[This is part two of our look at what's behind the potential lockout. In Part I, we looked at why the NFL’s revenue sharing agreement was the real issue at the heart of the current labor issue.]
In the early 1960s, the NFL discovered socialism. Prior to 1961, NFL team's revenues consisted almost entirely of ticket sales, and each team looked after its own revenue. TV at the time was seen as more of a threat that would keep paying fans at home and out of the seats in football stadiums.
In 1961, then-commissioner Pete Rozelle successfully persuaded congress and NFL owners to make two landmark decisions. Congress approved a special exemption to antitrust law that would allow NFL teams to market the broadcasting rights to their games as one national package. Owners gave up their local television broadcasting and agreed to redistribute the proceeds from a national deal evenly among all NFL teams.
In 1962, each team started the season with $332,000 from that revenue sharing agreement - more than most teams' payrolls at the time - thereby in principle guaranteeing financially sound franchises for years to come and thus laying the cornerstone for what was to become arguably the most successful sports league in the world.
NFL teams today have two principle revenue sources, shared revenues and retained revenues. Shared revenue is income shared more or less equally between the 32 NFL teams, with the bulk coming from national broadcast rights fees, augmented by a share of ticket sales, non-network media income and licensing.
Retained revenue (or unshared revenue) is revenue generated and kept by individual teams. This includes about two thirds of the gate receipts, luxury suite revenues, stadium naming rights, sponsorships, concessions, parking fees and any local broadcast revenues.
The Green Bay Packers are the only team that regularly publishes a statement of income, and we'll look at their numbers to better understand the individual revenue streams. The latest numbers available are for the 2009 season.
|Green Bay Packers, Income Statement for league year ending March 31st, 2010|
|Revenue Type||Revenue Source||in $ million|
|Shared||Television and radio||95.8|
|Retained||Ticket Revenue: Home games||31.1|
|Shared||Ticket Revenue: Road games
|Shared||NFL Properties income||45.8|
|Retained||Other - Local Media, Concessions and parking||13.3|
|Retained||Private box income||12.9|
I. Television and radio income (Shared revenues)
What started out as a $322,000 check per team 1962 has grown into $95.8 million per team in 2009 in revenues from the league's contracts with CBS, NBC, ESPN and Fox. Non-network media contracts with providers like Comcast and DirecTV are not included in this number. Television and radio income from national broadcasting rights remain the single biggest source of income for most of the 32 NFL teams.
II. Ticket Income (mix of shared and retained revenues)
Ticket revenues have both a shared and a retained element. 60% of game ticket sales (but excluding luxury suite revenue) for home games are retained by the home team. Of the remaining 40% game ticket revenue, 34% is pooled and shared equally among the 32 teams (road game revenue), the remaining 6% stay with the home team to account for various deductibles.
The Packers generated $47.1 million income from the sale of tickets, a little below the 2009 NFL average of $54.1 million. The Cowboys led the league in 2009 with an estimated $112 million ticket income, the Raiders rank last in the league with an estimated $34 million.
III. NFL Properties income (Shared revenue)
NFL Properties, Inc., manages all licensing for the 32 teams and shares its annual revenue equally with all 32 NFL teams. Traditionally, this revenue was generated largely from the sale of any of the countless items with an NFL logo on them (anything from lunch boxes and hats through jerseys, jackets and coffee mugs). But recently, this revenue stream has grown to include revenues from the NFL Network as well as revenue from non-network media contracts with providers like Comcast and DirecTV.
This is by far the fastest growing source of income for NFL teams. The Packers' income statements show that while NFL Properties income in the 2002 season was a miserly $4.7 million, it has skyrocketed to $45.8 million in 2009. While the exact split of these incomes is unclear, it is probably safe to assume that most teams take home a similar figure.
During the 1990's Cowboys heyday, Cowboys merchandise sales easily outpaced those of any other NFL team. By 1995 Jerry Jones had had enough of this aspect of revenue sharing, and, despite existing league deals with Coke and Players Inc., signed sponsorship deals with Pepsi and Nike. The league of course decried Jones' use of "ambush marketing deals" and, litigious bunch that they are, sued Jones. Jones, himself no stranger to litigation, of course immediately counter-sued.
