The Socialist Secret of the NFL's Success

Miami's Sun Life Stadium (above), photo/sienar

NFL franchisees are “32 fat-cat Republicans who vote socialist” on football

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From Blue MauMau, the Web's #1 Franchise News Journal

The Indianapolis Colts and the New Orleans Saints, two business format franchises, faced off this Sunday in Miami’s Landshark Stadium for the Super Bowl, with the final score 31-17 in the Saints' favor.

What few fans realize is the degree to which football franchises push their employees to work longer hours when compared to other sport franchises.

According to an operational study of National Football League teams prepared for The Wall Street Journal by Boston Consulting Group, the typical NFL season requires 514,000 hours of labor per team. That's about eight times the effort it took to conceptualize, build and market Apple's iPod, according to BCG, and enough time to build 25 America's Cup yachts. If both Super Bowl teams dedicated themselves to construction rather than football, their members could have built the Empire State Building in seven seasons.

According to yesterday’s Wall Street Journal [$$$], the franchise players, coaches, marketing teams and scouts of the Saints and the Colts have worked even harder than other sports franchises. They’ve worked a total of one million hours this year to get to this moment. And that hard work has paid off.

Revenue for the entire [NFL] league went from around $1 billion in 1989 to $8 billion today, largely because of skyrocketing television contracts. The average NFL team has about 20 coaches today, up from around 10 in 1990, according to the BCG study.

Republican Franchisees Who Vote for Socialism within the Franchise Network

The franchisor, the National Football League, controls 32 business-format franchises from the San Diego Chargers to the New England Patriots. The football franchise is an interesting mix of strong central control that helps it reap benefits of franchise cooperation and yet tweak fierce competitive forces that have franchise employees work arguably harder than any other sport.

According to a 2006 article in The Economist, American football has been beating its other sports rivals by almost every measure for years. It has the firmest grip on labor costs. The highest revenues. And is the most popular.

Its secret? The NFL has required its franchises to share 70 percent of their revenues equally with all other franchises in the network.

Art Modell, the former owner of a franchise that moved from Cleveland to Baltimore, describes this phenomenon among franchisees as “32 fat-cat Republicans who vote socialist” on football.

But that sharing has benefits.

“… the system lowers risk. ‘The NFL is a perfect portfolio,’ says John Vrooman, a sports economist at Vanderbilt University, because one team's losing season and sagging revenues are offset by another team's banner year. The co-operative arrangements also make costs stable and predictable. Mr Vrooman reckons that even if another American sports league, or a big European football league, were to have similar cashflows to the NFL, the American league's teams would still be 50-60% more valuable because their business is so much less risky.

Besides the practice helping an individual franchise remain more stable, it also helps teams to be more evenly matched -- or in franchising terms, a more consistent standard in all locations - compared to other major league sports. That makes the bulk of games interesting in that any team can win on a given Sunday.

The franchisor negotiates and controls certain vendors, like all TV ads. Meanwhile, the NFL helps franchises by keeping teams scarce so as to keep demand at a premium. Franchises also have exclusive territories in one of America's largest cities. Those territories cannot be opened up and developed by new teams. And franchisees have incentives to invest in certain local high-growth segments, like a stadium's luxury boxes.

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Related Reading:

• The Business of Football, Forbes
• The Super Bowl is a Money Bowl, BusinessWeek