Business of Sports

The NFL's Three Biggest Problems


1. NFL Kickoff 2009: Dollars and Sense

The National Football League is more than just an American juggernaut. With a total value estimated at $7 billion, the league, which begins regular season play this Thursday night in Pittsburgh, is the most lucrative sports property in the world.

No other professional league comes even close to matching the NFL's unprecedented growth. In a recent report, since 1995 the average value of franchises has increased an astonishing 550%, from $160 million to just over $1 billion.

At the top of the list are the Dallas Cowboys, worth an estimated $1.65 billion (their shiny new stadium generously padding the bottom line). The Cowboys are followed by the Washington Redskins at $1.55 billion (who also had the highest revenue at $345 million) and New England Patriots at $1.36 billion.

Worth an estimated $797 million, the Oakland Raiders are the lowest-valued team in the NFL. How does that stack up against MLB, NBA, and NHL franchises? Other than the Yankees at $1.5 billion, the Mets at $912 million, and the Red Sox at $833 million, the Raiders are worth more than every other American pro team, beating out the highest-valued NBA (New York Knicks, at $613 million) and NHL (Maple Leafs at $448 million) franchises by a substantial margin.

On the surface, the NFL appears to have an immensely profitable future. However, when you pull back the curtain, three issues loom large.

First is labor unrest. The NFL's current collective bargaining agreement ends after the 2010 season, and if a new one isn't agreed upon soon, the league could face its first work stoppage since 1987. At the heart of the debate is how much financial risk players should assume.

Second, Commissioner Roger Goodell must find a way to preserve cash flow without pricing fans out. Although teams are getting ever more creative to lure the common fan to games—consider the Cowboys' $29 Party Pass offering—in a year in which up to 12 franchises face TV blackouts, it's critical to maintain fan interest.

Finally, nothing has a greater impact on the league's image than its players do. In the off-season, the Burress, Stallworth, and Vick sagas dominated headlines, and now San Diego's Shawne Merriman has rejoined the fray with his latest charges of battering a female reality-TV personality. If this notorious quartet proves anything, it's that public perceptions and image management matter.

Yes, the NFL is popular and profitable, but sustaining success long-term depends on how Commissioner Goodell handles these three issues.

2. NFL Kickoff 2009: Black & Blue

In a press conference last Thursday, Commissioner Roger Goodell indicated that up to 20% of NFL games may be blacked out in local TV markets this season because the games have failed to sell out, the worst percentage since 1998 and exponentially higher than last season's 4% blackout rate. If 20% of NFL games do not sell out, that's 51 total games, or an average of three per week within the league's 17-week schedule. Reportedly most at risk of having empty TV time on their hands come Sunday are fans of the Jaguars, Lions, Raiders, Rams, Chargers, and Dolphins.

The NFL will review its blackout policy, but it is highly unlikely that any changes, even temporary ones, will come this season. For starters, Goodell opined during a one-on-one interview we conducted with him last Wednesday that successful businesses do not change course because of a short-term economic event—a position he stated more publicly to CBS Sports/News President Sean McManus, who was quoted in the SportsBusiness Journal as saying Goodell had told him: "He is not going to make any major adjustments to a rule that has lasted a long time just because of a short-term economic problem."

But Goodell's own organization has already altered course because of the recession; more than 100 NFL employees have been laid off in 2008-09, and the Commissioner even offered to forgo $2 million of his own salary in the short term. Is rigid adherence to a 36-year-old policy really smart business practice now, when other companies are showing more creativity and flexibility than ever? Consider restaurants that have created "value meals" for diners, and auto dealers allowing car buyers to return the vehicles if they lose their jobs.

The Commissioner also seems to accept the 20% worst-case blackout scenario; hey, it's better than the '70s, when more than half of all NFL games failed to sell out. Tapped-out sports fans—who are really entertainment consumers—have every right to be concerned. Imagine if American Idol were blacked out in 20% of the markets that carry the program. We'd have an American Riot on our hands. Look for sports fans to fight back.

3. U.S. Open: The Rising Tide of Tennis

The U.S. Open is on pace to have one of its best financial years ever, with roughly $200 million in revenue and $110 million in profit. Last Monday's matches drew a first-day record 59,848 fans to Flushing Meadows, and attendance at the end of the first week of play is on course to break more records. For the 13th straight year, the Open set a single-session attendance record, with at least three day sessions selling out (at 37,388 tickets sold per day). Television ratings are looking promising, especially on ESPN2, where coverage up more than 33% from last year's USA Network telecasts are helping ESPN to celebrate its 30th birthday in all-out New York style.

This U.S. Open is blessed with some terrific storylines—the onward charge of Georgia belle Melanie Oudin, or the return of cheery former champ Kim Clijsters? But attendance at the Billie Jean King National Tennis Center and strong TV numbers are only indicative of a broader trend. According to a study by the Sporting Goods Manufacturers Assn., tennis participation across the U.S. has grown 43% since 2000, more than any other individual participation sport. Parallel findings from the Tennis Industry Assn. and the USTA reveal that the sport gained about 6 million American players in 2008, bringing the total estimated number of players to 27 million, the largest number in the organizations' 15 years of tracking.

Why the growth? For one thing, grass roots and youth initiatives launched by the USTA during the late 1990s are starting to bear consistent fruit, particularly within community tennis centers that remain affordable to patrons even in a down economy. For another, tennis is widely perceived as a healthy activity, with fit, attractive stars as its standard-bearers and lots of coverage outside of dedicated tennis publications, websites, and TV networks.

A final factor may simply be our ever-busier schedules. "We've noticed a lot of golfers coming to tennis because they can't afford the five hours or the time away from the office," tennis resort executive Peter Burwash told SportsTravel Magazine. "That's been a very big plus."



4. California Schools—Borrowing from the Sports Business Playbook

The Labor Day holiday means back-to-school time for millions of kids across the U.S. In cash-strapped California, hard hit by the mortgage meltdown and facing more than $17 billion in educational cuts, school officials are looking to ease budget shortfalls through revenue-generating tactics long employed by big time sports programs—and in some cases, turning to the state's resident pro sports franchises for help.

According to a recent Los Angeles Times report, school trustees in Beverly Hills "are considering logo T-shirts, hats, and other apparel, counting on teenagers to snap up the merchandise because of the city's celebrity and the popularity of television's Beverly Hills, 90210. In San Diego, educators are shopping multiyear naming rights to two sixth-grade science camps. The Chino Valley Unified School District is considering corporate sponsorships of school assemblies and selling advertising in its football stadiums. And Los Angeles Unified School District officials are courting that city's pro sports teams "hoping to form partnerships that could include the use of pro facilities, equipment donations and athletes volunteering as mentors."

"The Clippers," quotes the Times article, "perhaps sympathetic to underdogs, were the first to respond."
Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports.
Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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