Posted by John Vrooman on Friday, August 18, 2017 in National Football League.

Interview with Deadspin. 

Deadspin XL / Deadspin growth / Growth XL

1. The Brown family and the Bengals have long made it well-known that there’s a revenue divide between the NFL’s large-market and small-market teams. Even now, when revenues are through the roof thanks to the league’s national TV-rights deal, Troy Blackburn says the smaller markets have a harder time being competitive. While it’s true that local revenues count toward the salary-cap formula, how big a problem is this for small-market teams?

Over the course of the NFL stadium extortion revolution that spans the last 25 years there have been two countervailing revenue trends in the NFL. One has been egalitarian and the other has been polarizing.

The explosion in TV rights fees by 64 percent for the current 9-year deal through 2022 has significantly equalized revenues throughout the league because national media is equally shared among the membership and it comprises about 55 percent of all revenue (local NFL media is in significant).

At the same time, the NFL’s luxury stadium extortion game has effectively polarized the League into two distinctly separate leagues, because luxury venues automatically increase the cash flow of a club by at least 25 percent and that risk free easy money is asymmetrically shared among the members of the once unified cartel. Gate revenue comprises about one-sixth of League revenues and it is shared 66/34, whereas venue revenue derived from luxury suites, club seats sponsorships, naming rights, and parking is not shared with the League.

This revenue sharing asymmetry began with a bushwack law suit-counter-suit resolution in the mid-1990s between Cowboys owner and current de facto Commissioner Jerry Jones and the rest of the League membership. Jones openly defied the League on revenue sharing for venue sponsorships and NFL properties agreements.

The suit was resolved with assigning revenue derived from the NFL Club to be shared with the League but revenue derived from the venue to stay with the venue. As a direct result of individualistic Cowboy Capitalism, the stadium revolution and the associated public subsidy extortion shell games of musical chairs were set in motion before during and after the NFL expansion of 1995 into Charlotte and Jacksonville.

The larger equity problem soon became apparent when the relatively weak NFLPA (which achieved free agency by decertifying and suing the League in Court) agreed to a salary cap in the 1994 CBA. The problem for the smaller market franchises (particularly those playing in older cookie cutter stadiums) was that the salary cap base was expanded to include all revenue by the 2011 CBA, but the revenue sharing base for the clubs still asymmetrically excluded the cash cow revenue derived from the new luxury venues.

To make club revenue polarization matters worse the coveted but unshared venue revenue was asymmetrically expanded at the expense of the shared gate revenue. Clubs without luxury venues were caught in a major cost squeeze, because the league wide salary cap and the 90 percent of the cap minimum were twice the share of their local revenue (gate+venue) compared to the growing cabal of opportunistic NFL clubs playing in new venues.

2. Blackburn told USA Today that the recent relocations of the Rams, Raiders, and Chargers were related to the league’s revenue divide, and that if nothing changes more teams could move. What do you make of those comments?

The recent relocations of the Rams, Raiders and Chargers are prima facie evidence of public funding stadium extortion with the unveiled threat of franchise relocation. Since the expansion of 1995 the NFL Cartel has manipulated home markets for a cold $7billion in public stadium subsidies.

The League has systematically transformed almost the entire League from multipurpose cookie cutters to lean mean economic venue machines modeled after the original Texas Stadium cash cow. Those left behind are the clubs on the south side of the divide.

The economic lease life of the luxury stadiums is about twenty years and so many of the early grifters of the mid to late 1990s are now coming up short. The venue extortion revolution is now spinning into round 2 for the footloose Rams, Raiders and Chargers.

The Bengals in particular, received the largest stadium subsidy up to 2000 (90% of $458 million) based on a threat to move to Cleveland to occupy the Browns/Ravens spot in a complex shell game among Baltimore 1998, Cleveland 1999, Tampa 1998 and Cincy 2000.

By the time the smoke cleared in 2000 the NFL had fleeced the taxpayers in those four markets alone for $1 billion public money for new private cash flow stream from luxury venues costing $1.2 billion. As a result, the revenue streams and values for all four increased by at least 25 percent mostly (85%) on the back of the local taxpayers.

3. The same Forbes valuations that show a large disparity between what the Cowboys and Patriots bring in versus much of the rest of the league also shows that teams like the Jaguars ($92 million), Bengals ($60 million), and Bills ($26 million are still wildly profitable. Are we really talking about some teams simply being less profitablethan others? Or is that kind of disparate profit margin—even when it’s healthy for all teams—something that can affect competitiveness?

