2027
Posted by John Vrooman on Thursday, January 23, 2014 in National Football League.
–The league takes in about $10 billion revenue annually. Any idea how that pie breaks down in categories? I’ve read that $4-5 billion comes from TV rights.
–The league projects getting up to $25 billion in revenue by 2027. Given the market trends, is this realistic? How do they get to that number? Any way of breaking it down with projections?
–Will TV rights be the big driver of getting the NFL to that $25 billion? How much and why? What else?
In addition to the questions above, I’m trying to get an idea about what the NFL would look like and be like if it were making $25 billion instead of its current $10 billion.
If NFL revenue grows from $10 billion now to $25 billion in 2027 that is only a compound annual growth rate of 6.7% which is well with reason for a legalized monopoly cartel (created in the Sports Broadcasting Act of 1961.)
And what about the player safety issue possibly making the game less attractive to fans (less violence could mean less interest)?
The safety issues will probably change the popularity of the game because most of the imposed remedies further constrain the defense and unchain the offense. A greater concern could be the increased mediocrity of the competition imposed by the owners in the name of competitive balance by the increasingly restrictive hard salary cap at less than 50%.
Fans should also get ready for the migration of TV rights from free-to-air to cable and satellite and finally to the NFL Network (siphoning) and renewed threats of franchise relocation to leverage public money for private stadiums in the second venue revolution just like the first over the last 2 decades.
Monopoly power over TV rights and franchise location is what provides the real engine for the economic growth of the most powerful sports league in the world.
–Below, do you mean safety issues will NOT probably change the popularity of the game? I sensed that’s what you meant, but it is missing the word “not.”
Yes I meant “not” change….the safety issues are still very important particularly the concussion issue and potential class action litigation against the League as well as some locker room culture issues…but the impact on fan interest should be minimal
–What you mean by siphoning above?
Siphoning is the technical/legal term for the migration of tv rights from free to air to cable to satellite. This is further evidence of the monopoly power of the League even over the networks. The monopolization of TV right ends with the vertical integration of those rights as seen in the recent expansion of the NFL network and new NFL media. The games are gradually being siphoned from free to air to ESPN to NFL Sunday Ticket to the NFL Network…this is shown in the NFL properties share of the NFL revenue pie.
The modus operandi of the League cartel is to exclusively charge half as many fans twice as much. This is true in TV rights as well as the 20-year venue revolution since the expansion of 1995. The stadiums are also becoming exclusively smaller and the seats more luxurious and unnecessarily expensive.
So at the end of the first cycle almost all teams have the identical national revenue and unshared venue revenue that is vastly different depending on the economic architecture of the different stadiums. This split between have and have not owners was the underlying cause of the recent lockout…certainly not the split of revenue between the owners and players as portrayed in the media.
–It sounds like you think that if the NFL just keeps doing what it is doing now, it’ll get to that $25 billion figure by 2027. Do you think it will have to make any changes or find new revenue streams to get to that number? For example: More games on different nights? International market growth? Mobile phones as a significant stream of revenue?
It is not unreasonable to expect the League to reach the $25 million estimate. The main driver will of course be the vertical integration and siphoning of media and new media (NFL controlling media from the game production to fan consumption).
The League will also consider expanding the season and the size of the League. In doing so it is important to realize there are two optima: the internal profit max optimum that drives the League’s decision and the external optimum that includes fan and player welfare.
Unfortunately the League decides matters based on what is best for their bottom line usually at the expense of the external welfare of fans and players. This is why the 32 team League is smaller than what it should be in a fan/player welfare world.
There is empty discussion and passing experimentation of expansion into other major markets such as London, and yet the second largest media market in the world LA has been NFL vacant for almost 2 decades.
In the next ten years there will probably be a team in LA and London but it will come from relocation rather than expansion. The likely candidates are San Diego (location) or St. Louis (ownership connections) to LA and Tampa or Jacksonville (ownership connections with EPL) to London.
Remember the MO of the league is to restrict the number of franchises to max out the public concessions on stadium funding and this is done by holding fast to 32 clubs. It is also important to realize that these owners simply do not want to share the largesse with 2- 4 more new franchises.
Expanding the regular season will have no impact on the NFL gate because the season ticket holders are already forced to buy a 10-ticket package that includes only 8 regular season games. They are already paying for 2 home preseason games at the regular season price. Expansion of the season therefore would only serve to make the TV rights fees more attractive for national broadcast.
More games on different nights exclusively on the NFL Network is a no brainer. Interestingly enough the League may have trouble with Friday nights because of a special Friday night exclusion in the Sports Broadcasting Act of 1961, the legislation that exempted the NFL (and the AFL at the time) from antitrust litigation for the collective negotiation of TV rights as a cartel.
