Sports Business Journal- Published July 30, 2012, Page 20

Robert Kraft got it right. Again.

In London for Wimbledon in June, Kraft, the owner of the New England Patriots and the New England Revolution, was quoted by CNN as saying that he would never invest in an English Premier League team under current economic conditions. “Manchester City won the championship this year and I hear they’re going to lose $156 million. I would rather give that money to charity if I had it. I want every business to stand on its own.”

This would appear to be a rather startling observation, given the glittering list of high-profile investors (including other NFL owners) who have taken controlling interests in EPL clubs. Yet Kraft, one of the NFL’s most powerful and influential figures, who took a moribund football franchise and turned it into the epitome of excellence both on the field and off, knows what he’s talking about.

A little background on the EPL: It is by a wide margin the richest and most popular soccer league in the world, a sport that is by far the world’s most popular. Its domestic TV rights dwarf those of the NFL on a per capita basis — and international rights are enviably large. Six English clubs are among the world’s top dozen in terms of revenue. The EPL attracts the stars of world football, and its trajectory has been admirably steep.

But beneath the surface, the EPL faces significant financial challenges. Specifically, it trails in the three economic underpinnings necessary to ensure the long-term health of any sports league:

• Sufficient revenue sharing among clubs.

• Some form of salary cap.

• An auditable limitation on club debt.

And the heart of the issue lies in the very fact of the incredible, unmatched popularity enjoyed by international football. Soccer is like water — a universal solvent. It reaches everywhere, and touches everything. As a result professional soccer can be thought of as an open system. Clubs playing under the auspices of dozens of different national associations compete with each other in the worldwide market for players, while any team’s popularity and revenue streams are directly correlated with its success on the field of play. Interest is compounded during the regular breaks in the season when players take leave of their clubs to play for their national teams, often against their own club teammates. Consider:

• Kids from anywhere in the world — Brazil, Ghana, Japan, Australia, the U.S. — can, and do, end up playing in England and other European leagues.

• Competition among clubs transcends national and continental boundaries. Even if you win your national league, there are always other champions to take on. Literally hundreds of clubs are in the annual chase to win the European Champions League, the most prestigious club title in the world.

• Top-level soccer is a meritocracy. Poor performance on the field leads to relegation to lower divisions (and much lower revenue), while success leads to promotion and income.

In contrast, American sports like the NFL are closed systems — essentially exhibition leagues where the exact same teams run through the exact same paces year in and year out. Further:

• Their player pool is small, essentially domestic, and self-contained, with no rival employers.

• One of the same 32 teams will always win the Super Bowl.

• There is no “death penalty” for poor performance (i.e. relegation and sharply reduced revenue) — everyone is coming back next year, no matter what.

• The whole operation is tightly controlled by just 32 owners.

The beauty of closed-system sports is that they are much easier to manage as businesses. Critical issues can all be addressed by a fairly small group of people with reasonably well-aligned interests. (Note that the NBA, MLB, and NHL, despite their wider source of players, are so much more economically powerful than their competitors that they can be considered closed as well.)

Top-flight pro soccer, on the other hand, plays out on a worldwide stage that precludes an NFL-style system. National federations vary in terms of wealth, size, and revenue distribution. (In Spain, Barcelona and Real Madrid take home more than half the of all La Liga revenue.) European employment law governs player movement and limits collective bargaining. And wealthy owners who want to compete at the highest level, regardless of cost, are not interested in spending limits.

All of this makes for a dangerous cocktail, with predictable results. Teams overspend wildly in their efforts to compete, and bankruptcies have become increasingly common. Storied names such as Leeds United and Glasgow Rangers have spent themselves into oblivion. Only the very wealthiest clubs — increasingly owned by international industrialists willing to buy championships regardless of cost — can thrive in such an environment. The usual suspects rise to the tops of their domestic leagues year after year.

The European governing body, UEFA, is well aware of these problems and is doing what it can to mitigate them. It has instituted Financial Fair Play rules, essentially mandating that a team spend within its means or risk being banned from playing in the Champions League. But these rules are very difficult to implement and limited in their effect. (Over here, MLS has avoided many of the problems by organizing as a single business entity, but this model may be tough to sustain as the sport’s popularity continues to rise in the U.S.)

As for the EPL, it has done an admirable job of growing revenue, and has transformed itself into a popular, family-friendly entertainment product. It has made significant advances in revenue sharing, and works hard to keep its clubs’ balance sheets stable. But as long as the usual suspects like Manchester United and Arsenal see as their real competition Bayern Munich, AC Milan, and Barcelona, they will have to spend, spend, spend. And no one should blame Robert Kraft for staying out of that game.

