NFL Revenue System
The NFL utilizes a number of different types of revenue sharing methods. Retained
revenues and shared revenues are the two main types of revenue sources for
NFL franchises. Retained revenues, consisting of revenue generated and kept
by individual teams, include 60% of stadium (gate) receipts for home games,
naming rights, sponsorships, luxury suite revenue, concessions and local broadcast
rights. Retained revenue totaled an estimated amount of nearly $2 billion or
between $51 to $55 million per team between the 2001-2002 season.
The building of new stadiums and the selling of stadium naming rights has contributed enormously to the revenues of NFL franchises. This trend has continued to grow within the league over the last several years. In addition, the NFL is experiencing an overwhelming wave in new stadium construction and is on pace to replace nearly all of the existing stadiums in the next several years. From 1990 to 2004 19 new stadiums have been built for a total of $6.3 billion for the same period.3 However unlike stadiums constructed in the past, there has been a dramatic shift toward private financing of stadiums costs from 80% public vs. 20% private financing between 1990-2000 to a 54% public vs. 46% private financing ratio.
The primary source for shared revenue in the NFL is through national broadcast
rights fees, 40% of away game ticket sales, and licensing. The current media
agreement with the NFL is part of an eight year contract that totals $17.6
billion which began in 1998.4 The NFL shared revenue
totaled an estimate of $2.6 billion for an average of $72 million per team
for the 2001-2002 season. The total estimated revenue produced by the NFL overall
for the 2004 season was approximately $6 billion, providing an estimated $187
million per team. However, the NFL was valued at over $24 billion, which was
based team valuations for 2002.
With regard to the value and the purchasing of NFL teams, Robert McNair, current owner of the latest expansion team, the Houston Texans, made the highest bid for the franchise at $700 million. This increase is astronomical in comparison to the entry for a new NFL franchise in 1976 when the Tampa Bay Buccaneers and Seattle Seahawks cost $16 million each.
The NFL's marketing enterprise has also generated substantial revenue for the league. NFL Properties, Inc., founded in 1963, made an estimate of $4 billion in sales for the 2000-2001 season. NFL Properties shares all annual revenue with each of the 32 NFL franchises equally, as well as the league office and NFL Charities.5 As a result of sales from NFL Properties, each NFL franchise received an estimate of $4 million in revenue during the 2000 season. However, over the past few years NFL Properties's licensing base has been reduced due to competition and consolidation among commercial vendors and retailers within the sporting industry.
Future trends in generating revenue for the NFL point towards Internet and broadband media rights. The NFL signed an extensive media agreement with Viacom, America Online, and Sportsline.com, Inc., which is reportedly worth $110 million over five years, a 5.6% increase over ESPN's three year $10 million contract.6 This agreement increased the NFL's annual earnings from $3.3 million to over $22 million.
NFL Salary Caps
Despite the NFL's longevity, the league finds itself challenged by the current player free agency and team salary cap system. The salary cap is the result of league revenue sharing between teams and players, which is based on an agreement of defined gross revenues (DGR). The league then defines the share of DGR that will go to each franchise's player roster. The salary cap actually serves as a ceiling placed on spending which is equally applied to all teams. The formula for determining the salary cap is depicted below.7
C = (1/n) x s x DGR
n = number of teams
s = share
DGR = defined gross revenue
In comparison to the other professional sports implementing the salary cap system, the NFL has proven to be the most effective at managing player salaries and the vastly expanding cost involved in operating the National Football league.
NFL Europe
The World League was created in 1991 lasting two seasons in what was the first transatlantic league for American-styled football. In 1995 the World League changed its name to NFL Europe with substantial financial support from media giant Rupert Murdoch and the FOX TV network, estimated at around 50% ownership in the new league. NFL Europe (NFLE) is part of the NFL International Group established in 1996, which has made a significant effort to keep the league alive in a region dominated by soccer, which is referred to as football outside of the United States.
The FOX TV network ended its 50% ownership in 2000 causing serious concerns
for the survivability of the league until the NFL was able to restructure the
plan for financing the league. In efforts to assist NFLE, the NFL Players Association
contributed by increasing its Defined Gross Revenue (GDR) credits from $5 million
from its inception to $15 million in 2001-2002, and to $20 million in 2003.8 Presently,
NFLE games are broadcast on the NFL Channel.
