THIS WEEK ON "THE SHIELD"
The NFL is being devoured by its own economic model
The NFL is being devoured by its own economic model
This is a very boring, simple explanation as to why
the NFL’s ratings are declining. It is not an opportunity for you to shoehorn
in your feelings about Colin Kaepernick protesting the game. No
one really cares about your feelings about Colin Kaepernick’s protest, because
if you are the kind of person who gets really offended by Colin Kaepernick’s
protest, then your feelings in 2017 are the most boring and predictable thing
about you, and telling on you in a deeply unflattering light.
The simpler and also boring systemic problem with the
NFL that might actually explain something is its success, and how that success
made the ownership class in the NFL fat, lazy, and locked into a business model
they have no real reason or incentive to change, even with falling TV ratings.
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| The "crowd" at kick-off for TNF |
The absence of real risk of failure is a start.
Stakeholders in the NFL cannot lose—at least not under the league’s current
structure. Owners split money from the league’s massive TV deals and other
media revenue streams.
That stream is so dependable, so huge, and so guaranteed
that it’s done what large, intractable pools of cash have done since the
invention of markets. It has altered and distorted the very thing that created
it, and broken the basic exchange between consumer and seller that made the NFL
successful in the first place.
It’s a form of laziness, and a special kind different
from the standard laziness in the NFL. Laziness bred from prosperity isn’t a
new problem for NFL ownership and management. For every old-school Rooney or
Mara or Hunt family intent on making at least an honest show of competing, producing
a good product, and paying at least paltry attention to the demands of the
consumer, there has been a Culverhouse or a Smith, owners who ran their
franchises with the least possible effort and expenditure. The slumlords of the
NFL took their rent, often without providing anything close to a finished
building.
Note: This may be literally true of the 1970s and
1980s Buccaneers, whose stadium sort of looked like
concrete that never set exactly right, so they just went with it and said,
“yeah, it’s supposed to be shaped like a melted frisbee.” What you call a
mistake, the 1970s called architecture.
That approach towards maximizing your dollar with the
bare minimum of effort became more sophisticated over time. As the league’s
revenues boomed, they became something less like points of civic pride run as
passion projects by the locally wealthy, and something more like attractive
investment properties with a promising rate of return for billionaires —
particularly those billionaires who entered the NFL as strangers to the league,
but as intimate familiars of a corporate culture dependent on squeezing every
profitable dollar, and trimming every wasteful one from the budget.
For instance: The legend of Dan Snyder tells a story
of someone who was “passionate” about the Washington franchise on a personal
level. It sometimes leaves out his ruthless economizing of the franchise, a
focus on the bottom line interrupted periodically by splashing free agent
signings to keep fans semi-interested in the team. That he moved them to the
worst stadium in the league, charged for everything short of oxygen, and rolled
out a consistently mediocre product didn’t matter: His great gift as an NFL
owner, after nearly 20 years, has turned out to be a deep understanding of
knowing exactly how little actual quality he could slip into the product
without breaking the customer’s dependence completely.*
*Side note: Dan Snyder would be
an amazing MDMA dealer.
Photo by
Patrick McDermott/Getty Images
That level of sophisticated coasting in the name of
profitability became a laudable thing for owners. Jerry Jones, in particular,
emphasized profitability and value for the league, leaning hard on new
television contracts, stadium deals, corporate tie-ins, and whatever else he
could grab in order to boost the value of the Cowboys to its limit. The momentum for moving
the Raiders — one of the league’s oldest
recognizable brands, with one of its most insanely loyal fanbases — from
Oakland to Las Vegas came largely from Jones, and mostly for the holy grail of
profitability. Jones is the crowning example of the NFL’s gargantuan gains in
the financial weight room: Since buying the Cowboys for $140 million in 1989,
Jones has grown the value of the franchise to $4.2 billion. The team makes a
publicly declared $227 million a year.
The NFL was able to do this because, at a certain
point, wealth outstrips the power of the assets that created it. In 2017, the
league split over $7.8 billion between teams. The money and the success the
league enjoyed became so huge that they attained their own gravity, and became
separate from the main product that built the league in the first place:
professional football.
That separation of the product from the wealth it
creates should be familiar to any American consumer.
- A large company takes control of an entire economy, becomes so large it cannot fail, and thus has no real incentive to do anything but seek rent on that endless, belching pipeline of cash.
