Some NFL teams fumble due to recession

Like us on Facebook

Forbes estimates that Dallas' overall operating income hit $143 million, an all-time record for a U.S. sports franchise.

Dr. Daniel A. Rascher, president of SportsEconomics LLC in Oakland, Calif., points out that much of the declines in overall team value can be attributed to a decrease in corporate sponsorships and the reduction of ticket prices by some teams – both of which are directly related to the economic slowdown.

But the real cash cow for the football clubs – the lucrative, multi-billion dollar, long-term television broadcasting contracts – are as strong as ever and guarantee that almost every team is profitable.

CBS, NBC, Fox and ESPN are believed to be paying in excess of $20-billion to broadcast NFL games up through the 2013 season. Revenues generated from nationally-broadcast games are shared equally by the league's 32 franchises.

“The recession has impacted corporate sponsorships that teams have, and some clubs have been forced to lower ticket prices, hence lower revenues and some lower team values,” said Rascher.
“Meanwhile, broadcasting revenues have not been hurt at all.”

Indeed, according to Forbes, national television revenue from CBS, NBC, ESPN and Fox rose by $1.3 million per team to $95.8 million for each franchise.

The league was also greatly helped by the settlement of a dispute with Comcast Corp. (NASDAQ: CMCSA) regarding the NFL Network. Under terms of a new 10-year pact, each team takes in $45.8 million, up $9.3 million, from its non-network media contract.

As a whole, aggregate league revenues rose 5.8 percent to $8 billion, largely due to higher TV broadcasting income.

In addition, Forbes indicated that operating income (earnings before interest, taxes, depreciation and amortization) during the 2009 season climbed to a all-time high average of $33 million per team, or $1 million more than the prior season.

Forbes also noted that total player costs for the NFL increased only 4 percent last year to $4.5 billion – and half of that increase was accounted for by salaries, while the other half was for benefits.

However, Forbes' data indicated that the league is increasingly being divided into the haves and have-nots.

Forbes described the upper one-third of clubs as having “entrepreneurial owners whose teams typically play in big markets and stadiums that generate insane amounts of cash,” while most of lower-tier teams are run by “cautious owners who play in small markets with low-revenue stadiums.”
Consider that none of the top twelve franchises lost more than 3 percent of their value last year, while the bottom six teams dropped by 5 percent to 16 percent in value.

Take the wealthiest team of all – The Dallas Cowboys.

Flamboyant owner Jerry Jones rakes in even more cash by having his stadium hold non-football events like the NBA All-Star game, boxing matches and concerts – none of which he has to share with the other 31 football clubs. Even though the new Cowboy stadium cost in excess of $1-billion, Jerry Jones is only carrying about $190 million in debt.

The second most valuable club, the Washington Redskins – at $1.55-billion -- also has an entrepreneurial and risk-taking owner in Dan Snyder.
He has, among other things, generated hundreds of millions in non-broadcasting revenue by selling the stadium's naming rights to FedEx Corp. (NYSE: FDX), increasing the building's capacity and maximizing premium seating opportunities, said Forbes.

The Redskins recorded operating income of $104 million last season.

The third most valuable club, The New England Patriots, worth about $1.37 billion, have developed the real estate near Gillette Stadium. Owner Robert Kraft also owns the Revolution Major League Soccer club which keeps the stadium busy year-round.

At the bottom of the pile are the smaller-market teams with decaying stadiums. The ten least valuable teams all suffered declines in value last year.

The “poorest” club, the Jacksonville Jaguars, saw its value drop by 16 percent to $725 million. The team lost 17,000 season ticket-holders after a losing season in 2008, leading to all but one of their games being blacked out on local TV.

The Detroit Lions (one of only two teams to post an operating loss – the other being the Miami Dolphins) is another of the poorer NFL clubs.

Not only are they mired with a very bad team in a region hammered by a brutal recession, they're also burdened by a debt load of $350-million due to their contribution to the $440-million Ford Field stadium which opened eight years ago.

After finishing a winless season in 2008, the Lions have struggled to attract fans. Last year, four of its eight home games were blacked out – they have responded by cutting ticket prices.

As important as winning teams and tradition, Rascher said, is the quality of a team's stadium as a driver of wealth-generation.

“The Dallas stadium has hundreds of luxury suites and Jerry Jones holds lots of other revenue-creating events there,” he said.
“With the Cowboys, not only are they a very popular team, but Jones also makes money from corporate sponsorships, premium seating and licensing deals. Keep in mind that teams are permitted to keep the money raised locally through their licensed merchandise.”

In stark contrast, the Oakland Raiders – the second poorest team with a value of $758-million – plays in deteriorating old Oakland-Alameda County Coliseum which they must share with the Oakland Athletics baseball club.

“It's an old park and just doesn't generate much revenue,” Rascher noted.
“It lacks luxury suites, thereby hurting corporate sponsorships and ticket prices have to be modest because fans won't pay high prices for this facility. Other clubs like Buffalo are in the same predicament.”

Rascher explains that sports businesses are somewhat unique in that
revenue is more important that profitability as a driver of value, unlike most other types of industries.

“Sports teams trade on a price-to-revenue (P/R) basis,” he said. When people buy and sell sports clubs, they look at how much revenue is generated, not necessarily the profitability. In sports, many buyers look at the team as a 'consumption good' something to enjoy; rather than an investment.”

Rascher said the P/R ratio in the NFL is currently about 4.7; in baseball and basketball it's between 2 or 2.5.

An interesting dilemma is posed by the two New York teams – the Giants and Jets, who are the fourth and sixth richest NFL franchises, respectively, valued at $1.182-billion and $1.144-billion.

These clubs are also the most indebted organizations in the league.

According to Forbes, the Jets owe about $750 million and the Giants around $650 million, due to financing the new $1.6 billion Meadowlands Stadium they share.

In the unlikely event of a lockout next season, the Giants and Jets would suffer more than any other franchise since their debt servicing costs are so high, Forbes senior editor Kurt Badenhausen told the New York Daily News.

Even if no games are played, these two clubs would still have to pay the interest on their debt.

Overall, though, the NFL remains in strong shape, despite some of the problems it faces. The sport is wildly popular and TV ratings remain high.

“The NFL has an advantage in that it offers such a limited supply of games and teams relative to what the market can bear,” Rascher said. “Almost every team sells out every game, even the bad teams.”