In 2001 the NFLE cost an estimated $20 million annually, averaging $3.3 million per team.9 The NFL contributes $10 million annually to share the cost in supporting the NFLE, with each NFL franchise contributing approximately $2 million annually.
The NFLE was also intended to serve as a marketing tool for the NFL, a developmental league for lower tiered NFL players, as well as an expansion of NFL broadcast abroad. New NFL rules require that each NFL team allocate at least six players to NFL Europe. This program resulted in 185 NFL players participating in NFLE for the 2001 season. The total number of players in NFLE was 230 for the 2001 season.
Attendance of NFLE games has fluctuated overtime. German cities have shown the strongest support of the NFLE teams. The Dusseldorf (Rhein) and Frankfurt teams accounted for nearly 60% of NFLE attendance in 2001.10 The 2001 season saw average game attendance rise to 18,573, which was up by 28% from 1995 attendance numbers.
1 Josza, Frank P. American Sports Empire ( Westport, CT: Praeger, 2003), 20.
2 Kagan's the Business of Football (Carmel, CA: Paul Kagan Associates, 2002), 34.
3 Ibid., 17.
4 Ibid., 45.
5 Ibid., 64.
6 Ibid., 45.
7 Fort, Rodney D. Sports Economics (Upper Saddle River, NJ: Prentice Hall, c2003), 165.
8 Kagan's the Business of Football (2002), 68.
9 Ibid., 69.
10 Ibid., 70.
Athlon Sports.com Pro Football Homepage
http://www.athlonsports.com/section_id/4/
Web site of Athlon Sports, Inc. providing links to articles and information on professional football. The site also includes archived articles and a Pro Football Forum.
Journal of Sports Economics, SAGE Publications
http://jse.sagepub.com/
A scholarly journal publishing research on the subject of sports economics. The journal is intended to further research in the field of sports economics by conducting theoretical and empirical research.
SportsBusiness Journal
http://www.sportsbusinessjournal.com/
A weekly journal providing news and information on the sports industry. The journal covers industry transactions and trades, contracts and other sports management issues, as well as various aspects such as, media, marketing, finance and sports facilities on a number of different sports.
Sport Marketing Quarterly
http://www.smqonline.com/
A quarterly academic journal that discusses the latest marketing ideas in the sports industry. This unique publication brings together the expertise of professional sports marketers and scholars in providing applied marketing strategies and important academic research.
The web sites listed are the official sites to professional football leagues. Each web site contains links to official team home pages, league team sites, team rosters, depth charts, game schedules, league news, as well as statistics and scores.
Arena Football League (AFL)
http://www.arenafootball.com/
Canadian Football League (CFL)
http://www.cfl.ca/
National Football League (NFL)
http://www.nfl.com/
National Football League Europe (NFL Europe)
http://www.nfleurope.com/
This list of media sources provides links to the professional football homepages. The web sites include: league news and analysis; team news; player links; scores and statistics; video and other multimedia links.
CBS Sportsline - NFL Page
http://cbs.sportsline.com/nfl/
ESPN.com - NFL Index Page
http://football.espn.go.com/nfl/index
FOXSports.com - NFL Page
http://msn.foxsports.com/nfl
Pro Football Weekly Home Page
http://www.profootballweekly.com/PFW/default.htm
Sports Illustrated - Pro Football
http://sportsillustrated.cnn.com/football/nfl/
Abrahamson, Alan. "NFL Ledgers Reveal Profits Depend on New Stadiums," Los Angeles Times, May 13, 2001.
Carlino, Gerald. Compensating Differentials and the Social Benefits of the NFL. Working Paper No. 02-12/R. Philadelphia: Research Department, Federal Reserve Bank of Philadelphia. September 2003.
http://www.phil.frb.org/files/wps/2002/wp02-12r.pdf [PDF: 350.1KB/ 40p.]
In this paper the author utilizes wage equations to measure differences in compensation in various metropolitan areas which have NFL franchises. The study looks at the effects that NFL franchises and new stadiums have on cities and residents, and the value of the investment.
Carlino, Gerald, and Coulson, Edward. "Should Cities Be Ready
for Some Football?" Q2 Business Review (2004),. 7-17.
http://www.phil.frb.org/files/br/brq204jc.pdf [PDF: 451.2KB/ 11p.]
