million in profits this year.
While the Super Bowl continues to be a corporate bonanza (at $2.4 million per 30-second ad spot), the league has signed deals over the last six years with such brand names as Campbell Soup, Motorola, FedEx, Coors, Pepsi, Visa and MBNA.
This has led to an over 40 percent increase in corporate sponsorship league-wide. Bank of America spent $140 million over 20 years to rename Ericsson Stadium for the Carolina Panthers; Qwest is spending nearly $100 million to name the stadium with the NFL Seattle Seahawks; even Monster Cable Products, Inc. spent $6 million over four years to rename San Francisco's Candlestick Park Monster Field.
Teams are also looking to brand their stadium and surrounding properties more comprehensively than ever before. Two weeks ago, Dolphins owner Wayne Huizenga changed the name of Pro Player Stadium to Dolphin Stadium and unveiled a three-phase plan to renovate the 18-year-old facility using private financing. The $300 million renovation plan calls for retail shops, restaurants, entertainment areas, and other large-scale improvements -- ultimately themed around the tradition and history of the Dolphins.
Other teams are co-developing properties with corporate partners in Pittsburgh, Cincinnati, Green Bay, Dallas, and other cities to maximize the NFL brand and team logos.
Teams are testing the revenue envelope in other ways as well. Chicago, New England, Miami and Minnesota tested special luxury "sideline seating" -- potentially charging up to $25,000 per seat and generating up to $1 million per season, if approved. The Carolina Panthers signed a 10-year, $15 million deal with Carolina's HealthCare System to generate substantial dollars in the healthcare sponsorship category.
As teams tinker with various revenue sources, the ultimate key to profitability is always the same -- winning. The Carolina Panthers 2004 season was its most profitable ever -- 90 sponsors, up from 48 two years ago, and a 20 percent revenue gain over the $170 million from the year before.
Coming off of its Super Bowl XXXVIII appearance, the team made unanticipated profits -- thrown into uncertainty by its failure to make the playoffs this time around.
As usual, the NFL faces inevitable courtroom challenges. The New York Giants are in the middle of a lawsuit claiming a "culture of intoxication" at Giants Stadium stemming from a civil suit by the family of 7-year-old Antonia Verni -- paralyzed in an October 1999 car crash caused by a "drunken fan who drank beer earlier in the day at a Giants game." (Last week, a Hackensack, N.J., jury awarded $60 million to the family -- though not directly against the NFL.)
In Ohio, the U.S. Second Court of Appeals has denied the Maurice Clarett rehearing petition, though Clarett would have been eligible for this year's draft in any event.
Lawsuits aside, the NFL continues to be the business model emulated by all other sports. The $545 million spent by Home Depot founder Arthur Blank to purchase the Atlanta Falcons three years ago seems to be a great investment.
According to the Forbes magazine annual valuation study, average franchise values rose to over $630 million last year -- up 19 percent from the previous year. While the NFL continues to require a humongous investment to "join the club," it offers the greatest prospect of financial return. This column was written by Rick Harrow and appeared at SportsLine.com
The 2004-2005 season opened with a $20 million musical extravaganza promoting the Thursday night opener: New England Patriots vs. Indianapolis Colts. Of 256 games, attendance increased 1.2 percent; over 17.2 million people attended NFL games at a 96 percent capacity.
Major corporate sponsorship increased over 40 percent; the blockbuster television deal with Fox and CBS improved the $17 billion revenue by at least 25 percent -- and more is on the way with the Sunday, Monday and perhaps Thursday night package left to be negotiated.
At the same time, the average ticket price for a game this season was more than $54, a 4.9 percent increase from 2003. Controversies surrounding Terrell Owens, Randy Moss and others dominated playoff headlines. And as we look toward Super Bowl XXXIX on Feb. 6 in Jacksonville, Fla., pundits are already yawning over the toned-down entertainment package, the politically mandated response to the Janet Jackson "wardrobe malfunction" last year. (Which could be considered the ultimate hypocrisy given the constant hawking of erectile dysfunction drugs during games by the league's bread and butter pharmaceutical advertisers.)
In any event, the NFL always faces major challenges, which we will analyze over the next three weeks. This week Part I explores NFL business challenges; Part II looks at the three major marketing challenges facing the league; Part III explores the specific business and marketing challenges surrounding the Super Bowl.
