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NFL REVENUE DEBATE // National Finances League

Published Oct. 21, 2004|Updated Jun. 20, 2006

Socialism has been very, very good to the National Football League.

This season, the NFL's 32 franchises will share equally more than 80 percent of about $5.5-billion in total revenue _ the most income, and the largest measure of financial cooperation, in the four major U.S. professional sports. Every franchise made money last season, league executives say, and almost every one should do so again. And thanks to rules designed to engender on-field parity, reaching the playoffs is a not unrealistic hope for fans of all of the league's Lions and Jaguars and Bears. Oh my.

But while the NFL has never been financially stronger, the all-for-one, one-for-all philosophy that transformed the league from a collection of family-run enterprises to a multinational sports giant is weaker than at any time in the past 40 years. Socialism isn't dead in the NFL _ but it's beginning to smell funny.

What happened? A new generation of owners entered the league and challenged its longstanding arrangements, in part because buying franchises and building stadiums has left them with debt bills fatter than an offensive lineman. The result: an every-team-for-itself race to generate more "unshared local revenue" _ money that's out of the reach of the league's collective diktats.

Now revenue-rich teams, which count on this cash not only to service their debt but to fund lavish player salaries and bonuses, are fighting to keep as much of it for themselves as they can. Revenue-challenged franchises, meanwhile, want them to share even more. And players _ who have begun negotiating a new labor contract with the league _ think they are entitled to a bigger piece of the pie.

The competitive disharmony contrasts sharply with the principle cultivated by the NFL during its rise: that the league is only as strong as its weakest member. "The values have changed," says Art Modell, who joined the NFL in 1961 as majority owner of the Cleveland Browns and left in April after selling his majority stake in the Baltimore Ravens. "We were comrades in arms. We were partners. That doesn't happen now. Everything is revenues and profits."

As in other leagues, NFL franchises divvy up evenly national income from sources such as TV rights, league-wide sponsorships and licensing. Television brings in the biggest chunk of income: This year, each team will get more than $85-million from TV contracts that are worth more for this one season than Major League Baseball's deals are for six. NFL teams also share 34 percent of their individual gate receipts, the most generous sum in sports, as well as a portion of revenue from luxury suites and club seats.

The NFL for decades kept tight control on clubs' ability to strike out on their own to generate revenue. But as the sports business has matured, and the cost of playing ball has risen _ the price of an NFL expansion franchise rose from $195-million in 1993 to $700-million in 1999 and could crack $1-billion the next time around _ that control has loosened under pressure from business-driven owners.

The most glaring consequence has been a widening gap between the league's moneyed elite and its less-prosperous brethren. While the Washington Redskins and last season's Super Bowl-champion New England Patriots rake in $250-million or more a year in revenue, NFL executives say, teams like the Arizona Cardinals generate just over half that. The gap is about 12 times as great as in 1990.

Even with payroll limits, the differential gives wealthier teams a cleat up. Lower-revenue teams spend as much as 70 percent of their income on players _ about twice the share of teams at the top, executives say. That means the NFL's downtrodden have less to spend on everything else, from front-office staff to stadium infrastructure to fan amenities.

"There are many teams that realize they cannot go forward like this," Indianapolis Colts owner Jim Irsay says. "It's become that big of an issue."

Still, even as individual teams endure tougher times, the game itself is flourishing. The NFL's revenue has increased more than fivefold in the past 15 years. Traffic on the NFL's Internet site surpasses that of other leagues. Its broadcasts outpace prime-time averages. And its exceptionally devoted fans buy more than 90 percent of available tickets. It doesn't hurt that NFL teams play just 16 regular-season games a year, and only eight at home, making each one seem like a big event.

NFL commissioner Paul Tagliabue says the league's cooperative structure has a lot to do with that popularity. "Clearly, the attractiveness of the league is not dependent on any one team or small group of teams," he says. "It's a total league. That was the philosophy from the early '60s onward, and it's continued."

Tagliabue recalls that when he took over the NFL in 1989, after two decades as an outside lawyer for the league, his predecessor, Pete Rozelle, told him his job was to maintain a system in which the Green Bay Packers could win. He points out that, despite playing in the smallest market in major pro sports, the Packers have not only survived but thrived, compiling the NFL's best record over the past 10 years and third-best over the past five. "The structure has been there to enable them to compete and enable them to flourish," Tagliabue says.

