Posted by John Vrooman on Saturday, November 4, 2017 in National Football League.

Interview with Milwaukee Journal Sentenel.  

• Why have NFL revenues increased so much faster than those of the corporate sector as a whole?

The NFL is a natural cartel that exerts major monopoly power over its die-hard fans, media outlets and general taxpayers. By artificially limiting the number of franchises the League is able to maximize revenues, profits, franchise value and expansion and relocation while playing thinly veiled extortion games for public stadium subsidies. The basic rule of a monopoly cartel is to charge less than half as many fans more than twice as much.

 The NFL is also a fully diversified natural portfolio that shares about two thirds of its relatively risk-free revenue among its competing members that have perfectly negative win-loss correlation. The NFL cash flow is risk-free and almost fool-proof.

• How have NFL players managed to get such a major slice of the pie, when workers in other industries are seeing their share declining?

The players’ share of NFL annual revenues over $13 billion has been reduced to less than 50 percent due to big league monopsony (one buyer) constraints on the players’ labor market, such as the hard salary cap and the exclusivity and rookie cap of NFL player draft. In most cases veteran players are paid approximately what they are worth in terms of demand derived from generated revenues, but most of the younger players under their first contracts are paid the NFL minimum, regardless of their productivity.

 The current salary cap for players is only $167 million compared to average annual revenues compared to media revenues that average $206 million per season through 2022. The NFL is virtually a cash-cow money machine that runs on autopilot, regardless of external politics, internal scandal or chronic self-governance failure.

 The S&P 500 is trading at about 19 times trailing 12-month earnings. How does that valuation compare to NFL franchises?  To franchises in other sports?

The usual financial ratios and valuation models do not apply to the NFL because the franchises are not traded in an open and competitive market. The attached graph compares the growth in NFL franchise values to the S&P 500 index over the last quarter Century.

 The average value of and NFL franchise has increased a whopping 15 times its value in 1991 compared to growth of 5 times its value for the S&P Index. The exponential (compound) growth rate of the value of an NFL franchise is 11.5 percent compared to 5.3 percent for the S&P 500, which is probably the best competitive rate available. This is strong evidence of the unbridled monopoly power of the NFL cartel.

• Do you think that the NFL is overexposed?  If so, how did it happen?

Yes. Media rights fees have exploded for all major NA leagues under the current contracts largely because of the cord cutting advent of new media. Live sports are the only live media content remaining that is attractive to commercial sponsorships. Advertising rates have exploded and all networks and media outlets are hungry for the rapidly disappearing live inventory of sports broadcasting.

There is also a deepening cable contest among NBC, FOX and ESPN for the 24/7 media rights to the Big 4 leagues.

• Do you see the same patterns in the NBA and MLB?

Yes to a much lesser degree but both leagues are rapidly gaining power on the NFL.

Both leagues have grown at an exponential rate of about 10 percent over the last 25 years. The 25-year growth recipe is the same explosive mix for all three leagues: combine double-digit growth media rights fees with a heavy dose of publicly subsidized largesse from the risk-free venue cash of the luxury seat venue revolution. This is the predictable outcome of unregulated and often legislatively protected monopoly sports league cartels.

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