SBJ/September 1 - 7, 2003/Special Report
Stadium revenue disparity puts teams at odds
Published September 1, 2003
New or totally renovated NFL stadiums open this month in Philadelphia, Green Bay and Chicago. Depending on whom you talk to at the league, however, the debuts are not necessarily a great development.
Within America's most powerful sport, a divisive debate is raging about the burgeoning revenue disparity between clubs, especially among those enjoying new stadiums and those in creakier facilities.
Because much of the money that stadiums generate from such areas as luxury suites and sponsorships is now shared with the players under the league's collective-bargaining agreement, thereby raising the salary cap, teams in old stadiums not showered in new cash still must pay ever-escalating player salaries.
"The teams that are playing in stadiums more than eight years old are losing ground rapidly," said Marc Ganis, a consultant to several NFL teams. Roughly half of the league's 32 teams play in stadiums newly built or renovated in the last decade.
In fact, teams on the bottom end of the revenue heap are beginning to describe the problem with the phrase "unfunded mandate." Just as that term is bandied about in politics to refer to the federal government telling the states how much money to spend on a specific need, but without providing the cash, so now some teams are complaining that they are getting squeezed by a rising salary cap and widening revenue disparity.
According to an NFL source, average local revenues for teams in the league's first quartile are between $90 million and $100 million, compared with a $50 million to $60 million range for the bottom quartile. National revenues were $75 million per club during the 2001-02 season, according to the Green Bay Packers' annual report.
At the same time, the league's salary cap has risen from $34.6 million in 1994 to $71 million last season.
Because of the lucrative national TV and sponsorship contracts, which are shared across all 32 teams, no team is unprofitable. But several years down the road, worried one NFL source, the league could face a financial crisis akin to Major League Baseball's.
"The tide is going to turn, and if we wait until that day comes, then as a league we are going to have such a wide gulf between clubs that we will be like baseball," this source said.
The three teams most identified by sources with the case for sharing more local revenues (the Oakland Raiders, Buffalo Bills and Cincinnati Bengals) either declined comment or could not be reached. Those teams were the only ones at the annual meeting in March to vote against an extension of the league's G-3 program, which grants league money to teams, primarily in large cities, to build stadiums.
If it were just those three clubs, clearly the issue would stop there in a 32-team league, where each franchise has an equal vote. But sources say that the league's powerful commissioner, Paul Tagliabue, is sympathetic to the issue. And while not pledging to any specific action, he sounded amenable to some change in revenue sharing.
"There are a lot of reasons for revenue disparity," he said in a recent interview (see "Tagliabue keeps his focus on the future"). "We've adjusted some of our policies in recent years, and adopted new policies. And I'm sure we will continue to do that, to try to guarantee that there is an incentive at the team level to promote NFL football and promote your team. But at the same time, the ability of all teams to compete for player talent within the framework of the collective-bargaining agreement, that's the critical fact."
Proponents of keeping the current system counter that many teams in new stadiums carry substantial debt incurred to build their new palaces. Forcing them to hand over more revenue not only could significantly harm these clubs, but could dissuade others from building their own stadiums. Several big-city teams, like the San Francisco 49ers and New York Jets, are looking to build new homes.
"You don't want to deter teams from making large investments of their own money in stadiums ... [that] then generate a large revenue number needed to pay off debt," said Joe Banner, chief operating officer of the Philadelphia Eagles, who have annual interest payments near $30 million. Banner is also the team's "capologist," the position that manages a club's salary cap.
The NFL's revenue-sharing formula is complex and actually involves several different models. There is the revenue shared with the players, who receive roughly 65 percent of most national money as well as an increasing share of local cash from deals such as sponsorships and luxury suites.
The teams also share among themselves to the tune of between $30 million and $40 million a year, which comes from relocation fees, personal seat licenses and the visiting team share of club-seat premiums. Teams in the bottom half of the revenue mix receive subsidies from this pool. It is here that a solution could arise with increased cash transfers.
Teams get to keep two-thirds of tickets sales as well as luxury suite, sponsorship and local media revenues (though at the same time these moneys are mostly counted toward calculation of the cap). When the collective-bargaining agreement was enacted in 1993, those areas were inconsequential, but today they have grown into a cash cow.
Still, Denver Broncos owner Pat Bowlen, whose club moved into its new stadium two seasons ago, said of the non-shared local revenue, "I don't see the league as going and saying we are going to share that."
The debate is in what participants describe as an informational stage. The NFL's Management Council, the league's labor negotiating arm, presented its report on the issue at the Philadelphia owners meeting in May, and the group continues to study the imbalance. It is not officially on the league's September meeting agenda, and all sources do not expect any real action, if any, to be taken until, at the earliest, next year.