That structure emerged after the NFL, founded in 1920 as the American Professional Football Association, began capturing fan interest in the late 1950s. Rozelle persuaded old-school owners like George Halas of the Chicago Bears and Wellington Mara of the New York Giants to relinquish their local TV rights and sell them as a national package, to be divided equally among the league's then-14 teams.

A federal judge in 1961 disallowed a contract with CBS on antitrust grounds. But later that year Congress passed the Sports Broadcasting Act, which let leagues negotiate TV deals as single units _ and revolutionized sports. CBS in 1962 agreed to pay the NFL $4.7-million a year for two years. Ratings soared 50 percent in the second year, and the next contract was triple the size of the original.

But while the business of football grew _ particularly with the 1970 merger of the NFL and rival American Football League _ it didn't change much. Through the 1980s, NFL owners cashed national-television checks, counted turnstile clicks and tallied profits. "There were not as many revenue opportunities," Ravens president Dick Cass says. Most owners "didn't control the stadiums, they didn't control concessions, they didn't control parking. Sports sponsorships weren't a big deal."

That would change with the arrival of owners who didn't grow up in the NFL. The savviest was Jerry Jones, an oil and gas wildcatter who paid $140-million for the Dallas Cowboys in 1989. Jones challenged the league's groupthink ideology, criticizing the size of national sponsorships and striking local deals that ran afoul of league rules. After Jones signed up Nike Inc. in a deal that conflicted with the NFL's own apparel agreements, the league sued him, and he sued back.

The parties eventually settled, but the NFL was changed. No longer was the collective everything. Under pressure from owners, the league in recent years has turned over some sponsorship rights to teams. For instance, Pepsi and Coors are the "official" soft-drink and beer of the NFL, able to use the NFL logo in national advertising. But teams have gained the right to sell their own local deals to competitors, allowing Coke and Budweiser to be poured inside stadiums.

Teams also finally began exploiting the powerful NFL brand, cutting more deals in areas not exclusively controlled by the league and crafting leases granting them explicit control of stadium income like parking, concessions and signage.

"In some respects, the business model the league has adopted is the one Jerry was proposing," says Cass, at the time a Washington lawyer who represented Jones.

But the issue of local vs. national rights still percolates. This spring, club owners passed a new sponsorship and licensing agreement that maintains restrictions on what teams can and can't sell, such as on-field advertising, which remains the province of the league. Jones and five other owners didn't vote for it, a level of dissent that upset Tagliabue, people familiar with the vote say.

"We believe strongly that each club can do a better job on a local level than the league can," Jones says. His worry: The NFL one day will decide that revenue disparities are too great and try to retake control of local sponsorships.

The contretemps reflects a very postmodern question for the NFL: Whose teams are they, anyway?

"There are elements within the league who believe that their brand is stronger than other people's brands and therefore they are entitled to benefit more out of that," says John Moag, a sports-franchise consultant who has worked with several NFL teams. He wonders whether it might get to the point where an owner says, "My games are watched more than anybody else's," and demands a proportionate slice of TV income.

A big part of the debate involves revenue-churning stadiums that have jacked up franchises' local income. Since 1995, 16 NFL teams have opened new stadiums; a 17th is set for 2006 in suburban Phoenix. Several others have undergone renovations. Under a program begun in 1999, the NFL has contributed $650-million to eight public-private stadium projects.

The Packers _ the commissioner's litmus test _ demonstrate how stadiums have helped level the financial playing field, but also how they might not be enough. Playing in beloved but outdated Lambeau Field in Green Bay, Wis., and relying on the old chestnuts of national TV and local sellouts, the Packers in 1997 ranked ninth in the NFL in total revenue. As new stadiums went up elsewhere, the team's ranking fell for four straight years, hitting 20th in 2001.

Paid for mostly with a local sales tax, the $295-million renovation of Lambeau _ named for team founder Earl "Curly" Lambeau _ boosted stadium capacity by 20 percent, adding 4,000 pricey club seats and spiffier luxury boxes. Also new: two full-service restaurants, a Packers Hall of Fame that has attracted more than 150,000 paying customers and a team-owned retail store with this sign: "Where Your Purchase Helps the Packers Win."

The new Lambeau has hosted more than 1,100 nonfootball events in the past year, including 56 weddings and receptions and a junior prom. "We're lucky and atypical because we have the hallowed ground of football," says John Jones, the Packers' chief operating officer. "We can make it a tourist destination."

