The Sports Professor Rick Horrow, in conjunction with promotional partner Northern Trust, explores the three major off-season business challenges facing the NFL as it heads into its 70th draft this weekend at the Javits Center in New York City.
Halfway through the 2005 off-season, the National Football League remains the "gold standard" of professional sports. League revenues reportedly eclipse $5 billion annually. The Forbes magazine annual valuation study pegs the value of an average franchise at $630 million (up 19 percent from its previous report). Over 17 million fans attended National Football League games, well over 95 percent of capacity. Major corporate sponsorship increased exponentially; and this week's television deal with NBC and ESPN enhanced last year's blockbuster arrangement with Fox and CBS – improving the previous $17 billion arrangement by at least 25 percent.
On the other hand, the league faces considerable challenges: the long-term Collective Bargaining Agreement is yet to be finalized; a handful of stadium public/private partnerships must be finalized; the NFL (as other leagues) faces increased Congressional scrutiny over the drug testing and steroids issue, among other things.
This weekend, the league celebrates its 70th NFL Draft at the Javits Center in New York City – with traditional intense interest by fans and the media. The location of the draft itself is a symbol of off-season controversy. The league ended its relationship with Madison Square Garden after 10 years as the draft host. The contract with MSG had expired, and the league admits that MSG's "strident opposition" to the Jets plan for a new stadium on Manhattan's West Side was a "factor" in its decision to move the draft to the Javits Center. As the sports and business "experts" from each of the 32 team markets attempt to find their "long-term savior" in this year's draft, the league faces four major business challenges.
1. BUSINESS CHALLENGE ONE: REACH A LONG-TERM COLLECTIVE BARGAINING AGREEMENT EXTENSION THAT ENHANCES THE LABOR/MANAGEMENT BUSINESS PARTNERSHIP.
The "watershed combination" of a hard salary cap and league-wide revenue sharing has been in place for over a decade, and the partnership between Commissioner Paul Tagliabue and NFL Players Association Executive Director Gene Upshaw has been one of the major reasons for labor peace and stability. Players have received 64.75 percent of about 90 percent of NFL "designated gross revenue" (basically, radio and television revenues plus ticket sales).
The salary cap rose to approximately $80 million last season – up $45 million since 1994. The cap for this season will exceed $85 million, and total compensation for players exceeds $2.5 billion (up 20 percent in the last two years).
The Players Association has advocated "total revenue sharing," including stadium revenues that have traditionally been left to the domain of individual teams. The league has considered sharing all local and national revenue with its players, but with a lower percentage of the overall pot.
After the Super Bowl, Commissioner Tagliabue has increased the rhetoric – referring to the negotiations as reaching a "dead end" on more than one occasion. At the same time, the National Football League Players Association's Board of Player Representatives voted to put all annual player dues (about $18 million) into a war chest to be used in case of labor strife. The players' position has been that the revenue sharing problem is an issue for the owners to "resolve among themselves."
Negotiations are ongoing, and both sides clearly strive to avoid the Labor Armageddon of the National Hockey League, and the incendiary rhetoric of the National Basketball Association.
2. BUSINESS CHALLENGE TWO: RESOLVE ALL REMAINING STADIUM ISSUES IN ORDER TO COMPLETELY "LEVEL THE PLAYER FIELD" BETWEEN THE "HAVE" AND "HAVE-NOT" FRANCHISES.
The team "local revenues" that are not shared 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 and $100 million, compared with a $50 to $60 million range for the bottom quarter teams. Not only are these revenues not shared with the players, but the "have" teams have more money available for free agency (through signing bonuses, and otherwise) than their "have-not" brethren.
Nevertheless, the league has finalized 22 stadium deals in the last decade at a cost of $7.5 billion – by far the most of any sport.
