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Is NFL's economic model starting to strain?

WashPost: League's holy grail — revenue sharing — coming under fire from owners sick of sharing.
/ Source: a href="http://www.washingtonpost.com/wp-srv/front.htm" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

As the National Football League playoffs begin today, culminating in the Super Bowl on Feb. 6 in Jacksonville, Fla., the 32 team owners have much to gloat about. They just concluded another record-setting regular season in which league revenue climbed to $5.2 billion and recently brokered the richest television deal in sports history.

But there is mounting concern within the league that the economic model that has made professional football the dominant sports league in the United States may be at risk.

Led by Daniel Snyder of the Washington Redskins and Jerry Jones of the Dallas Cowboys, a growing number of NFL owners are questioning the league's once sacrosanct business code under which a large portion of revenue — the vast majority of it raised through TV broadcast rights — is to be shared equally among the franchises.

Under the system, every NFL owner starts the year on a level playing field, with nearly $100 million from NFL broadcast rights, national NFL sponsorships with companies such as Gatorade, and a redistributed portion of ticket sales. This all-for-one-and-one-for-all spirit, its supporters say, has been the backbone of the NFL's economic and competitive success, since it spreads the wealth and helps give every team, from the Packers in tiny Green Bay, Wis., to the Giants in metropolitan New York, a shot at winning a title — and turning a nice profit.

Snyder, Jones and about a half-dozen other owners, however, are asking just how much of its enormous revenue the league should continue to share evenly. They argue that the existing model can reduce incentives among more entrepreneurial owners who are generating enormous sums on their own through local marketing, promotional and broadcast deals. This unshared revenue is estimated to have swelled to about $2 billion a year.

Although there is little evidence to suggest that generating wealth off the field translates into success on it, many team owners are wary that if the disparity continues to grow the NFL will head in the direction of Major League Baseball, in which a handful of wealthy, big-market teams such as the New York Yankees and Boston Red Sox grow into financial dynasties that tower over the sport.

"It's an important, critical time," Indianapolis Colts owner Jim Irsay said. "It's like a freight train that is starting to go in the wrong direction. It's hard to stop, especially if it gets too far down the tracks. Are we headed where baseball is? No. But it is trending in that direction."

"This league was based on people being partners and being together and helping out," Pittsburgh Steelers owner Dan Rooney said. "It's one of the strong points of our league — the competitiveness, the idea of 'on any given Sunday.' It's a matter of fairness. We need to address this to maintain the way this league has always worked successfully. Everyone recognizes the problem, [but] the guys with a lot of money don't want to give [the money] up."

Other owners disagree. "I don't see a crisis," said Bob McNair, owner of the Houston Texans and chairman of an NFL committee studying league economics. "In the last 10 years or so, we had some 18 new stadiums built. It was an unusually large number in that time frame so it sort of created a blip and all of a sudden you had a one-time jump in local revenues. In the next 10 years, you will probably see an increase in [shared] national revenues."

McNair and fellow committee member Robert Kraft, owner of the defending Super Bowl champion New England Patriots, want to preserve the bulk of revenue sharing. But they said it is important that all franchises learn to make money on their own and lessen their dependency on a redistribution of the league's wealth each year.

"Whether you are a small market or a large market, you have to manage the business like any other industry, controlling costs, getting value for the money you spend and being sure you are giving your customers a quality product," Kraft said. "If we don't maintain our entrepreneurial spirit, then our league will die."

Kraft added, "We should have a revenue sharing system that preserves what we have always been doing, but I don't think there should be any free lunches."

Snyder and Jones declined through spokesmen to comment for this article.

NFL Commissioner Paul Tagliabue formed McNair's committee last spring to look into the revenue sharing subject after a heated discussion in which Snyder, Jones and Miami Dolphins owner Wayne Huizenga voted against an extension of the NFL Trust, a 40-year-old system under which league merchandise sales are divided equally.

NFL Players Association Executive Director Gene Upshaw warned owners in Detroit last October that eight franchises were gaining an unfair competitive advantage because of their revenue growth. He said the union intended to make revenue sharing a major issue in negotiations over a new labor agreement. Although Upshaw did not name the teams, they are widely assumed to be the Redskins, Cowboys, Texans, Patriots, Philadelphia Eagles, Denver Broncos, Cleveland Browns and Chicago Bears.

