Sports Business

The United Football League's Game Plan


Despite decades of failures to challenge the National Football League's lock on professional football, a new league is stepping onto the gridiron. Come October the United Football League (UFL) will kick off its premiere season with four teams playing six games in seven cities. Its championship game will be held the day after Thanksgiving in Las Vegas—perhaps a fitting venue, considering that a string of football league startups have proved a bad bet since the American Football League's success in bidding for talent prompted the NFL to merge with it in 1970.

The new league was founded in 2007 by Bill Hambrecht, founder and CEO of San Francisco-based financial-services firm WR Hambrecht. Investors include several high-profile executives: AOL (TWX) Chairman and CEO Tim Armstrong; Paul Pelosi, a financial-services executive in San Francisco and husband of U.S. House Speaker Nancy Pelosi; and Bill Mayer, co-founder of Park Avenue Equity Partners, a New York private equity firm. Hambrecht and Armstrong provided an initial $20 million, and Mayer, Pelosi, and a group of unnamed investors followed with $30 million. In total the league says it has secured $70 million and a national broadcast contract with Comcast's (CMCSA) Versus cable sports network. The UFL has a two-year contract with Versus, says Mayer, lead owner of the New York franchise.

To control costs, the United Football League is starting small, with franchises in New York, Orlando, Las Vegas, and San Francisco. Teams will share practice facilities in Vero Beach, Fla., and Casa Grande, Ariz. They will also share stadiums with other teams and have a salary cap of roughly $6 million. The average UFL ticket price will be $20—less than a third of the average $72.20 football fans shelled out for National Football League tickets last season.

Starting Small, with a Prudent Business Plan UFL management is undaunted by the sport's business track record, the latest casualty occurring when the indoor Arena Football League canceled its 2009 season and cut two of its 17 franchises. Arena Football is planning a comeback in 2010. Arena's move marks the fourth time a league has been sidelined in the past two decades. The XFL flamed out in 2001 after only one season despite the efforts of Vince McMahon, chairman of World Wrestling Entertainment (WWE), to brand it as a tougher, more volatile league. From 1983-85, the United States Football League gained some traction by fielding such future NFL stars as Herschel Walker, Jim Kelly, and Steve Young. The upstart league essentially bankrupted itself after a minority group of owners, led by New Jersey Generals owner Donald Trump, filed an antitrust suit against the NFL in a failed attempt to force a merger. Even the NFL's own development league, NFL Europa, shut down in 2007 after 16 years in business.

UFL Commissioner Mike Huyghue says he would like to see a UFL/NFL relationship evolve along the lines of Broadway and Off Broadway theater, where the hierarchy is well-established but talent flows between the two. Huyghue says the league's strategy is to run a sound operation instead of trying to upstage the NFL by offering players huge contracts or watering down the football experience with gimmicks.

"We built the league so it's run like a business," says Huyghue. Players' minimum base salaries are expected to be $35,000, with performance bonuses that would increase pay to a few hundred thousand dollars. Huyghue expects former NFL players such as quarterbacks J.P. Losman and Tim Rattay to be in the upper echelon of talent, though he declined to discuss roster details.

A potential marquee name for the fledgling league would be former Atlanta Falcons quarterback Michael Vick, reinstated on July 27 to play in the coming NFL season but tainted by his conviction on federal dogfighting charges and an 18-month prison term. However, many expect Vick to draw interest from an NFL team—and the UFL says it will avoid any talent-bidding contests with the NFL. "If, after the conclusion of training camp, no [NFL] team has made an offer to sign Vick, we will reevaluate our position," Huyghue wrote in an e-mail on July 31.

Seeking Naming-Rights Sponsorships With second-rate talent, alternative football leagues have found it difficult to attract first-rate advertising dollars and a loyal fan base. Paul Staudohar, a professor of business administration at California State University, East Bay, who studies sports economics, thinks the new league will face the same problem. He puts the UFL's long-term survival prospects at 50-50, figuring that potential fan-customers might "watch a game or two out of curiosity."

Hambrecht, who held a minority stake in the USFL's Oakland Invaders, is banking on the sport's popularity and demographics—primarily a market dominated by 21- to 34-year-old men who drink beer. He calls football the "most valuable property you can create."

The UFL is looking to add revenue by more closely aligning corporations with the on-field product: Brand names are to be displayed on jerseys and helmets. Chief Operating Officer Frank Vuono, a former NFL vice-president for licensing, says the "ideal situation" would be for companies to sponsor the naming rights of a team, citing Major League Soccer's New York Red Bulls as an example. The UFL registered at least four team names with the U.S. Patent & Trademark Office, a move the league says is meant to gauge the public's reaction. Registered monikers include the Las Vegas Locomotive, New York Sentinels, Orlando Tuskers, and San Francisco Rockfish. Team names are expected to be announced on Aug. 4 and 5.

Complementing corporate sponsorships, the UFL plans to raise capital through franchise IPOs. The Green Bay Packers have relied on grass-roots financial support in the past, offering four stock sales in its history, most recently in 1997. This fund-raising tactic is credited with keeping the Packers in small-town Wisconsin. According to the team, 112,088 people own more than 4.7 million shares, with a per-person cap of 200,000 shares. The stock can only be sold back to the franchise.

Jamie Clement, an analyst at independent research firm Sidoti, isn't sure these tactics will matter in the long run. "The USFL ultimately fell apart. The XFL fell apart," he notes. "So is the third time a charm—or do disasters come in threes? I'm leaning toward the latter."
Spielberg is a reporter for BusinessWeek.

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