August 17, 2017

Economics of NFL Stadiums

In a 2002 study titled “Representative NFL Stadium Public/Private Partnerships,” Horrow Sports Ventures reported the estimated total costs, lease terms, and any public and private contributions, cost overruns, and referendums associated with 22 football stadium projects. Although there were likely changes of each project’s costs, terms, contributions, overruns and referendums if implemented, the study revealed valuable information about potential investments in existing and new NFL venues.¹

In Chapter 4 of my book Football Fortunes, I provided various data regarding NFL stadiums such as when these facilities opened, home teams’ average attendances and win-loss results, and amounts, years, and expiration dates of naming rights. Thus, anyone who reads the chapter understands why and how these stadiums influenced, in different ways, the strategies, operations, and financial success of respective NFL franchises as businesses and their on-the-field performances as competitors especially at home games.

While sports fans attended pro football games or watched them on television including wild card and divisional playoffs and each conference championship and then the Super Bowl, there were reports and rumors about new or planned stadiums for the Minnesota Vikings, Oakland Raiders, San Diego Chargers and San Francisco 49ers. Consequently, for my perspectives regarding the economics of NFL stadiums, I created Table 1. As such, it contains interesting characteristics of teams’ home sites based on an article published in Forbes and readings in other sources. To that end, what do Table 1 and the literature reveal about the home venues of 32 clubs in America’s most popular and prosperous professional sport?

Table 1
Characteristics of Stadiums, NFL Teams, 2011

Team Name             Stadium                 Capacity  Cost  Value   Owner
Arizona Cardinals     U of Phoenix Stadium      63,400   395    100  Public
Atlanta Falcons       Georgia Dome              71,228   210     72  Public
Baltimore Ravens      M&T Bank Stadium          70,107   220    151  Public
Buffalo Bills         Ralph Wilson Stadium      73,079    22     88  Public
Carolina Panthers     Bank of America Stadium   73,504   248    144  Team
Chicago Bears         Soldier Field             61,500   630    138  Public
Cincinnati Bengals    Paul Brown Stadium        65,500   334     90  Public
Cleveland Browns      Cleveland Browns Stadium  73,300   300    115  Public
Dallas Cowboys        Cowboys Stadium          100,000 1,200    437  Public
Denver Broncos        Sports Authority Field    76,125   401    137  Public
Detroit Lions         Ford Field                65,000   440     65  Public
Green Bay Packers     Lambeau Field             73,128   295    132  Public
Houston Texans        Reliant Stadium           71,054   449    198  Public
Indianapolis Colts    Lucas Oil Stadium         63,000   719    136  Public
Jacksonville Jaguars  EverBank Field            67,246   145     73  Public
Kansas City Chiefs    Arrowhead Stadium         76,600   375    133  Public
Miami Dolphins        Sun Life Stadium          75,540   115    147  Private
Minnesota Vikings     Mall of America Field     64,126    55     50  Public
New England Patriots  Gillette Stadium          68,756   325    262  Team
New Orleans Saints    Mercedes-Benz Superdome   69,703   336    184  Public
New York Giants       MetLife Stadium           82,500 1,400    204  Public
New York Jets         MetLife Stadium           82,500 1,400    177  Public
Oakland Raiders       O.co Stadium              63,132   100     48  Public
Philadelphia Eagles   Lincoln Financial Field   69,144   360    181  Both
Pittsburgh Steelers   Heinz Field               65,050   281    134  Public
San Diego Chargers    Qualcomm Stadium          70,000    28    102  Public
San Francisco 49ers   Candlestick Park          69,734    25     80  Public
Seattle Seahawks      CenturyLink Field         67,000   360    137  Public
St. Louis Rams        Edward Jones Dome         66,000   248     63  Public
Tampa Bay Buccaneers  Raymond James Stadium     65,908   169    134  Public
Tennessee Titans      LP Field                  69,143   292    132  Public
Washington Redskins   FedEx Field               85,000   251    337  Team

 

Note: Team is self-explanatory. Name reflects recent naming rights of stadiums. Capacity is thousands of seats. Cost includes amounts for the construction and renovation of stadiums in millions of dollars. Value is the portion of an NFL franchise’s market value attributable to its stadium, in millions of dollars. Owner of a stadium may be a public entity such as a city, commission, county, district, metropolitan authority, state, a private investor or investment group, and/or a team. The Philadelphia Eagles and City of Philadelphia jointly own Lincoln Financial Field.