Thomas E. Spock (tom@scalarmedia.com), a former NFL and NBC executive, is a founding partner of Scalar Media.

How the league could reach lofty revenue goal

By Daniel Kaplan, Staff Writer

Sports Business Journal – Published January 28, 2013, Page 1


Thirty-five months ago, NFL Commissioner Roger Goodell set a heady goal for team owners: triple the league’s then nearly $8.5 billion of revenue during the next 18 years. It was an aggressive pitch, requiring $917 million of new revenue annually.

Now, three years later, despite the league’s success and record-breaking popularity, the NFL is off the pace necessary to reach the target, with about $1 billion of revenue added since then.

The league stands by the $25-billion-by-2027 goal, though with $9.5 billion of revenue in 2012, sources said, the NFL now must average more than $1 billion annually of new revenue over the next 15 years.

“The financial landscape has been a pretty tough one, it has affected most companies in America. The [2011] CBA [process] set us back,” said Eric Grubman, executive vice president of NFL ventures and business operations. “I think we are doing OK … our fans are still having a tough time [financially].”

The revenue target, introduced during the 2010 annual owners meeting in Orlando, did not come from projecting existing NFL business out to 2027. Instead, Grubman explained, the league intended the figure to convey what scale the NFL needed in order to compete as a global entertainment brand. And compete not just against other sports leagues, such as the English Premier League, but consumer product companies such as Procter & Gamble, Walt Disney and Apple.

“It is aggressive,” Grubman admitted of the $25 billion aspiration, “and I see no reason to change that goal. That is keeping with the DNA of every club we have. There is no one that sets easy goals in the league and we are not about to.”

Clearly, relying on the old bread-and-butter-sports economics of selling tickets, concessions and parking barely moves the needle in a quasi-recessionary environment. Instead, if the NFL is to enjoy 163 percent growth in the next 15 years, it must get even more money out of media, and create new lines of businesses.

“Traditional areas are very tough to grow,” said Jim Steeg, a former NFL and San Diego Chargers executive. “The vast majority of teams over the last five or seven years have remained fairly flat on that multiple.”

The NFL is trying to endow game tickets with more value, adding experiences to the price of premium seats, for example. And the league has succeeded in stemming a growing tide of non-sellouts. But no one is fooling anyone into believing that selling tickets and food gets the NFL very far toward $25 billion.

Mining growth in media

One clear engine for revenue growth is the same as for so many of the past increases: media. The NFL already has some built-in advantages. The new TV contracts in 2014 will generate significantly higher rights fees, while the 2011 CBA not only helped owners keep player costs in check, but secured labor peace through 2021, thereby easing any game-interruption concerns for new and existing partners. New NFL Network distribution deals cut late last year with Cablevision and Time Warner Cable already add to the pie.

But factoring in a few billion dollars more annually from the new TV deals and NFL Network subscription fees, the NFL is still only at the halfway point, or a little more, toward its revenue goal.

The league’s deals with Fox, NBC, CBS and ESPN expire in 2021 or 2022, so the next round of renegotiations should contribute toward the 2027 goal. Unless a major event occurs, like player health and safety dulling the popularity of the game, or an economic or military catastrophe, the NFL seems assured of reaping more in rights fees from traditional outlets on broadcast and cable TV. And the league could always bid out the NFL Network’s package of 13 games, though to do so it would have to weigh what it loses in subscription fees and ad sales, against what might be gained in rights fees. A 13-game Thursday and Saturday package is not sacrosanct, Grubman commented; it could always get bid out to another channel.

The league will need more than that, however, to arrive at the scale Goodell identified as necessary to compete globally against other major entertainment companies.

Clearly in the NFL’s favor is its position as the top-rated entertainment program in a fragmenting media universe. Programmers pay top dollar for shows that capture viewers and are immune from channel surfing and recording devices that skip through ads. Perhaps more than any property on TV, the NFL matches these criteria.

The question then is, seeing as the league likely only gets one more bite at a new broadcast and cable package before 2027, can the NFL begin to capitalize and collect fees for showing its games outside the current platforms?

“Some form of subscription will be out there,” said Tom Spock, a former NFL executive, and co-founder of media consultancy Scalar Media Partners. “This may or may not be the last exclusive for DirecTV.”

DirecTV’s out-of-market package, for which it pays $1 billion annually, expires after 2014. The league could proceed in several directions at that juncture: sell the package to cable companies, a la the other leagues; keep it intact as an exclusive; or even allow some form of selling games directly to fans if the network partners allow it.

Figuring out the future of the DirecTV model underscores that the NFL’s biggest revenue opportunity is cashing in on its tremendous TV popularity, but on a much greater level and through different mediums than today.

