Posted by John Vrooman on Thursday, March 8, 2018 in National Football League.

Interview with Crains Business NY.

NFL Economics Stat Pack. 

Clearly there are threats to the NFL’s business model as it now stands. Rights costs are generally out of synch with ratings and ad revenue, and the dangers of CTE could push young players and their parents away from the game in the coming years. My question is, how serious are these threats?

 The most powerful sports League in the world has in fact become a political football. The NFL shield is taking heavy hits from both the left and right of a political spectrum that reflects the deeply disabling polarization of our failed political discourse. The internal governance of the most powerful sports league in the world seems to be reeling out of control in the face of epidemic if not endemic scandals that reflect the current cultural collisions of race, gender, domestic violence and long-term player health. We are systematically disabling and killing the heroes of our favorite childhood game for the money.

 Things are not much better for the NFL on the field (during the game) where the once unifying “League Think” motto that “on any given Sunday any team could beat any other” has been reduced to the mediocrity of equally bad teams beating each other. The mystery of the dominance of the New England Patriots in a salary-decapitated league has more to do with the futility of the rest of the League than the secret mojo of Brady and Belichick.

This unfortunately escapes the new demographic of fantasy players who could care less about actual team production as long as their fragmented fantasy lineup performs in complete isolation. Ratings for NFL games are down but ratings for fantasy viewers of NFL red zone are way up.

 Welcome to the new and culturally beleaguered NFL. This League of Ordinary Gentlemen (and their wives and daughters through inheritance) however, still seems bulletproof. As an unregulated cartel the NFL still wields considerable monopoly power over their fans in erstwhile home markets, media monopolies and big-time monopsony power over their players.

 During the salary cap era since the early 1990s the value of the average NFL franchise has increased at an exponential rate of 11.6 percent. This is about twice the growth rate of the S&P 500 (as the best competitive market rate) and it serves as prima facie evidence of the monopoly power of the closed League as a seemingly invincible cartel.

Will they have a combined effect—and when?

 The demise of the League (or Membership as they refer to themselves) would require a perfect storm that would simultaneously disable the five heads of NFL monopoly power: 1) inelastic gate ticket revenue from local fans, 2) venue revenue from extortion of public stadium subsidies, 3) media revenue from the monopoly cartel auction of rights fees and 4) monopsony exploitation of players especially those under their first contracts. 5) monopsony exploitation of NCAA D1 for minor league player development.

 The quickest economic solution would of course be the erosion of monopoly profit margins by supply side competition from a rival league (or another sport), but given the currently backwards political climate of monopoly deregulation that ain’t gonna happen anytime soon.

Or are they not serious at all, if Fox Sports just paid $3.3 billion for five years of Thursday Night Football? (And is Fox crazy or smart?)

 The traditional networks (cable and satellite) are literally being driven to live sports content for survival by the unplugged technological threat of streaming. This has led all networks and cable to overpay for media rights fees to all sports leagues including the NFL.

 This is particularly true for ESPNs overextension. The negotiations for the next TV deal could reveal the demand-side weakness of the networks and cable, but the League is usually one or two steps ahead in horizontal and vertical integration of media platforms and production. The League will probably outlast the traditional networks, and the new media will most certainly follow.

 FOX has always been tactically crazy like a fox (sorry) in its sports programming. FOX Sports and the NFL-NFC package in particular gave the FOX Network its immediate claim to legitimacy for a shell cartoon network by taking a strategic loss, but blowing out the other networks in landing its first NFC-TV deal in 1994 (see the attached bid for 1994-97). NewsCorp followed the same fake legitimacy strategy with the acquisition of Sky Sports and overpaying for the English Premier League rights in UK at the same time.

Will these challenges nibble around the edges of the NFL’s business? And can NFL football thrive in a diminished state, having established its brand as one of unmitigated dominance? Do you see Facebook, Amazon, YouTube jumping in if broadcasters or ESPN balk at putting up huge sums when rights renewals come around? Or will the tech giants be unlikely to go crazy, having thriving businesses of their own that are actually contributing to audience fragmentation?

 These cultural, ethical, political and governance challenges will continue to plague the NFL and the League will survive, but certainly not because of its ethical superiority, moral responsibility, managerial efficiency, collective wisdom or quality of its game produced between the lines. The League’s true protective shield is ultimately its socially inefficient unbridled monopoly power over fans, cities, government at all levels, media and players.

 Based on the subtle survivalist logic that any one team is only as strong as its weakest opponent the League resides in the safety of an unregulated environment that rewards mediocrity in the name of competitive balance (see the Sports Broadcasting Act of 1961). The Dallas Cowboys are the most valuable sports franchise in the world at $5 billion, but they are an average .500 club (2000-15) on the field.

 The NFL is a fully-automatic perfectly-diversified stone-cold money machine valued at $80 billion, over 6 times $13 billion in guaranteed gate, venue and media revenues and strictly controlled player cost capped at less than 50 percent.

How ironic it would be if the most powerful league in the world of sports was taken down in the end by the collective feminine wisdom of soccer moms united, one of the most powerful forces in all of nature.

V