The noticeable disparity among NFL clubs in income is greater than the disparity in revenues obviously because of the disparities in both venue and player costs. It is possible that venue costs could squeeze player costs and that some owners are more profit max oriented while others are sportsmen who are in it to win it.

For example, the $4.2 billion profit max Dallas Cowboys are the most valuable sports franchise in the world (ManU, Real Madrid and Barca are all valued at about $3.6 billion) and yet with the exception of .813 last season, they are a flat mediocre.500 club over the last decade.

So, revenues might constrain a big-spending win-maximizing owner but incomes differences do not. Operating income differences are not so much the cause of competitive imbalance as they are the result of sportsman v. profit max owners.

The hard salary cap and salary floor minimum (90% of the cap) may mitigate the competitive balance effects of cheap owners v. big spenders because they have to pay their roster within a 10 percent band. But there is still some good evidence that about one fourth of the League consistently leaves talent on the table and carries excess salary cap space forward from season to season.

https://overthecap.com/

4. This is what Blackburn told me about the league’s supplemental revenue sharing program, which it more or less abandoned in 2013, when the TV revenues skyrocketed: “The program still exists on paper, but in practice it does not cause any revenues to be shared with the smaller markets. It used to spread about $200 million per year to the bottom teams, but very little is shared in today’s NFL. The league would argue that the triggering formula remains in existence (which is true), but the formula only measures Player Costs as a percent of Club revenues, and under that metric little if any money gets shared despite the large revenue disparity.” What’s your assessment of that?

The triggering formula for the modest SRS program used to be a double qualifier of player expenses in excess of 65% of team revenues for teams whose gate revenues were at least 90% of the League average. While the estimates on the attached income statements are not exactly true, they can give a good picture about the seldom-used SRS. In the summary income statements for the 32 clubs only the New Orleans Saints would qualify for SRS after 2015, because the Saints player costs are 68% of their revenues in the 4^th quartile and their gate revenue is slightly below the NFL average. Furthermore, the welfare transfer from high to low revenue teams is chump change compared to the base sharing scheme. The total annual contribution to the $200 million fund is about $30 million annually from the top 15 high revenue clubs ($3m from top 5, $2m from next 5 and $1m from 11 through 15) to the few clubs that qualify.

His statement doesn’t really make sense. Revenue disparity is inversely related with the players’ share, because actual (capped) player costs are about the same for all NFL clubs. The qualifying problem the Bengals have is not in the players’ share of their revenues at almost 68.8% (see table). The Bengals problem is the fact that their gate revenue is only 76.8% of the League average, which puts them ahead of the Raiders in Oakland, the Rams in St. Louis and the Vikings last season in TCF Bank (Gopher) Stadium.

5. Blackburn assured me this wasn’t an excuse for teams to angle for new stadiums, and that the remedy he seeks was not to take more money from the players. But would that be where this is headed, if what he’s saying is true (or true for enough owners to believe)?

The remedy to the NFL earnings disparity-asymmetry problem is simply to create symmetry between the revenue sharing bases for the players and the other teams in the League syndicate. The League tried to do this in the 2011 CBA by making the players share more dependent on national media (55%) and less dependent on local revenue (40%) with an overall cap at 48% of all revenue AR.

This compares to the League asymmetric revenue sharing base of all national media (100%), 34% of the gate and none of the venue revenue. This asymmetry is the direct influence of the top 10 high local revenue clubs and traces back to the 1990 revenue sharing rebellion by Jerry Jones and by 2000, Bob Kraft. This asymmetry puts a big league mathematical squeeze on the low venue revenue clubs.

The symmetry solution is very simple. Adopt the same format finally discovered by the polarized MLB in 2002. After a quarter century of constant labor war, MLB hasn’t had a work stoppage since the formula was applied.

Pool and share all national media revenue evenly: Check.

Pool and share all local revenue, including gate and venue revenue after stadium construction cost, 66/34 home/visitor: Check.

The stadium cost deductions from the revenue sharing base effectively spread stadium costs on to the rest of the league in the same proportion that the visiting club benefits from the stadium.

This is not rocket science. In professional sports leagues the institutional economic disparity between the rich and poor clubs is just as devisive as the overt disparity between owners and players. This is how the disparate hit of a hard salary cap/minimum can be softened by a symmetric revenue sharing formula. The solution to revenue disparity, player-share disparity, and inefficient stadium cost-benefit asymmetry are the same. Share all (national and local) revenue symmetrically among clubs from the same economic base that determines the players’ share.