“We are cracking the code on how to distribute,” Grubman said. Tablets, laptops, smartphones, each could offer subscriptions services.

Grubman used the phrase “NFL Everywhere” to talk about the possibilities, a turn of the phrase “TV Everywhere,” used by cable companies to describe viewing programming on different devices.

In the past, the broadcasters have largely blocked efforts by the NFL to show games outside traditional mediums. The NFL has proved, Grubman argued, that providing content on different devices doesn’t cannibalize network ratings. NBC’s Sunday night games are streamed on NBCSports.com, for example, and those games are often the highest-rated TV show of the week.

In 2014, the NFL’s deal with Verizon expires, at which point the league can test the mobile market for selling games more widely in that space.

The move to widely sell games and packages on different devices, if it arrives, could also lead to another treasure trove: pressure on Nielsen Media to move away from household TV rating measurements.

“A big potential in revenue will come from a new method and better counting of viewers,” Grubman said. “Our broadcast and cable partners are selling ads based on viewers being counted at home. It undercounts.”

If ESPN and the networks can charge more for ads, then they can afford to pay the NFL even more.

International a question mark

One space that has yet to provide significant revenue is international markets (in fact, during the now defunct NFL Europe days the sector dragged on the league’s bottom line). The league five years ago began playing regular-season games in London, and the city hosts two regular-season games for the first time during the 2013 season.

Longtime observers, however, worry that the league is simply continuing its lengthy, futile efforts outside of America. There are no reliable external estimates for NFL revenue overseas, though the league often talks up growth rates in rights fees.

“I scratch my head why the NFL has struggled so much internationally,” said Frank Vuono, who oversaw the NFL’s merchandise business in the 1990s and now runs the consulting firm 16W Marketing.

And Scalar’s Spock added, “there have been 35 years of really trying hard to make an impact and it is very slow going. There may be some upside there, but it’s not likely to be a major contributing factor.”

The league will try, and not just in London with live games, but selling TV rights in Asia and trying to establish itself on the world stage.

“Roger [Goodell] has a very big mission, and the NFL has a big plan for global expansion,” said David Moross, chairman of private equity firm Falconhead, which has done business with the NFL. “Distribution outside this country is an opportunity.”

There are other obvious areas for revenue growth. Among them:

  • Expanding the regular season and the playoffs, which Goodell has so far championed to little success. The players oppose adding games to the regular season, and adding playoff teams has not been well-received in many circles. Grubman insists these are not revenue ideas, and points to the fact that the league even considered shrinking the season by two preseason games, and keeping the regular season at 16, as evidence. Goodell, Grubman added, is motivated not by revenue when it comes to season structure, but to shrink the unappealing preseason.
  • A team moving to Los Angeles would create revenue by opening the second-largest market in the country to a team, and presumably subtracting the low revenue market a club relocated from.

There are others with more exotic ideas on how to grow.

  • The NFL would profit immensely if it embraced sports gambling, Vuono contended, like the English Premier League. That seems highly unlikely in the conservative NFL, which has vociferously opposed expansion of sports gambling outside Las Vegas.
  • Arlen Kantarian, a former NFL executive and top tennis official, said the NFL should create its own apparel and ticketing company, rather than just collect royalties. “They are powerful enough to consider that down the road,” said Kantarian, who operates through his boutique Kantarian Sports Group.
  • The NFL could buy another sports league like Major League Soccer, he opined, to run during its offseason.  “They have a lot of legs left,” Kantarian said. “They are probably in the early third quarter of their opportunity to generate revenue.”


The road to $25 billion

Where could the NFL’s growth come from?

By Daniel Kaplan, Staff Writer

Sports Business Journal – Published January 28, 2013, Page 20


Without inside access to the NFL’s books, it’s tough to know exactly how to create a pie chart for the league’s $9.5 billion of revenue in 2012. We do know from the 2011 season that of the year’s nearly $9.4 billion in revenue, $5.5 billion (58.5 percent) came from national money like media, sponsorship and NFL Ventures. That is public because the Green Bay Packers, as the only public NFL team, annually disclose some financial reports. Below is a description of different league business lines and how they are faring.

Ticket sales
Still the bread and butter of most teams’ local business, this revenue has largely been flat for several years for many clubs, if not down. Like other businesses, the NFL has struggled through the financial problems the country has suffered since 2008. While the league has filled most of its stadiums, prices have been restrained, so ticket revenue has been very modest, said the NFL’s Eric Grubman. This area could get a boost with new stadiums in Santa Clara and Minnesota, and would get a big bump if a team relocated from a small market to Los Angeles.

