The NFL’s Current Business Model and the Potential 2011 Lockout Jake I. Fisher Economics 1630: The Economics of Sports and Entertainment Professor Stanley Engerman May 4, 2010
Introduction In March 2010, Roger Goodell, the Commissioner of the National Football League (NFL), announced an aggressive goal for his business: $25 billion in yearly revenue by 2027.1 To put that figure in perspective, the countries of Panama, Jordan, Ghana, and Iceland all had nominal GDPs less than $25 billion in 2009.2 For the NFL to reach Goodell’s lofty target, the league will have to quickly build on what Business Week has already called, “one of America’s best-run businesses.”3 During the 2008 season, the NFL made an estimated $7.6 billion in revenue and $1.0 billion in operating income. The average team value was $1.04 billion.4 The Economist wrote in 2006 that, “[the NFL] remains the most popular of the four big American sports on almost every measure, from opinion polls to television ratings.”5 A comparison of 2008 financials for the NFL, Major League Baseball (MLB), National Basketball Association (NBA), and National Hockey League (NHL) is displayed in Appendices 1 and 2. The conclusion is clear: with the highest revenue, income, and value, the NFL leads the American professional sports business. This paper will take a critical look at the NFL business model. Specifically, it will investigate how the NFL has constructed a sports empire in the United States. How does the league generate its revenues and earn profits and how has it popularized and stabilized demand for its product? I will demonstrate that the NFL’s noticeable profit 1
Kaplan, Daniel. “Goodell sets revenue goal of $25 billion by 2027 for NFL.” Sporting News NFL. 5 Apr. 2010. http://www.sportingnews.com/nfl/article/2010-04-05/sbj-goodell-sets-revenue-goal-25-billion-2027for-nfl 2 International Monetary Fund, World Economic Outlook Database, Apr. 2010: Nominal GDP list of countries. Data for the year 2009. http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/index.aspx 3 “This Is The NFL: 2009-2010.” National Football League: New York, NY, 2009, pg. 4. 4 Unless otherwise cited, financials come from Forbes Business of Football, Baseball, Basketball, and Hockey online databases for the 2006-09 seasons. 5 “In a league of its own.” The Economist. 27 Apr. 2006. http://www.economist.com/businessfinance/displaystory.cfm?story_id=6859210
margin is a result of centrally driven top line development, spearheaded by national media deals, and a containment of player salary growth. The NFL has been able to stabilize demand by controlling product distribution, distributing risk, and maintaining economic and competitive parity. Although the NFL has become the behemoth of American sports, it faces serious short-term stability issues. The NFL owners opted out of the current Collective Bargaining Agreement (CBA) in 2008, and there is speculation that there could be a lockout in 2011. After investigating the history of the current CBA dispute, I will analyze how a work stoppage could affect the NFL business and Goodell’s rapid strategic growth plan.
The Business of the NFL The NFL is the most profitable American sports league. To analyze the source of this profitability and how the NFL organizes its business, it is essential to break down team revenues and costs. Because most franchises are privately owned, financials are not publicly available. However, the Green Bay Packers are a community-owned franchise, and thus release their financial information.6 Appendices 3 and 4 show the relative sizes of revenue and operating expense sources for the Packers in 2009. An examination of Green Bay revenue sources provides several insights into the NFL business. Perhaps the most notable insight is that approximately 60 percent of total revenue in the NFL is generated centrally and distributed evenly among the 32 teams. The Green Bay income statement shows that $147 million of its...
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