Source: Michael K. Ozanian, Kurt Badenhausen, and Christini Settimi, “NFL Team Valuations 2011,” www.forbes.com, cited 10 January 2012.

 

First, the average capacity was approximately 70,700 for 31 NFL stadiums in 2011. They ranged in seats from 61,500 for the 88-year-old but renovated Soldier Field in Chicago to 100,000 for the relatively new Cowboys Stadium in Dallas. Besides Soldier Field, another small, old facility was 46-year-old O.co Stadium (formerly Oakland-Alameda Stadium) for the Raiders in northern California. Interestingly, 12 or 38 percent of all stadiums opened during the 2000s while a few others expanded in size by adding thousands of club seats.

Second, construction costs and renovations combined equaled less than $60 million each for four NFL stadiums. These were 52-year-old Candlestick Park in San Francisco, 44-year-old Qualcomm Stadium in San Diego, 39-year-old Ralph Wilson Stadium in Buffalo, and 29-year-old Mall of America Field (formerly named HHH Metrodome) in Minneapolis. In contrast to them, owners of such stadiums as Lambeau Field, Arrowhead Stadium, and the Mercedes-Benz Superdome (formerly named Louisiana Superdome) each received millions in taxpayer money for renovations.

Third, Forbes estimated and ranked the market valuations of NFL franchises and published them online in an article dated September 2011. These estimates consisted of specific values due to (a) the Sport (revenue shared among teams) and each football franchise’s (b) Market (city and market size), (c) Brand Management (promotion and marketing), and its (d) Stadium.

In column five of Table 1, I list the value in millions assigned to each NFL franchise’s stadium. Because of such amenities as types of leases, numbers of suites, prices of premium and club seats, advertisements, sponsorships, vendor contracts and special business deals, the most lucrative among the group are Cowboys Stadium and FedEx Field. Furthermore, there were five or 16 percent of NFL stadiums whose value exceeded their cost. This occurred, for example, for Dan Snyder’s Redskins franchise in Landover, Maryland where new additions at FedEx Field were two video scoreboards, 1,000 parking spaces, and club-level party decks. Meanwhile, Dallas Cowboys owner Jerry Jones recently established a partnership with the New York Yankees and Goldman Sachs in a profitable stadium operation venture named Legends Hospitality Management.

Fourth, as denoted in column six of Table 1, different publics primarily owned 27 or 87 percent of NFL stadiums in 2011. These included such cities as Cleveland and San Diego, counties as Erie in New York and Hamilton in Ohio, and states as Georgia and Louisiana. Indeed, the majority of NFL franchises had to negotiate a lease agreement and thus pay rent to occupy their home-site stadium if a public organization owned it.

In sum, stadiums are truly economic assets that contribute in many ways to the current and future market value of NFL teams. Therefore, during the 2010s, franchise owners like Carolina Panthers’ Jerry Richardson and public organizations will allocate resources and finance improvements to upgrade and perhaps significantly renovate their football venues for more revenue and to entertain fans while they attend home games of the league.²

 

¹Horrow Sports Ventures, “Representative NFL Stadium Public/Private Partnerships,” Mimeograph (12 September 2002): www.sandiego.gov/chargerissues/pdf/horrow.pdf.

²See Steve Harrison, “New Look? Or New Stadium,” Charlotte Observer (22 August 2010): 1A, 7A.

 

NFL Business Overview

In a study of the NFL that Jake Fisher completed while enrolled in an economics class at Harvard University, the author provides a business model of this popular and prosperous American football organization, and therewith discusses its marketing strategies, team (franchise) values and such financial data as revenues, operating expenses, and profits. Based on variables contained in the model, this professional league’s economic success occurs primarily because it centrally generates and equally shares national revenue streams from the media and merchandising, controls the distribution and quality of its product and thus stabilizes consumer demand for football, allocates risk proportionately among 32 franchises, restricts the long-term growth in players’ compensation, and maintains competitive parity.[1]

To denote some real-world consequences of the model, since 1998 Forbes magazine reports information about the business of the NFL and financial facts of its various franchises. For example, staff writer Kurt Badenhausen researched the economics and operations of the league and its teams during early-to-mid-2011 and then reported his results in September of that year in an article titled “The NFL’s Most Valuable Teams.” The following are important highlights of Badenhausen’s research.