Licensing and merchandise

This segment of business is doing very well, according to Grubman, because of the influx of new partners such as Nike, New Era and VF. “Online merchandising is on fire. Our team stores are on fire,” he said.

Sponsorship revenue has not dipped in the last few years, which itself is a major accomplishment in a tough economy. The league just sold the quick-service restaurant category to McDonald’s and there may be some opportunities in the new TV contracts, Grubman said, though he declined to elaborate. There also could be more opportunities to sell coveted space on field, including uniform patches.

Stadium building went through a boom in the late 1990s and through much of the first decade of the 21st century. But when the league’s stadium financing plan expired, labor strife doomed any possibility of a quick successor agreement between the union and league. The 2011 CBA allowed for a new stadium plan, and now new projects will come online in Santa Clara, Calif., and Minnesota, with renovations planned at Green Bay, Pittsburgh, Carolina, Buffalo and Miami.

Venture fund
The league two years ago announced plans for a venture capital fund. However, it is more apt to describe the fund today, which has yet to invest, as a private equity fund. The league has switched focus from early-stage startups to more established businesses in which to invest. That moves it away from the province of the venture capital world and into the private equity stage. The league will not be taking control stakes, however.

The jump in new media money in 2014 is no secret, though it is staggered so the initial years will not see a major jump. How the league handles distribution through alternate platforms, like mobile and tablet, could provide the key for the league reaching its $25 billion revenue goal. NFL Network and RedZone also look to be key in getting the league to the revenue target. Grubman talked about new stats products that the league can sell. Tom Spock, a media consultant and former league executive, agreed: “There are data streams they can monetize in gaming, fantasy.”


Could global Game Pass wind up stateside?

January 31, 2013

By Daniel Kaplan, Staff Writer Sports Business Journal – Published January 28, 2013, Page 23   The NFL has long been knocked for its failure to export its brand overseas anywhere near to the height of the sport’s popularity back home. But while it is certainly open for debate whether international markets will deliver the revenue the […]

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Shield damage?

January 31, 2013

Refs, bounties have yet to hit NFL’s business, but image of gold-standard league, commish have been tarnished By Daniel Kaplan, Staff Writer Sports Business Journal – Published October 1, 2012, Page 1   In the mid-1980s, when lawsuits from Oakland Raiders owner Al Davis against the NFL dominated league headlines, then-NFL executive Jim Steeg remembers being worried […]

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Dick Ebersol Resigns

June 1, 2011

In a seismic event whose reverberations will long be felt throughout the sports and TV ecosystem, Dick Ebersol stepped down as Chairman, NBC Sports Group on May 19th. Roone Arledge’s protégé and spiritual successor, Dick has been an industry giant for decades. As the world has grown smaller, Dick has had a subtle but unmistakable […]

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Sports Emmy Win

May 4, 2011

Congratulations to CBS Sports on winning the George Wensel Technical Achievement Award for its 3D coverage of the US Open tennis championships at the 32nd Annual Sports Emmy Awards Monday night.  Panasonic assisted CBS with production costs for the event and was a sponsor of both the 2D and 3D broadcasts as well as the US Open itself.  […]

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Oh, Oprah, How Can Your New Cable Channel Not Yet Be A Huge Success?

March 1, 2011

I have been watching with great interest the progress of Discovery’s new cable channel co-venture with Oprah Winfrey, OWN. For those of you who somehow missed the fanfare around the launch in January, Oprah and Discovery teamed up to convert what had been their moderately unsuccessful (although fully distributed to some 80 million subscribers) Discovery […]

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Media Happenings 2.22.2011

February 22, 2011

NFL Labor Negotiations. The NFL’s labor negotiations are taking center stage in the media/sports world as the deadline to reach an agreement is quickly approaching (midnight on March 3rd).  After a brief meeting in Dallas during the Super Bowl, talks stalled on February 10th after the League walked out of a negotiation session reportedly because […]

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Media Happenings 2.4.2011

February 4, 2011

Super Bowl Week. Football was in the headlines this week as the championship game between the Packers and Steelers approaches. A record 110,000+ fans are expected to attend the game in (surprisingly chilly) Texas on Sunday.  The NFL’s labor strife remained a key topic of conversation as the deadline to reach an agreement is just […]

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Media Happenings 1.24.2011

January 24, 2011

Earnings and Shake-ups. Several companies announced earnings last week, starting with huge numbers from Apple on Tuesday.  The company recorded their highest revenue ever in Q1 2011, pulling in $26.7 billion and recording $6 billion in profit. It sold 16.2 million iPhones (a new record, 86 % y-o-y growth), 4.13 million Macs (also a record, […]

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