The other important factor in this monopoly saga is the monopsony power that the League also has over a very fragile union weakened by the short careers of NFL players (average 3.8 years). So revenue gains immediately translate into profit gains because the players are locked in with less than 50% of the revenues through 2020 and probably after .
–What do you think a $25-billion NFL looks like in 2027 – all stadiums like the Cowboys’ stadium? And what would the TV options likely be?
Unfortunately if current trends continue most of the games will have been siphoned to the NFL Network and the new venues will become increasingly more exclusive with the same general formula of fewer fans having access at a higher prices to generate more certain media, venue and gate revenues
Yes the low-revenue franchises will forever be chasing the Cowboys the most valuable sports franchise in the world in spite of its 8-8 mediocrity between the lines. The recent venue revolution began with the incredible cash flow the Cowboys generated back in 1971 with the exclusionary economic architecture of old Texas Stadium with the first PSLs and mezzanine level luxury boxes.
In a quick cash flow analysis for the Dallas News of the Cowboys new ATT Stadium I calculated a positive cash flow from NFL games alone valued at over $6 billion which is 5 times the venue cost $1.2 billion, $350 million paid by the suburban city of Arlington. A venue of this magnitude will increase the cash flow and value of an average franchise by 25%-30% (NFL franchises are valued at 4 times revenues). This is the big-boy cowboy capitalism of the NFL.
Followups.
–For all the talk about the NFL Network, it seems the NFL greatly values the free-to-air networks (CBS, Fox, et al), and for one big reason – exposure.
More exposure means more popular, more fantasy football, more sales, more interest, bigger TV rights.
So it seems and I agree that NFL is made for TV more than any other professional sport, but the constant profit maximizing force is to restrict output by excluding fans and charge a higher price. Compare massive college football stadiums like the LA Memorial Coliseum designed for maximum fan exposure and NFL stadiums like the new Soldier Field designed for maximum profit.
Yes it is possible that the best mix is some free to air as a come-on (particularly in the first part of the season when the network mini-deals are being offered) but the new world of sports TV is on cable…one half of a monthly cable bill is really for sports programming whether the subscriber watches it or not.
If the NFL goes cable and NFL Network only, it becomes more inaccessible for the blue-collar fans it needs to drive TV ratings, jersey sales and fantasy league participation, doesn’t it?
Maybe but not much. The NFL doesn’t really care about the blue collar fan at the venue or over the TV. Consider the subtle move of NFL games from ABC to ESPN in 2006: ABC is free to air with advertising and ESPN is $5.54 per subscriber with advertising for 100 million homes per month.
Almost one third of ESPN’s $6 billion in annual cable fees goes the NFL ($1.9 billion per year 2014-22). ESPN’s $5.54 subscriber fee is 4 times higher than the next highest fee of TNT’s $1.24 per subscriber. The NFL Network’s fee is $1.13 per subscriber compared to the average cable channel fee of just over a quarter ($.28) per subscriber. This is not chump change. Do the math: the gains from higher fees totally swamp the losses from the excluded blue-collar viewer.
I think we’re seeing that with the Thursday night TV package being shopped currently. It was available only on the NFL Network. But the NFL is now shopping it for the free-to-air networks and wants to simulcast it on the NFL Network. Exposure seems to be the bottom line there.
Sure it wants the exposure but these mini-deals are designed only for the first part of the season when Monday night viewership is down. When the games are important then the NFL will hide them exclusively on the NFL Network.
–How does it make the NFL more money to be on ESPN or cable as opposed to CBS or Fox?
See the discussion above ESPN gets paid twice and the NFL gets a lions/cowboys share.
Followups.
For all the talk about how much tickets and commercials cost, there’s one price that might reverberate with the masses. I’m told a 20-ounce Bud Light at the Super Bowl will cost $14.
Any reaction to that as economist in a few words?
Nothing is really sacred anymore. This is called a two part price where the first part is the ticket and the second part is the beer. Normally a double monopoly club would lower the ticket price and gouge on the beer price, partly because they share the ticket price with the visitor and keep all of the beer price. But NFL clubs don’t lower either price. Remember the monopoly rule is to gouge half as many fans more than twice as much on everything.
The average Super Bowl ticket price on the secondary market of $3600 is about 30 times the average price for a regular season NY Giants ticket of $120. So the 20 oz bud light that usually sells for $9 now selling at $14 probably won’t reverberate with the masses at all because the blue-collar masses have been priced out and are not even there.
The bad news is that the Super Bowl has become a gentrified exclusive post-season party for the League and it sponsors, but the good news is that 100 million true fans will be tossing cold ones while watching the game in the warmth of our homes or in the comfort of our local sports bar.
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