How the Economy is Affecting Professional Sports: Owner’s/Player’s Perspective

Houston Texans owner Bob McNair sums up the situation surrounding owners and professional sports team in the failing economy.

“It’s a different business atmosphere than 20 to 30 years ago. Originally, we worried about selling tickets. Now we’ve got to worry about selling tickets, about keeping media partners happy, operating stadiums, keeping fans happy in the stadium, servicing debts. We need a structure that works long-term. We can’t expect the fans to pay more and more and more. We have to hold all our expenses down and labor is just one of them.” “

The new “atmosphere” McNair describes shows why leagues are tightening the belts on spending, ticket sales, and cooperate sponsors. The days of ticket and concession sales constituting as the major revenue source is over, kaput! Owner now have to worry about gathering money from corporate sponsors in order to raise liquidity to fund new stadiums and high profile athletes demanding millions upon millions of dollars. Take the Dallas Cowboys for example. Considered “America’s Team” by many, and boasts the newest and most high tech stadium in the NFL. The Dallas Cowboys open their $1.1 billion stadium last summer, and they struggled to place might a corporate name on it. With the Cowboys’ atop the NFL value list and their popularity so high, selling naming rights would seem an easy chore. This proved to be an wrong conclusion.

“We’re not naive to what’s going on in the country and the economic crisis,” Cowboys vice president Stephen Jones said. “We’re very respectful of that now. Obviously, there are some factors when you’re opening a new building in this economy.”

Jones’s concerns are not solely a problem faced by the Cowboys, but also the rest of the NFL. In the recent NFL’s Chief Bargaining Agreement, CBA, meeting held annually to asses rule changes and the overall health of the league, the economy was at the top of the list of potential problems pertaining 2009-10 season. With all the NFL owners present, Commissioner Robert Goodell addressed the leagues overall economic status, and the pay agreements with NFL players.

During his opening address in front of the owners, Commissioner Roger Goodell emphasized a need to strengthen the league’s economic foundation, even as several owners consider exercising a clause to opt out of the collective bargaining agreement. According to a recent Sports Business Journal report, the league’s $9 billion debt exceeds the amount of any other sports league. When I first read this statistic my first reaction was how is the most popular league in America with revenues exceeding $6 billion dollars a year facing a financial debt? The answer is stadiums. Goodell explains,

“When you get into an economy like we’ve gotten into now, when margins are tight and interest rates can flare quickly, with respect to stadium financing, that can really put significant impact on the clubs.”

Although Goodell hopes to reduce $30 million in debt over three years, the bigger target is the collective bargaining agreement, enacted two years ago, dictates that nearly 60% of total football revenues is paid to players. So for those of you wondering why athletes get paid the big bucks, there you go.

Players union chief, Gene Upshaw, has declared there will be no “givebacks” from players, and negotiations on the subject has been on a stand still. Goodell, during his address explained that given rising costs, the league will “absolutely” approach the union this year about modifying the CBA.

“At some point in time,” Goodell said, “the economics become untenable, and the players need to recognize these risks.”

This sentiment is also reflected by the owners of these highly paid athletes

Denver Broncos owner Pat Bowlen acknowledged, “Our labor deal is not working. That is the most significant concern.”

NFL owners are not alone in their concerns over the struggling economy. Edmonton Oilers owner and CEO Patrick LaForged described their situation which reflects many of the same concerns NFL owners have.

“The last couple of weeks (September 2008) – wow – it’s been killer. I think we’re all concerned. I can only speak for Edmonton but I can say that these are very interesting times, what the stock market is doing and the impact on our major clients, which are businesses. I think we have to all be very mindful that these are tough times. The Canadian teams are not exempt.”

The current economic landscape is one of a number of topics the NHL’s board of governors, aka owners, was briefed about during a meeting in September with NHL commissioner Gary Bettman. Also on the agenda was the possibility of lowering the league’s salary cap which governs the overall amount the team can divvy up amongst it’s players. Unlike the NFL however, Bettman does not see this changing.

“I would be extremely surprised if the slow down in the economy was severe enough that it got to that point,” he said.

The economic crisis has also touched NBA. Recently, Jamie Diamond of JP Morgan Chase help a meeting with NBA owners and the commissioner Robert David Stern in hopes of explaining possible upcoming financial difficulties teams may experience. This isn’t saying some teams have not already felt the effects.

The New Orleans Hornets said they are one of 12 NBA teams tapping into the league’s $200 million line of credit as franchises deal with the recession that started at the end of 2007. Also, the Indiana Pacers said in March that they can no longer afford the expense of operating Conseco Fieldhouse.

Owner’s especially know adays are under extreme pressure to keep their teams out of the hole created by the economy, and in my next post, I will focus on the attempts of Major League Baseball teams to raise revenue in an increasingly unstable market.

Sources Used:

“Economy, CBA, focus of discussions at NFL meetings.” CBSsports.com, March 24, 2009

” JP Morgan’s Jamie Dimon Diagrams Fragile Economy for NBA Owners.” Vince Golle and Scott Soshnick. April 18, 2009

“NFL economy threatens to disrupt the game.” USA Today, Jarret bell. April 1, 2008

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3 Responses

  1. I would be interested in seeing the longer term trends in the cost of buying a franchise. I suspect it is steep and above inflation, irrepsective of current economic problems and the complaints of owners.

    If I am right, it means that the professional carping by owners about how “tough” their business is to run either reflects _very_ irrational behavior ( to throw away tens or hundreds of millions year in and year out) OR that the franchises are better opportunities than commonly understood. The public carping can then be seen as a rhetorical strategy to raise local concerns about teams leaving so as to force politicians to agree to better and better stadium deals for the team owners.

  2. I would agree, except owners usually carp about local attendance to game making their jobs difficult more than the overall process. Take the former NBA team Seattle Super Sonics, now the Oklahoma City Thunder. Because the team was so terrible for so long, fans never attended in significant numbers. After the team’s deficit got to large for the owner to consider it a profitable venture, he decided to sell the team and take the wrath from the fans. Owners need their teams to be good, thus be profitable. That why coaches in 1st tier leagues are so dispensable because one bad season could spell a huge profit loss.

  3. The response to local and national disasters is awesome but it’s a real shame that so many citizens take advantage of the sad situations.

    I mean everytime there is an earthquake, a flood, an oil spill – there’s always a group of heartless people who rip off tax payers.

    This is in response to reading that 4 of Oprah Winfreys “angels” got busted ripping off the system. Shame on them!
    http://www.cbsnews.com/blogs/2009/08/19/crimesider/entry5251471.shtml

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