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.
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.
 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.