With the refurbished seats and suites in place, the Packers climbed to 10th in league-wide revenue after the 2002 season. The restaurants, Hall of Fame and other fan amenities opened before the 2003 season, boosting local revenue a further 31 percent, to $79-million, out of a total of $179-million. Despite that extra growth, the Packers didn't budge from the No. 10 spot last season. (The community-owned Packers are the only NFL club to release financial results.)

The NFL's elaborate financial system is partly to blame. The more revenue the league generates, the more money is set aside for players, and the higher the per-team salary cap climbs. (It's $80.6-million this season, up from $34.6-million in 1994.) Smaller-market teams with static stadium situations bear the brunt of such growth, because their revenue can't keep pace with the salary-cap increases.

The high-revenue teams argue that splitting all revenue, national and local, 32 ways would eliminate incentives for teams to market themselves.

"That would be socialism without competition," says Marc Ganis, a consultant to several NFL teams. "The NFL has been socialism with competition."

The big spenders' solution: Get low-revenue teams to work harder selling themselves. "The big concern I have is not how to equalize the disparity in revenue but how to get the clubs that are not generating the revenue to see the light," says Jones, the Cowboys' owner.

Joe Banner, president of the Philadelphia Eagles, asks, "If you're an NFL team and you're not even selling out your games, how do you think you start to (become) whole? You've got to do your best first."

Banner says annual debt service of more than $30-million negates some advantages the Eagles gained when they moved into a new, $512-million stadium last year. The team financed about two-thirds of the project. Similarly, Redskins owner Daniel Snyder has around $300-million in debt left of his $800-million purchase of the team and its stadium in 1999. Says a person close to Snyder: "As Dan has said, 'I'll share my revenue whenever they're ready to share my debt."'

Tagliabue isn't moved by the big-market anti-revenue-sharing argument.

Tagliabue earlier this year appointed a 12-member committee of owners and league officials to study whether big-money teams should share more of their local haul.

But, he says, the bigger concern for all teams _ and the underlying reasons for their gripes _ is the league's labor agreement. Talks began in April on extending the current contract beyond 2007.

Of course, the NFL's future is hardly in peril. An L.A. expansion team conceivably could fetch as much as $1-billion. The NFL Network, which shows football-related programming, could one day telecast live games or be spun off as a public company.

Tagliabue, who NFL executives say will earn a salary of around $11-million under a new contract through 2007, sees the headaches as minor. He is proud of the NFL's dominance of the sports business and prominence in popular culture. He has a message for fractious owners: Lighten up. "If you preoccupy yourself with reorganizing the chairs on the Queen Mary, you won't enjoy the trip," Tagliabue says.

"You should relish the fact that you are on the Queen Mary."

Bucs receiver Michael Clayton is tackled by Ken Lucas during Tampa Bay's loss to Seattle on Sunday. Things have changed since the Bucs began play in 1976, with teams gaining some sponsorship rights, cutting more of their own deals and gaining more stadium income from parking, concessions and signage.

Vinny Testaverde gets ready to throw a pass for the Cowboys, a franchise whose owner, Jerry Jones, helped start teams toward a trend of looking out for themselves when he challenged the league in court.

The Packers and Bears prepare for kickoff at Lambeau Field. Although Green Bay is one of the NFL's most popular and history-laden franchises, it dropped to 20th in the NFL in total revenue in 2001, but after a stadium renovation the Packers were back to 10th in 2002.

FEELING PRESSURED

The NFL's newer owners are trying to snag a bigger slice of the money pie. But soaring prices for franchises have left new owners burdened with debt and scrambling to increase revenue further.

YEAR FRANCHISE OWNER PRICE

(in millions)

1993 Carolina Panthers Jerry Richardson $194

1993 Jacksonville Jaguars Wayne Weaver 196

1994 New England Patriots Robert Kraft 158

1994 Philadelphia Eagles Jeffery Lurie 185

1995 Miami Dolphins Wayne Huizenga 140

1995 Tampa Bay Buccaneers Malcolm Glazer 212

1997 Seattle Seahawks Paul Allen 194

1998 Minnesota Vikings Red McCombs 250

1998 Cleveland Browns (1) Al Lerner 530

1999 Washington Redskins (2) Dan Snyder 800

1999 Houston Texans (1) Robert McNair 700

2000 New York Jets Woody Johnson 625

2000 Baltimore Ravens Steve Bisciotti 600

2002 Atlanta Falcons Arthur Blank 545

(1) Expansion franchise. (2) Including stadium

Sources: National Football League; NFL Players Association