Ask a stranger on the street to name the CEO of a prominent Fortune 100 company. Then ask them who plays quarterback for the New England Patriots on Sundays. The positions are fundamentally similar; both are qualified individuals chosen to lead an organization to success, yet you are likely to receive a puzzled look for one, and a knowing answer for the other.
The referee scandal that characterized the first 3 weeks of the 2012 NFL season was a reminder that behind the games, the media blitz, and rabid fandom, the NFL and other pro sports leagues are simply businesses. The absence of the usual referee corps was due to a dispute between the league and the Referees’ Association, essentially a labor dispute. The whole fiasco was a blow to the NFL’s pristine brand, one that sets it apart from the MLB, NBA, NHL, and others.
That brand is incredibly valuable. If the NFL could be equated to other companies, it would easily fall into the Fortune 500, with more than $9B in annual revenues. So how does football manage to be such big business?
Take a look at the model: First, the league offers fans a quality product, as it is designed to keep competition at the highest level. The NFL draft works in inverse order, giving the worst performing teams the first pick of the best new players entering the league each year. Second, a large portion of each team’s revenue from ticket sales, merchandise, sponsorships and TV deals is shared with the other teams. One franchise’s losing season and poor revenues is offset by another team’s bumper year, meaning the business is well-hedged. Finally, there is a limit on player salaries, known as the cap. The players earned a more than respectable average salary of $1.8M last year, but thanks to the hard cap, team owners’ expenses in terms of paying their employees are minimal.
Business is good. Although ticket sales have slightly declined since 2007, TV viewership and licensing are near all time highs. Each February, the NFL’s incredible portfolio culminates when the league puts on the greatest media spectacle of the year, the Super Bowl. Record audiences worldwide consistently tune in to watch the sport’s signature event, leading advertisers to spend nearly $2 billion on the night over the last 10 years. Not many businesses take in that much revenue in a year, let alone a single day. Out of the 31 privately owned franchises (the Green Bay Packers are technically publicly-owned) 16 NFL owners are members of the billionaire’s club.
It is the impeccable branding of the NFL that transforms a humble game into an entertainment juggernaut that is engrained into American culture. The NFL’s business practices, as in the case of the referee debacle, are often less than favorable and frequently abhorrent, but the brand keeps fans in blissful ignorance of the fact that it is a moneymaking powerhouse behind all the emotional appeal. When the league neared a lockout before the start of the 2011 season, we learned that fans were so entrenched in the brand that even if the NFL willingly shut its doors, its customers would still come knocking. The NFL is built like one of its own powerful linebackers; a true juggernaut.