- The product produced generally does not improve, and often without the pressure of competition doesn’t have to improve at all.
- It might even get worse, or at least watch things like customer service and satisfaction take nosedives.
It’s not exactly a monopoly, but it’s also not-not
exactly a monopoly, either.
The value in that kind of behavior doesn’t come from
the product. That flatlined in terms of utility a long, long time ago.
(The Patriots remain unusual for not only
trying, but trying intelligently to produce a good product.)
An NFL owner no
longer needs that to continue to boost the value of the franchise using
anything that happens on the field. Value comes from getting a new stadium
someone else paid for, moving the franchise to a more valuable piece of real
estate and doubling the value of the franchise overnight. Value comes from
leveraging and re-leveraging your existing assets, not by creating anything
new.
If you see an NFL franchise as just another asset to
be maximized and squeezed for every dime, being good at football — i.e.
producing a good product — doesn’t matter. It’s not even rational to put effort
towards anything but “value creation,” i.e. shuffling around pieces of the
franchise until they sit in the most profitable positions. The Rams doubled their value overnight by
leaving St. Louis and moving to L.A. They are a miserable football team run by
a despised owner playing in an empty stadium, but the Rams
could care less. The fourth most valuable team in the NFL sucks by design, and
shines bright enough on the balance sheet to eliminate any real concerns about
how bad the product is on the field.
Photo by Jeff
Gross/Getty Images
The Rams, the 49ers, and the Washington team are all in the
top 10 most valuable NFL franchises. There are other reasons for that besides
their efficient disinterest in making a good on-field product — the real estate
and cost of doing business in expensive places like L.A., the Bay Area, and
D.C. being a huge one — but the lesson for anyone acquiring an NFL team as an
asset is pretty clear. Strip the place to the frame, gorge on TV money, and
only do the bare minimum to keep people interested.
That distancing of the product — and its overall
quality as an experience — from revenue makes for a dysfunctional exchange
between the consumer and the producer.
What does that mean, exactly? It means that because
the Rams don’t have to worry about quality, they can slog into the Coliseum,
wait for a new stadium to be built, and bill themselves as a content company
while playing in front of hundreds of bored fans. It means that being good, for
a lot of teams, is an accident, or a periodic spasm to regain fan interest
spaced between long troughs of minimal effort.
*The NFL is you at work!
Congrats, you too could be America’s most successful sports enterprise.
This explains why the NFL now functions less like an
open market business, and more like a cartel. (Not a cartel exactly, economics
pedants, but cartel-ish.)
A cartel really doesn’t care what you want. It knows
what you need, and has it. All behaviors from that point forward only protect
the cartel and its control of supply and delivery. There will be no innovation,
no new ideas not in service of that maintenance of revenue streams, and no
serious competition between cartel members. In fact, they’ll all cut the
quality of the product wherever possible to take home the most possible cash.
The NFL isn’t alone in this in sports, and not even in
football, either. The disease of guaranteed revenue has bitten college
football, too. Texas, the most profitable athletic program in the nation, is a
prime example of the strange incentives huge profits can create within a sports
franchise.
The more money the program makes, the less consistent or important
the quality of the product has been to the priorities of those at the top
running the cash machine.
But as the most popular sport in America — and one
that pools profits — it is the most visible, and most visibly prone to this
leveling by the demands of the spreadsheet. Even a distancing by slight
degrees, like turning your basic exchange from one of fans opting into an experience
into one of a television product given to captive subscribers, is enough to
change how ownership behaves.
There is a structural reason live audiences aren’t
even necessary anymore: Ticket sales make up such a shrinking percentage of
team revenue that the Rams and 49ers might as well play on sound stages, if you
think they don’t already. The distance between the sport and the mammoth
business it built will only grow, and in that space will be those who loved the
NFL, but now watch the condensed version of the NFL on RedZone,
and those who make it begrudgingly while looking to the next successful
investment opportunity.
That next something might be something like
eSports, which the owner of the Patriots just dropped $20 million
on via investment in an Overwatch league. When will we know eSports
made it? When there are commercial breaks after load screens, fights over
gaming arenas being paid for with public money, and a class of owner looking
for nothing more than the next grandiose and guaranteed font of cash. eSports
is lucky, for the moment: Kraft seems to enjoy making a quality product. It’s
when the Haslams and Stan Kroenke show up that gamers should panic.
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