Preserve 'gold standard' business model
The salary cap has been in place for over a decade, and the partnership between commissioner Paul Tagliabue and NFL Players Association executive director Gene Upshaw is the major reason for labor peace and stability in the National Football League.
Players receive 65 percent of the designated gross revenue (basically, radio and television revenues plus ticket sales). The salary cap rose to approximately $80.5 million this season, up $4 million from last year and up $45 million since 1994. The official 2005 salary cap will be released in February, but most expect it to exceed $85.5 million.
Needless to say, salaries have increased substantially during this period, rising over 20 percent the past two years. Total compensation for players exceeds a whopping $2.5 billion; with a $1.3 million average salary. The Collective Bargaining Agreement has also allowed the NFLPA to generate its own sponsorship revenue. As a result, the NFLPA reported a 33 percent increase this last year to a record $76.3 million (most revenue from licensing fees and player appearances).
Nevertheless, Tagliabue and Upshaw are looking toward a March 1 deadline for negotiations to extend the Collective Bargaining Agreement in order to avoid the prospect of a 2007 without a salary cap (a feature of the old agreement).
Players have asked for a tweaking of the system, including sharing stadium, naming and other revenues that are not included in the current calculation. Players are also looking at such other issues as life-long healthcare -- given that season-ending injuries are up 20 percent from four years ago. This column was written by Rick Harrow and appeared at SportsLine.com
The league has streamlined a $650 million fund for about 3,000 retired players, which goes a long way in this regard.
The afterglow of Super Bowl XXXIX should provide substantial momentum for player/owner business partners to resolve outstanding labor issues and guarantee labor peace through the foreseeable future. Tagliabue was recently awarded a new $8 million annual contract through 2007 -- testimony to his vision in resolving these issues.
Resolve market, stadium issues rapidly
The second underpinning of the NFL gold standard involves the largest revenue-sharing plan in all of professional sports.
Since the early 1960's, NFL teams have shared all national television revenue and home and away tickets, accounting for nearly 85 percent of total revenues. This allows teams like the Green Bay Packers to remain in business. Operating income for the Packers last year was up from $153 million to $179 million -- largely because of new Lambeau Field renovations.
Important to note is that teams local revenues are not shared -- these include skyboxes, naming rights, concession and parking revenues and other stadium-related income. Published reports speculate that these local revenues for teams in the league's top quarter are between $90 million and $100 million, compared with a $50-$60 million range for the bottom-quarter teams.
It is clear that stadium and market stability is critical to the league.
Since 1995, 24 stadium deals have been completed at a total cost of well over $7 billion -- compressing the revenue game between have and have-not franchises. The list of stadium challenges continues to shrink.
The Minnesota Vikings and New Orleans Saints are campaigning for new facilities. The Indianapolis Colts reached a major agreement with the city in December. The New York Jets deal largely rests on the city's 2012 Olympic bid to be decided in July. And the San Diego Chargers will place their hopes on a 2006 stadium referendum -- the Chargers' AFC West Championship and 25 percent increase in merchandise sales may help this process. The National Football League has relocated fewer franchises than almost any other sport -- seven in the past 25 years. In any event, the NFL is analyzing a number of sites in the Los Angeles market in order to resolve that stadium situation before the end of 2005.
Overall, teams in most markets appear to be stable.
The Jacksonville Jaguars increased attendance 29.8 percent with an unexpectedly strong season. Similarly, the hot Pittsburgh Steelers saw a 6.2 percent increase, and the Cincinnati Bengals a 9.3 percent increase. Teams like the Miami Dolphins and San Francisco 49ers reduced their attendance only 1.2 percent and 3.2 percent, respectively, largely because a solid and loyal season ticket base minimized any wholesale business disruption from horrible on-field performances.
Maximize, exploit traditional, new revenue sources
Extending the bedrock TV agreement remains the key stabilizing force in NFL economics.