Long story short: by 1996 both sides reached a settlement that allowed the Cowboys to keep their new sponsorship deals. The deal also allowed other NFL teams to pursue local revenue streams, and retain the entire proceeds those opportunities generated. While it is unclear how much each NFL team makes from its local deals (see details below) it is safe to assume that the Cowboys and other big market are taking home a significantly bigger slice of the merchandising pie than envisioned under the original revenue sharing agreement. The disparity between the haves and have-nots has steadily increased.
IV. Marketing/Pro Shop (Retained revenue)
This income source summarizes basically all local revenue generated by the teams through advertising, sponsorships, and pro shop revenue to which Jerry Jones opened the door in 1995. The Packers generated $43 million in 2009 which they did not have to share with other teams. My guess is that this figure puts the Packers in the top half of the league, but nowhere close to the Cowboys, Redskins or Patriots.
V. Other - Local Media, Concessions and Parking (Retained revenue)
The Packers took in $13.3 million in this catch-all for local revenue. A critical driver for this revenue stream is the size of the local market and revenue potential of the stadium.
VI. Private box income (Retained Revenue)
Luxury suites and pricey club seating are the latest opportunity for owners to generate cash for their own pockets and are becoming a top source of revenue for NFL teams. Because teams get to keep all revenue from their suites, luxury boxes are a key consideration in the construction and renovation of NFL stadiums - even at the expense of total seating capacity.
The Redskins for example generated more than $45 million in luxury suite revenue in 2008, the most in the NFL in 2008 according to Forbes.com. That's more than seven NFL teams generated in total gate receipts in 2009. With the opening of Cowboys Stadium in 2009, the Cowboys are likely to have easily eclipsed the Redskins figure, and the Giants and Jets will likely generate similar revenues in 2010 with their new digs in the swamps of New Jersey.
The missing luxury suites and lack of the associated revenue stream is one of the key reasons why there is no NFL team in Los Angeles, which has not one but two stadiums (LA Coliseum & Rose Bowl) available with a total seating capacity of over 90,000 - but no luxury suites.
Additional source of revenue for small market teams
Part of the appeal of the NFL is the notion of parity, of small market teams like the Packers or Saints being able to win a Super Bowl. In this day and age, this is only possible because big market teams are subsidizing small market teams. Recognizing that the revenue sharing model was coming apart at the seams, the NFL and NFLPA agreed to implement a supplemental revenue sharing (SRS) pool in the 2006 CBA negotiations.
The pool was valued at $210 million in 2009 and $220 million for 2010, and between eight and twelve of the league's bottom dwellers in terms of revenue received additional income from this pool. In 2010, the NFL tried to get rid of the of the SRS again but failed when the NFLPA won a decision against the NFL.
In the past, the NFL teams shared more than 80% of the total league revenue. More recently, there has been a dramatic increase in unshared or retained revenue. League rules have incentivized going after unshared revenue, which has resulted in the construction of new stadiums and the expansion of local revenue streams. In principle, this is a very good thing.
Ironically, what is good for the league revenue overall can be bad for individual teams, as unlocking these revenue streams is easier for big market teams than for small market teams who are falling behind further and faster than ever before. The revenue gap between the league's haves and have-nots is widening almost hourly, and the imbalance this creates is threatening the future financial parity and competitiveness of the NFL. The Cowboys topped the league in 2009 with an estimated revenue of $420 million. The Lions were at the bottom of the league with a figure of $210 million, exactly half of what the Cowboys took in. This revenue gap will create a competitive imbalance that the league must address if it wants to avoid becoming the MLB.
The NFL’s revenue sharing agreement is coming apart at the seams. Today, the owners do not appear to have a solution to this, and are looking to gain time by asking the players to finance part of the income disparity between the teams that the successful, financially potent teams have helped create, just as much as the bottom dwellers of the league helped create it by not being able or willing to keep up with the Joneses.
In the next post, we'll look at how much money each team is making and some more fun facts as we find out who the haves and have-nots are in the league.