The Football Franchise Hustle: Financing the NFL

The economics of professional football bring more than a few words to mind: scam, hoax, boondoggle, rip-off, racket, con, scheme, fix, subsidy, loophole, ruse, handout, set up, monopoly, and — well, why not — Jimmy Hoffa who, according to urban legend, was interred in the end zone in Giants Stadium.

An insider trading scheme dressed up as a professional sport, pro football finance incorporates everything fishy in the worlds of municipal finance, urban planning, government subsidies, cable television, and, even sometimes, sports.

Let’s move past the idea that professional football is a game played between rival clubs, to test which team is the best over the course of a season. Football may have been that in the 1930s when the Decatur Staleys (later known as the Chicago Bears) were playing the Dayton Triangles. But more recently it has become a hostage to the fortunes of the advertising and investment banking industries, a spectacle put together to sell beer on television or to justify bogus adventures in the bond business.

The evolution from sandlot sport to price-rigged contracts began roughly when its team owners figured out that they all had shares in what Theodore Roosevelt would have called “the football trust.”

Under this cozy arrangement, and with a 1960s anti-trust exemption from the Congress (as if football were as vital to the national interest as bomber production), football owners have parlayed collective television contracts into billions. The next goal was to dress up their new stadiums, largely paid for with public money, as civic virtues.

For a league that prides itself on competition, there is little rivalry tolerated when it comes passing around the money, which amounts to about $8 billion in annual sales. About seventy percent of the television revenue, which amounts to about $4 billion annually, is doled out equally among the thirty-two professional teams, which are best understood as a medieval guild.

In theory, revenue sharing allows the NFL to maintain its competitive balance, so that “on any given Sunday,” one team is capable of beating any other.

Yes, occasionally the Raiders beat the Patriots, but the real advantage of revenue sharing is that it funds an oligopoly of like-minded and greedy owners, who would become small-time operators “on any given Sunday,” were there free enterprise.

If football games were really a sport, and thus closer to a news event, any network with a camera would be allowed to cover any game. The government would be out of the business of regulating sports broadcasts, where permission to broadcast has become simply one more license to be auctioned to congressional and state legislature cronies.

Television revenue also allows team owners to borrow money to build Nuremberg-like stadiums, which can now be seen looming over the warehouse districts in many cities, gothic reminders that team owners are not like you and me.

The boondoggle begins when the franchise owner, protected by his anti-trust herald, says to the city where the team plays that unless he gets a new stadium, the franchise will move elsewhere. Terrified about losing a team more popular than any mayor or council member, the city then condemns prime land for the new construction and authorizes the team’s owner to issue municipal bonds to pay for the new arena.

Many new stadiums, like the retractable-roof mausoleum built near Dallas, cost more than $1 billion, figures that equate professional football economics to the oil depletion allowance, if not the Texas Railroad Commission. On average, taxpayers fund 60 percent of new stadium costs. In the last twenty years, the NFL’s take of taxpayer subsidies has amounted to $17 billion.

Bonds for new stadiums are given tax-exempt status, a folly based on the false premise that these new ballparks are “good for local business.” In truth, they bring in little more than sweetheart construction contracts and the revenue from nearby parking lots. Have a look at what Detroit got for the Silverdome. Hint: it was sold at auction for $583,000, after Detroit dropped in about $200 million in present-value dollars.) The real money goes to the team owner, that beacon of urban renewal.

In some cases, local sales taxes are increased so that stadiums can be financed. But that doesn’t mean consumers get to share in skybox revenues, which the owner keeps for himself and his uptown pals.

Skyboxes, which can cost up to $500,000 per season, are rented to corporations, who use them for tax-deductible wining and dining. “Lucky” fans get to subscribe to “personal seat licenses,” which cost anywhere from $4,000 to $30,000 per seat so that fans then have the “right” to buy season tickets, which might cost another $500 a game.

Given all the money washing around the closed-shop of the NFL, it is little wonder that the value of most franchises is approaching $1 billion, even for hopeless teams like the Tampa Bay Buccaneers. Forbes estimates their worth at $1.1 billion, about four times their revenue, and a nearly infinite multiple of their recent wins.

What do the players get from these financial bubbles? To be sure, some of the stars get millions in guaranteed money on multi-year contracts. The rest can be cut at the whim of the owners (“to clear cap space”), with little to show for their prime-time performances except crippling injuries, addiction to pain killers, and very possibly early dementia.

Thanks to a $127 million salary cap (dressed up to trumpet “fair competition”), player salaries will never be more than shared TV revenues. This arrangement makes the league immune from team failures and gives teams like the Buffalo Bills an incentive to lose gracefully and cheaply.

In 2008, Buffalo earned $40 million, while the Dallas Cowboys reported only $9 million. Average team revenue in the league was $237 million, and average net profit was $32 million per team.

Will professional football’s wheel of fortune spin forever? Will someday soon every team have a billion dollar stadium, upholstered skyboxes, fat television revenue sharing, tax-exempt debt, and fixed costs for its players, who stay on the job for less time than migrant workers?

Maybe, but here’s how I think the free market will take “the football trust” to the house, if not the cleaners.

One of these days television revenue will decline, when networks can no longer afford the billion dollar contracts; their advertisers will have departed to other fields of plenty. Would you want CBS and NBC as your biggest source of revenue? At the same time, voters will wake up to find that their municipalities have gone broke and that much local interest is due on behalf of behemoth stadiums — often named after get-out-of-town-quick companies, like Enron — that most voters cannot afford to visit.

Like a number of monopolies, the NFL might find itself under pressure in the courts, and the league could lose some of the pricing power that comes from the protectionism that is courtesy of the cable owners, the municipal bond fixers, and the Congress.

If any city in the country could field a professional team, and if any broadcaster was free to show the games, would cities be building new stadiums that cost $1 billion and would the woeful Washington Redskins be worth $1.5 billion? I don’t think so. But right now the NFL is the only game in town.

Matthew Stevenson is author of An April Across America and the soon to be published Remembering the Twentieth Century Limited.