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The NFL Democratic People’s Republic (Plc)

April 13, 2009

Every year at about this time I end up in conversations with mildly confused people who are fans of the NFL but not familiar with its business model. As coverage and discussion of the upcoming NFL Draft ramps up, onlookers notice that it appears to be a pretty left wing idea (like revenue sharing and the salary cap), and they wonder how such a socialist enterprise can be the most popular sport in the Land of the Free. Look a little further, however, and this apparent socialism is only skin deep.

Fans of other sports are used to teams being separate and competing interests, focused completely on their own (short term) needs. In most sports, cooperation between franchises is rare – the formation of the Premier League in English soccer being the exception that proves the rule. The NFL works differently, with all 32 owners working together and accepting individual sacrifices like revenue sharing – but why?


Lenin - not a fan

It’s all about perspective – the owners (and the league Commissioner as their advocate) accepted long ago that their true competitors aren’t each other, but rather other sports and different forms of entertainment. Pat Bowlen and Robert Kraft might be competitors for a week when the Broncos play the Colts, but the real threat to their teams and profits would be casual NFL fans deciding the league was getting a bit dull and putting their money into watching tennis.

The franchises therefore don’t behave like competing companies who’ll claw each others’ eyes every chance they get, but more like rival sales teams working in the same office – who all get paid out of the same company bonus pool.

This is a pretty farsighted bit of thinking, but that’s how they all ended up being squillionaires in the first place.

The owners believe that making the NFL a larger and more profitable place to be is the best way to grow their own piece of the pie. Each of the league’s supposedly collectivist elements therefore actually serves a highly capitalist purpose, which is to help protect and grow the overall company – NFL Inc.

The Draft

Roll up to see some old guys read out names

Roll up to see some old guys read out names

On the surface, the NFL Draft is a model of egalitarianism. Young players looking to enter the league from the college system have to go through the draft, and the 32 teams start off with the same number of choices, taking turns to pick in order from the worst team to the best. The idea behind this is that if you’re the league’s worst team one year – this year it’s the Detroit Lions – then you’re able to pick the best player in each round and get better quickly, while the year’s best team – Pittsburgh – are handicapped and can’t sit on their laurels.

In reality, of course, the Draft is a capitalist masterstroke. By creating a high profile media circus out of an activity which is common to all sports – selecting rookies – the league manages to create drama in an otherwise mundane offseason, keeping fans’ interest away from other temptations like college basketball or writing poetry. Needless to say the broadcast rights and advertising around the draft generate revenue, but draft picks are also a sort of currency within the NFL’s internal marketplace, traded between teams in exchange for other picks, players or even coaches – hardly a victory for the proletariat.

Revenue sharing

You give us your money, we give it to other people

You give us your money, we give it to other people

Perhaps the league’s most startling bit of pseudo-socialism is the mechanism by which all of its 32 teams share their profits, including gate receipts at games, merchandise income and – crucially – the megabucks from the league’s various television deals. These deals are amongst the richest in the world – from 2008-2013 NFL broadcast rights will raise around 24 billion dollars – and every team receives an identical slice.

This seems like socialism run amuck, until you once again take a look from the perspective of NFL vs NBA/NHL/Olympics rather than Buccaneers vs Eagles – the league’s priority here is not who wins, but providing top quality entertainment for fans every time they watch an NFL game. Making lucrative franchises like Dallas share some of their profits with threadbare outfits like Jacksonville ensures that all teams can afford to put out a quality product, and fans don’t have to suffer a hit and miss league.

The salary cap

The salary cap is a huge, complex and highly engineered beast, but it comes down to a very simple idea: compared to those of its competitors, NFL games are extremely unpredictable – this is exciting to watch, it’s  attractive to spectators, and therefore it’s profitable for owners.

Pro football is the most watched sport in the US because it has surprising moments, games and seasons – on any given sunday, anything can happen. The owners want to keep this level of unpredictability in the game, and believe that the best way to do so is by having “parity” – i.e. not too big a spread between the performance of the best and worst teams.

The Draft has helped drive this, but it’s achieved mostly by the imposition of a salary cap to restrict what each team can spend on players each year. Football is first and foremost a team game, and having a few superstars surrounded by nobodies rarely leads to success, so the cap forces franchises to seek out value for money if they want to be successful. (Not that everyone understands this) This means there aren’t any Manchester United or Chelsea types in the NFL, who have bought trophies by signing a bunch of high priced megastars.

Hands up for home team discounts

Hands up for home team discounts

The salary cap has an additional benefit, because it naturally breaks down good teams. As a franchise is successful and its players become stars, the team finds it difficult if not impossible to keep them all as their costs rise. One or two can persuade players that being on a winning side is more important than being paid market value – which is why Tom Brady is among the most underpaid players in sports – but for most, success on the field is followed by an exodus of players for more rewarding pastures, and a period of rebuilding.

Bluntly put, this works. 14 different teams have made it to the Superbowl since the year 2000, with only 4 able to appear more than once. Teams that are hopeless one year can be top tier the next – the Miami Dolphins only won one game in 2007, but won their division and entered the playoffs in 2008.

Red menace

The NFL’s success has not just happened. The owners have worked together to build a league and a strategy that take precedence over individual teams, and taken some extraordinary measures to ensure its future. As the league seeks to expand into new markets overseas, it will need every ounce of that business sense to take on some pretty impressive competitors – like soccer – while not diluting the high quality product that has enabled it to succeed so far.

The owners, and their counterparts in the players’ union, also have to find a way to overcome the looming threat of a year without an underpinning Collective Bargaining Agreement – the legal basis which makes the salary cap work. If the league’s delicate financial balance gets disturbed both players and management may regret messing with a successful formula.

The NFL is riding high in both ratings and cash, and the bond markets can’t get enough of its future financial prospects, proving that the one-for-all approach is not only building a bigger future pie, but providing the sort of stable and dependable revenue the markets love. Football is reaping big benefits from the league’s big picture approach – it may look like socialism, but it smells like a winning capitalist strategy.

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