Upshaw said during a recent interview that if some owners are mismanaging their franchises, the NFL should fix the problem. "I told Jerry [Jones] in Detroit, if they have some owners who are non-performers, they should do what they do to . . . players, and cut them. The revenue sharing has to be solved. They have to be creative and find a way to make this work."

The NFL's complicated economics work like this: Every owner starts out with nearly $100 million a year each from national television and radio contracts, national sponsorships and one-third of ticket revenues from each game played, which is pooled and redistributed equally among all teams. The clubs also receive equal portions from a 12 percent royalty on every NFL-branded piece of merchandise. In all, about $3 billion of the $5.2 billion pot is shared equally.

Under the current collective bargaining agreement, which expires at the end of the 2007 season, an annual ceiling is placed on player payrolls, the single biggest cost item for every franchise. In 2004, that per-team salary cap was $80.58 million, or about 65 percent of defined league revenues.

After the $100 million distribution from the league, teams are largely on their own.

What generally distinguishes the Cowboys, Patriots, Redskins and a few other franchises from less well-off teams is that they play in new stadiums in big, wealthy markets with loyal fans. Snyder, for example, owns FedEx Field and has turned the Redskins into the highest-grossing team in football, with revenues that outpace the Arizona Cardinals by an estimated $100 million a year. The Cardinals have one of the worst stadium deals in the league and are building a new, state-of-the-art facility.

But it is not just the stadium. Texas Stadium, where the Cowboys play, is outdated, but the Cowboys are one of the league's richest franchises. What also sets Snyder, Jones and some of the other owners apart is their knack for creating additional revenue opportunities outside the normal channels of tickets and broadcasting. They share an aggressive posture in which they tap into income sources such as stadium naming rights, luxury suites and sponsorships, local radio and television deals, pre- and post-game clubs, corporate entertainment and even schemes like away-game travel, where fans pay to travel with the team.

When the Redskins' and Cowboys' cheerleaders aren't on the field or at team events, they model swimsuits for team calendars. The Eagles' cheerleaders model for Philadelphia's calendar wearing lingerie.

In this respect, the rich-poor divide is cultural and generational as well, pitting some of the league's old guard such as the Steelers and Giants — franchises that have been owned by one family for decades — against younger, newer owners. The Giants, Steelers, Bears and Detroit Lions don't even have cheerleaders.

The Redskins' annual revenue has increased from more than $100 million a year when Snyder took over the team in 1999 to around $245 million. Forbes magazine estimates that the Redskins, which Snyder bought for $800 million, are worth more than $1 billion now, thanks largely to Snyder's marketing savvy and squeeze-in-every-seat approach at FedEx Field. Snyder has added around 12,000 seats, boosting the stadium's capacity to 91,665, the biggest in the NFL.

Of course, none of that has helped the Redskins on the field. They have only one winning season since 1999. Indeed, eight of this year's 12 playoff teams were in the bottom half of league revenues in 2003, based on the Forbes study. The bottom-half teams include the Steelers, who have a 15-1 record and are favored by many to win the Super Bowl.

It bolsters the argument by some that NFL success has more to do with management than money.

"There is no correlation between high-revenue teams and winning percentage," McNair said. "And no correlation between salaries paid and winning percentage. We have a good balance in the NFL and the number of teams in the highest payroll quartile are located in the lowest quartile of revenue teams."

What extra cash can do is enable teams to spend their way around the restraints of the salary cap — at least over the short term — by restructuring players' contracts by putting cash in the players' pockets in the form of one-time bonuses in exchange for lowering their immediate salary impact against the cap. There is a saying in the league that "cash solves cap," and the NFL's salary cap is a soft ceiling that can be exceeded.

The Redskins finished this season with a 6-10 record despite a league-record payroll of $120 million.

The NFL's wealthier teams are far from reaching a Yankees-like status in which their financial advantage has translated into a competitive advantage. But Rooney, the Steelers owner, and others say they are fearful the league may get to that point.

"We're not there yet. Any team can win and does win," said Rooney, whose family has presided over the Steelers for 71 years. "But we might reach a point somewhere down the line where that's not the case any longer."