Pundits predicted that the $17 billion NFL television deal that expired this year could never be topped. Morgan Stanley released a report last May noting that networks would lose over $2.2 billion on the NFL through 2005. However, these predictions of doom were met with a 25-30 percent increase in the next package -- Fox and CBS will keep their respective NFC and AFC games, paying an average $2 billion annually beginning in 2006. This column was written by Rick Harrow and appeared at SportsLine.com
As the Sunday and Monday packages are finalized, and as Thursday Night Football is contemplated, the NFL can bank on more national television rights fee money annually than the NBA, Major League Baseball, NASCAR, and the NHL combined. While ratings in some areas have decreased (Fox down 1.9 percent; ABC down 4.3 percent; ESPN down 2.6 percent), television revenue continues to increase.
The NFL Network continues to expand its reach after the league invested nearly $100 million in developing coaches shows, player interviews and live NFL features. Recently, the NFL inked a carriage agreement with Adelphia for the NFL Network, NFL Network on Demand, and NFL Network HD, which will place the network in over 20 million homes, consistent with major profit projections.
Internet revenues continue to increase. During last April's draft, NFL.com drew 6.6 million unique visitors, making it fifth among monthly traffic for sports sites. Revenue from E-commerce, advertising, and rights fees (for fantasy games, and the like) will allow NFL.com to generate $140 million in revenue and over $40 million in profits this year.
While the Super Bowl continues to be a corporate bonanza (at $2.4 million per 30-second ad spot), the league has signed deals over the last six years with such brand names as Campbell Soup, Motorola, FedEx, Coors, Pepsi, Visa and MBNA.
This has led to an over 40 percent increase in corporate sponsorship league-wide. Bank of America spent $140 million over 20 years to rename Ericsson Stadium for the Carolina Panthers; Qwest is spending nearly $100 million to name the stadium with the NFL Seattle Seahawks; even Monster Cable Products, Inc. spent $6 million over four years to rename San Francisco's Candlestick Park Monster Field.
Teams are also looking to brand their stadium and surrounding properties more comprehensively than ever before. Two weeks ago, Dolphins owner Wayne Huizenga changed the name of Pro Player Stadium to Dolphin Stadium and unveiled a three-phase plan to renovate the 18-year-old facility using private financing. The $300 million renovation plan calls for retail shops, restaurants, entertainment areas, and other large-scale improvements -- ultimately themed around the tradition and history of the Dolphins.
Other teams are co-developing properties with corporate partners in Pittsburgh, Cincinnati, Green Bay, Dallas, and other cities to maximize the NFL brand and team logos.
Teams are testing the revenue envelope in other ways as well. Chicago, New England, Miami and Minnesota tested special luxury "sideline seating" -- potentially charging up to $25,000 per seat and generating up to $1 million per season, if approved. The Carolina Panthers signed a 10-year, $15 million deal with Carolina's HealthCare System to generate substantial dollars in the healthcare sponsorship category.
As teams tinker with various revenue sources, the ultimate key to profitability is always the same -- winning. The Carolina Panthers 2004 season was its most profitable ever -- 90 sponsors, up from 48 two years ago, and a 20 percent revenue gain over the $170 million from the year before.
Coming off of its Super Bowl XXXVIII appearance, the team made unanticipated profits -- thrown into uncertainty by its failure to make the playoffs this time around.
As usual, the NFL faces inevitable courtroom challenges. The New York Giants are in the middle of a lawsuit claiming a "culture of intoxication" at Giants Stadium stemming from a civil suit by the family of 7-year-old Antonia Verni -- paralyzed in an October 1999 car crash caused by a "drunken fan who drank beer earlier in the day at a Giants game." (Last week, a Hackensack, N.J., jury awarded $60 million to the family -- though not directly against the NFL.)
In Ohio, the U.S. Second Court of Appeals has denied the Maurice Clarett rehearing petition, though Clarett would have been eligible for this year's draft in any event.
Lawsuits aside, the NFL continues to be the business model emulated by all other sports. The $545 million spent by Home Depot founder Arthur Blank to purchase the Atlanta Falcons three years ago seems to be a great investment.
According to the Forbes magazine annual valuation study, average franchise values rose to over $630 million last year -- up 19 percent from the previous year. While the NFL continues to require a humongous investment to "join the club," it offers the greatest prospect of financial return. This column was written by Rick Harrow and appeared at SportsLine.com
posted by SportsDoc at 8:49 AM
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