The economics of professional football
Posted by mandyf on November 8, 2012
The economics of professional football in the NFL sound pretty complex at first but are actually very simple to understand. The economic policy of the NFL as a whole really is the standard all professional sports should be modeling their own after, it really has proved itself to be that effective What follows in this overview is a bit of a crash course into how money is generated and allocated in the NFL.
The money has to come from somewhere and that money is primarily generated by you and me, the fans, tens of millions of us. We spend money on tickets, the merchandise, the publications, fantasy foot ball, and a slew of other officially licensed pieces of the NFL. Advertisers reach out for our attention spending obscene money to plant their corporate logo, slogan, or newest product in our minds bringing in even more revenue. Then there’s the broadcasting money streaming in from multiple networks. All told it is a multi-billion dollar industry.
What sets the NFL apart from other professional sports is the revenue sharing scheme. Other sports have it as well, just not as effective or comprehensive as the NFL. All of the revenue money coming in via broadcasting revenue, whether it be network or the NFL game package which has become phenomenally popular is divided equally among all the teams, with the exception of the leagues cut to keep the offices and payrolls covered as well as the pension plans, money for later plans for global expansion, and things of that nature. This equal sharing helps keep everyone solvent. Secondly merchandise revenue primarily stays with the team although a very small percentage goes to the NFL kitty, the more popular the team or in some cases individual player they have the more the team has.
On game day, the home team shares a portion of their ticket revenue and concession sales with the visitors although the percentage is cloudy as the NFL doesn’t provide a solid figure but rather a range which differs even withing their own currently released information. The important thing is both teams are generating revenue at home or on the road, the more popular a team is the more potential for revenue.
So we now know how the money comes in, we won’t get into specific deals some teams have with Nike, Reebok, etc… as they don’t have to release the specifics and differ greatly form organization to organization. What makes this all work is that every team is basically guaranteed to have enough revenue every year to cover every expense associated to the team, payroll, travel, utilities, insurance etc… That coupled with the salary cap that provides some flexibility in very specific situations keeps the playing field even for everyone.
With an even playing field every team has the potential to rebound from a horrible season to a good one on the field, at least financially. No owner can claim the money isn’t there to compete. With this parity it keeps fans of teams that struggle coming out to the games and buying their merchandise because it is known in the NFL any team can turn it around in one or two seasons. Simply put parity allows for a stable fan base and a stable fan base allows for consistent earnings.
There are far more intricacies and some seemingly hidden streams of revenue and protected league expenditures of revenue but all in all it really is a simple economic plan which is why it works. Granted an entire book can be written on this subject with great detail, but for the laymen these are the basics of the economics of professional football in the NFL.