First, the average NFL team was worth approximately $1.04 billion. In fact, teams’ estimated market values ranged from $1.85 billion for the Dallas Cowboys to $725 million for the Jacksonville Jaguars. Furthermore, 15 (or 46.8 percent) of the 32 football clubs had values greater than $1 billion.

Second, from 2010 to 2011, the values of 19 (or 59.4 percent) NFL teams increased while 8 (or 25 percent) decreased and 5 (or 15.6 percent) remained the same. More specifically, the greatest increase in value was 10 percent for the New York Giants with the steepest decline in value equaling 5 percent for the Tampa Bay Buccaneers.

Third, relative to their debt/value ratios, the largest ratio was 61 percent for the New York Jets with the smallest being 2 percent for the Green Bay Packers.

Fourth, franchises averaged $261 million in revenue for the league’s 2010 season with the Cowboys ranked first at $406 million and the Oakland Raiders ranked 32nd at $217 million.

Fifth, NFL clubs averaged $30.6 million in operating income that season. These amounts varied from $119 million for the Cowboys to a $7.7 million operating loss for the Detroit Lions. In short, the differences in dollars across the league reflect how the league’s teams performed financially both as a group and individually during the period.

As sports enterprises, what are the reasons that caused NFL franchises to realize different amounts with respect to their estimated market values and annual changes in values, debt ratios, revenues, and operating incomes? Besides their performances in regular season games and perhaps later in the playoffs and Super Bowl, and expansion in the size and purchasing power of their fan base, these reasons included such factors as capacities of their stadiums and prices of club seats, personal seat licenses, suites, and general admission at home games.

Meanwhile, other factors were monies teams received from advertising, merchandise deals, naming rights, partnerships and sponsorships, and any payments from revenue sharing. Undoubtedly, these factors and amenities from playing home games in relatively new or renovated stadiums contributed to improvements in the earnings of the New York Jets, New England Patriots, and Indianapolis Colts in the American Football Conference, and to the Dallas Cowboys, Washington Redskins, and New York Giants in the National Football Conference.

During the next decade, the NFL is likely to become more powerful and wealthier from a business perspective and therefore continue to dominant professional sports in America. Indeed, the league signed a new 10-year collective bargaining agreement with the NFL Players Association that, in part, increases franchise owners’ share of revenue from 49 to 53 percent. Moreover, between 2014 and 2022 the league will receive approximately $28 billion from television contracts with the FOX, CBS, and NBC networks and additional billions in broadcast revenue from DirectTV, ESPN, and Westwood One Radio. Consequently, NFL teams must share about $6 billion each season in media fees beginning in 2014.

Despite the league’s current popularity and lucrative business prospects, Green Bay Packers Chief Executive Officer and President Mark Murphy identified some potential problems in an August 2011 interview with Matthew Kaminski, a member of the Wall Street Journal editorial board. According to Murphy, there are five major problems. One,  concerns about the safety of the game and long-term effects of concussions and other serious injuries to teams’ players; two, concerns that bad or negative publicity in the media about safety and injuries may scare parents and thus cause their children and teenagers to ignore the game and not play football; three, an increase in ethical problems like recruiting scandals and cheating by coaches and other officials in college football programs; four, almost zero growth of participation in the sport among the Hispanic population living in America; and five, the league’s limited success to expand the game abroad especially in Asian and European countries.

In future essays, I plan to analyze a number of specific topics about the business, economics, and history of the NFL and/or the operations of college football. For more details of franchises as business organizations and competitors in the league, see Chapter 3 in Football Fortunes: The Business, Organization and Strategy of the NFL published by McFarland & Company, Inc. in 2010.                    


[1] Fisher, Jake I. “The NFL’s Current Business Model and the Potential 2011 Lockout.” Student requirement for Economics 1630: The Economics of Sports and Entertainment, Harvard University, May 2010.