Posted by John Vrooman on Wednesday, February 3, 2016 in National Football League.

Interview with NBC.

Vrooman general Super Bowl Comments 2/2016:

NBC-SB / NFL-SB

The NFL post season is at best a break even financial proposition for the participating clubs. For all NFL post season games (including the SB) all of the gate and media revenue are divided evenly among 32 teams in league after modest deductions (probably about 15 percent of the gate) for game hosting and travel expenses.

The home playoff team keeps only venue revenue (concessions and parking) and shares all of the gate with the League from which the NFL pays flat expense fee to the participating clubs (for hosting and travel costs) that increases as participating teams progress through the playoffs. The remaining revenue is then distributed evenly among clubs in the League.

During the NFL regular season 34 percent of the gate revenue is shared and the home team keeps all of the venue revenue from concessions, club fees and parking. All of national media revenue is shared equally.

The players receive post season bonuses that pale in comparison to their regular salaries. Players receive $25,000 per divisional round game; $46,000 for the NFC Championship game; and $151,000 for the SB winners and $102,000 for the SB losers. So each player on the winning SB club would receive $25,000 + $46,000 + $151,000 = $222,000 for playing in a series of 3 post season games that gross over $150 million.

The season ticket holders for either SB club only get 17.5 percent of the Levis Stadium tickets for each of their fan bases and the 49ers get 5 percent of the ducats. The remaining 60 percent goes to the rest of the league (35 percent) and league sponsors (25 percent). The super bowl is essentially a post season blow out bash for NFL friends and family and a financially losing proposition for the 2 participating clubs.

The SB host team can usually turn a modest profit based on unshared venue revenues. Here are some estimates of the profitability of the last 7 SBs for the host Stadiums.

The external spread effects of the SB on the regional economies of the host sites is negligible because almost all of the economic gains are hermetically captured within the new luxury venues like Levis Stadium in Santa Clara. Most host cities experience modest if not zero-sum net economic benefit from hosting the SB because of congestion and crowding out of other economic activity.

Now here are the answers to your specific questions.

I noticed that some of the most historically successful teams, including the Cowboys, Patriots and 49ers, rank among the most valuable teams, while the Panthers sit at 19th. How strong is the relationship between winning and financial success?

Ownership of an NFL franchise is virtually a license to steal because of the clubs’ collective monopoly cartel power over their fans and media and monopsony power over players. NFL cash flows are risk free and revenues are automatic and perfectly diversified among competitors and contractually obligated for decades.

Player costs are locked in and almost certain at less than 50 percent of League revenues. NFL fan attendance is seemingly inelastic with respect to ticket prices and winning. 

It doesn’t really matter in what market NFL club plays as long as it is playing in a hermetically sealed fully wired luxury venue. NFL revenues are win-or-lose stone-cold easy money for nothing: Just ask Jerry Jones and Dan Snyder.

Here is a comparison chart of the growth rate of the value of an average NFL franchise to the open market trading value of the S&P 500. Since 1991 the compound growth rate of the NFL has doubled the growth in the S&P 500 (without dividends). This is incredibly strong evidence of the monopoly power of the NFL cartel, and it is also a very strong incentive to maximize collective cartel profit and a disincentive to win beyond the internal profit maximum.

NFL Growth.

In spite of all the paradoxical cross-incentives of sharing almost two-thirds of $12 billion NFL revenues, there is some convincing evidence that TV market size remains a small revenue advantage and that winning over the long run still matters in a random any-given-Sunday League of equally mediocre clubs.

Here is a simple chart showing the significant binary relationship between market size and NFL team values, with the usual suspects above and below the curve. Much of the over-under valuations derive from the financial state of the cash cow stadiums that were ironically introduced by the Carolina Panthers revolutionary Bank of America Stadium (ne Ericsson Stadium) two decades ago in 1996. The Panthers have recently received a $130 million renovation public subsidy for the 20 year old BOA.

To explain the over-under valuation anomalies I then estimated a series of multiple regressions that introduced the hypothetical effect of actually winning combined with the relatively small (compared to other leagues) but clear market size effect. According to these results the simple win-loss performance in 2015 has had zero effect on the value of NFL clubs.

But when the winning percentages are averaged over 5, 10 15 and even 20 years, the long-term performance of clubs like the Patriots pays off significantly.

This makes sense in a League with long-run cartel power perspective. The average season ticket base in the NFL exceeds 100 percent of the tickets sold, compared to just over 50 percent in the other Big 4 North American leagues. The season ticket (particularly when attached to PSLs like in Charlotte) is a long term contract between the PSL/season-ticket holder and the club. Long-term winning is critically important for mid-market clubs like Carolina; for mega market clubs like Washington and Dallas….obviously not so much.

The franchise valuation key in professional sports leagues is to solidify the season ticket base, and the best way to accomplish that in the face of the NFL owners doubling ticket prices in smaller luxury venues is to build a credible long-term strategy toward winning. This isn’t rocket science, and PSL holders are critically important in Charlotte and throughout the NFL. A PSL season-ticket contract is a big deal and the Panthers are beginning to see that.

There are some metrics where the Panthers’ success is already financially evident this season, including ticket sales and jersey sales. Where else do they have the potential to improve their financial prospects by winning?

Walk-up tickets are risky business and jersey sales are chump change that is mostly shared with the rest of the League through NFL Properties. The secret for the Panthers is to remember and honor the original deal that they cut with the PSL buyers when they went all out and built BOA back in 1996. A PSL (personal seat license) is the present value of a season ticket discount for the life of the club.

The implicit contract that binds the club and PSL holder depends on ticket prices relative to team quality over the long haul. If a team raises ticket prices after a one and done winning season (which the Panthers have done in the past) they have violated that contract and PSL sales and values will crash and burn.

If a club is going to charge half as many fans twice as much for the tickets (PSLs), then the least they can do is establish a winning tradition and not take the PSL money and run. One-and-done winning is cyclical and essentially worthless, but a long run strategy of building winning tradition is priceless, even for the stone cold easy money NFL monopoly cartel.

Charlotte is among the smallest TV markets that has an NFL team. Does that limit the Panthers’ financial ceiling?

See above. The Panthers like many other NFL clubs are upgrading BOA with smart technology using a $130 million subsidy from Charlotte.

Here are some NFL valuation charts that show the value of NFL clubs ranked from large to small. The regression (trend line) curve is a power function. The exponent .324 is much smaller for the NFL because the gradient from large to small is less than the other Big 4 leagues due to extensive revenue sharing in the NFL cartel.

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