The authors examine the issue of whether the public should finance stadiums for NFL franchises. The article also discusses if cities benefit from having NFL franchises and new stadiums.
Fort, Rodney D. National Football League Incomes and Expenses
http://www.rodneyfort.com/PHSportsEcon/Common/OtherData/NFLIncomeExpense/NFLIncomeExpense.html
Among the sources for his data, Fort lists the Los Angeles Times, May 13, 2001, and the court case between the Oakland Raiders and the NFL decided in May 2001.
Fort, Rodney D. Sports Economics. 2nd ed. Upper Saddle, NJ:
Prentice Hall, c2006.
LC Call Number: GV716 .F68 2005
LC Catalog Record: 2005055578
Divided into four parts covering the "business side" of sports both professional and collegiate. Part one covers the "demand, suppy, and sports market outcomes"e; part two covers the players or "talent" amd labor relatios; part three covers government and sports relations regarding subsidies, antitrust, stadium financing, and part four covers college sports/ There are reference lists at the end of the chpaters as well as a nice glossary.
Hampe, Robert K., Paul J. Much, and others. "The Evolving Economics of the National Football League and Franchise Value," in Financial Valuation : Businesses and Business Interests. New York : Maxwell Macmillan, c. 1990.
LC Call Number: HG4028. V3Z84 1990
LC Catalog Record: 89026668
Heiges, Chad. "NFL's owners seek local revenue for financial edge." South Florida Business Journal. January 14, 2005.
The article discusses changing economic trends in professional football, particularly the revenue generated from sports stadiums and the growing number of stadium being constructed in the NFL.
Josza, Frank P. American Sports Empire: How the Leagues Breeds Success. Westport, CT: Praeger, 2003. 239 p.
LC Call Number: GV583 .J65 2003
LC Catalog Record: 2002029759
Jozsa investigates the major leagues' histories with unparalleled depth and rigorous economic analysis. In his economic analysis of the successful professional league sports in the United States, Jozsa (economics and business administration, Pfeiffer U.) emphasizes the way that the different actors (leagues, clubs, franchise owners, players, media, and government organizations) cooperate to increase profit. Synopsis by Book News, Inc.
Kagan's The Business of Football. Carmel, CA: Paul Kagan Associates. (Annual)
LC Call Number: GV955.5.N35 K34
LC Catalog Record: 00212695
An annual publication published by Kagan World Media that provides comprehensive analysis, financial statistics, and information on the professional football industry in the U.S. The publication covers various professional leagues, both past and present, and historical overviews of the leagues. Much of the data focuses on the National Football League (NFL). Included is analysis and data on NFL revenue, media rights, NFL teams and franchise valuations, player salaries, and NFL stadiums.
Leeds, Michael and Von Allmen, Peter. The Economics of Sports. Boston: Addison-Wesley Longman, c2004. 496 p.
LC Call Number: GV716 .S28 2004
LC Catalog Record: 2003063696
"his text on the economy of sports introduces core economic concepts and develops them with examples and applications from the sports industry. It covers modern topics of micro and macroeconomics, illustrating such traditional elements as industrial organization, public finance, and labour economics." Synopsis by Books In Print.
Torr, James D. Professional Sports. San Diego: Greenhaven Press, c2003. 192 p.
LC Call Number: GV583 .P758 2004
LC Catalog Record: 2002192519
This book offers a plethora of information, opinions, history, facts, and speculation. Articles written by journalists, college professors, authors, and researchers give validity to topics such as, "The Super Bowl and U.S. Chauvinism" and "Femininity and Feminism in the WNBA." A wide variety of subjects is covered, including the rise of extreme sports, the market power of professional athletes, the history of professional sports, and fanatic fans. Each in-depth article covers a topic from many angles. This is a useful tool for students doing research or simply looking for expert opinions on some of to day's hottest sports topics. Review by Julie Webb, Mesa College Library, San Diego.
Additional works on the business of football in the Library of Congress may be identified by searching the Online Catalog under appropriate Library of Congress subject headings. Choose the topics you wish to search from the following list of Library of Congress subject headings to link directly to the Catalog and automatically execute a search for the subject selected. Please be aware that during periods of heavy use you may encounter delays in accessing the catalog. For assistance in locating the many other subject headings which relate to football as a business, please consult a reference librarian.
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