All is great with the National Football League
The week leading up to Turkey Day marks the traditional halfway point of the NFL season — the Super Bowl is only a little more than 10 weeks away. Just over 10 weeks ago, the NFL held its “Kickoff Live 2003” on the Washington National Mall, attracting 125,000 fans and institutionalizing an annual event for Corporate America — 100,000 cans of Pepsi Vanilla were distributed; sponsors such as AOL, Coors Light, Reebok and Verizon Wireless spent lustily for the event. That and this report from SportsLine.com’s Rick Harrow.
The league celebrates its halfway point as it usually does — setting the gold standard for the sports business. A $4.8 billion revenue business, ticket sales grew 44 percent in the last four years up to $1.5 billion. Attendance has risen 4.7 percent since 1999, and the NFL has sold out over 90 percent of its games during the last two years.
Importantly, the $75 million salary cap represents unprecedented stability for both players and owners. The cap has grown from $34 million per club in 1994, and represents a unique revenue-sharing/salary cap partnership that will continue league stability well into the next decade.
The league continues to face three major business issues through the remainder of the season: (1) capture and expand newfangled revenue sources; (2) solidify the league’s image through short-term media turbulence; and (3) expand and diversify young and growing fan demographics.
The league continues to maximize revenue, primarily through the stability of its $18 billion multi-year television agreement. The short-term tension involves the latitude given to each team to capture its own revenue. The league is strongly considering allowing its teams to expand the geographical areas that they can market in, well beyond the 75-mile rule.
League owners may look at larger “designated market areas” which television has used since 1955 to define geographic regions. There always has been a tension between the “haves” and the “have-nots”, especially in the stadium context. Remember that 21 NFL stadiums have been modernized or built since 1993 at a total cost of $7.1 billion.
As teams can keep all stadium revenues for themselves, this has been the source traditionally separating the top quartile teams from the rest. Average local revenues for teams in the first quartile appear between $90 million and $100 million, compared to a $50 million to $60 million for the bottom quartile.
This is in addition to national revenues, which were $75 million per club during last season, according to the Green Bay Packers Annual Report. The NFL is mostly over the hump on stadiums — the Vikings, Cowboys, Chargers, and Jets are all pursuing new stadiums. The remaining $150 million available from the NFL G-3 stadium loan program is a valuable commodity, as these teams are effectively vying for that amount of public support.
Clubs are also looking at additional revenue sources individually as well. The Rams have unveiled a FastBreak Concession Card program at Edward Jones Dome, allowing the customer to spend $50 on a card bought in advance in order to purchase concessions in a “fast lane.” Additional revenue ideas are generated by teams as well.
Sponsorships continue to be the foundation for long-term growth as well. The league has enjoyed a 30 percent increase in sponsor revenue over the last four years, an unprecedented growth in the post-Sept. 11 recessionary economy. The league seems relentless in highlighting its brand. A SportsBusiness Journal 2003 League Report Card indicates that the NFL is highest in sponsor satisfaction, with a 10 percent increase in approval rating. That and this report from SportsLine.com’s Rick Harrow.
It is not surprising, therefore, that companies like MBNA have recently renewed their national credit card sponsorship through a six-year deal guaranteeing a minimum of $16 million on an annual basis.
The NFL continues to lead the pack as far as ad revenue is concerned. The league enjoyed a 7-9 percent increase in upfront ad prices this year, leading all sports. Super Bowl ads are selling briskly as well (more on that in January). As we discussed three weeks ago, the November 4 launch of the NFL Network is viewed as leverage to create programming on basic cable, using the carrot of enhanced live programming as possible long-term leverage. Additionally, the DIRECTV Sunday Ticket has increased from 225,000 residential subscriptions in 1994 to over 1.6 million this last year.
Additional revenue is generated from the Internet as well. Local team sites such as Raiders.com have created at least $2 million in revenue between ad sales, E-commerce, and trading for services with suppliers. Revenues from 49ers.com have increased at least 50 percent over last year. Fantasy football plays a large part, with CBS SportsLine enjoying at least a 50 percent increase from the 850,000 consumers who paid to play fantasy football on the site last year. Obviously, the NFL continues to emphasize varied, diverse, and expansive revenue sources.
This has been a checkered autumn for the league. ESPN Playmakers finished its season last week generating nothing but controversy. Gatorade pulled its ad sales from the program. Sources note that the advertiser pays the NFL $20 million annually for sideline rights. Though the decision appears independent, the Playmakers drama has made many league and television executives uneasy over the past three months. Compounding this is the rapid resignation of Rush Limbaugh, with ESPN rebounding from that controversy after October.
As far as team performance is concerned, Hamilton County Common Pleas Judge Charles Kubicki threw out the lawsuit accusing the Bengals and the NFL of “conspiracy and breach” of the lease at Paul Brown Stadium. The plaintiffs argued that the team “failed to field a team that was good enough to maintain fan interest in a taxpayer-funded stadium.” The suit sought more than $200 million in damages, and officials promised an appeal. The way the Bengals are playing recently, bet that the lawsuit will run out of steam.
Another interesting legal matter involves a lawsuit filed in New Jersey in October on behalf of the Verni family, whose then two year-old daughter was paralyzed in a 1997 car accident in which the driver was drunk after attending a Giants game. Though some lawyers predict that a verdict “could force the NFL to change the way it does business, many predict that the lawsuit might generate some sympathy, if nothing more.
Strong, solid, and diverse demographics remain the watershed strength of the NFL. Women comprise 36 percent of the NFL fan base, including 23 percent of the “fanatics.” More women watched the Super Bowl (38.3 million) than the Academy Awards (25.8 million) last season.
The key remains the young demographic. The league continues to be the quintessential sports league appealing to the prized 18-34 year-old age group. Monday Night Football’s ratings last year among men 18-34 were the highest in five years at 9.5. Advertisers are paying high single-digit increases from last year to air the NFL, and recent commercials reflect that demographic.
As always, the league continues to focus on the “next generation.” A TNS Intersearch Poll suggests that more kids aged 7-11 own NFL merchandise than any other sport. From a broader perspective, a Harris Interactive Poll reveals that 29 percent of sports fans identify pro football as their favorite sport, a five percent increase since 1985 (the largest of any sport).
The rubber clearly hits the road when reviewing franchise values. League owners continue to ignore the Forbes magazine valuation study, arguing that figures are imprecise and incomplete. Nevertheless, values have increased 34.8 percent in the last two years, according to the study.
Team revenues have increased to $155 million, with average operating income increasing to $32.7 million, and a total debt-to-value ratio at over 24 percent. In all tangible and intangible contexts, NFL executives should have an economically productive Turkey Day as they survey the business of the NFL. That and this report from SportsLine.com’s Rick Harrow