SBJ/Oct. 14-20, 2013/Leagues and Governing Bodies

Change in NFL revenue sharing?

Program offering subsidies for small markets likely to cease

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The days of wealthy NFL clubs subsidizing their lower-revenue brethren are likely nearing an end.

That is because clubs bringing in the most revenue are no longer contributing to a long-running fund that was designed to assist teams in need of money to help maintain competitive balance. The pool of money making up the league’s supplemental revenue sharing fund recently passed $100 million, which triggered a provision ending the revenue transfer.

The revenue transfer is no longer needed because teams are taking a larger share of total league revenue after the 2011 collective-bargaining agreement, which saw a significant percentage shift of dollars to owners from the players. The league at the time privately expressed hope that the supplemental revenue sharing program would no longer be necessary at some point during the 10-year deal.

The prospect of eliminating the program, though not immediately on the horizon, ironically could revive the old debate between high- and low-revenue teams despite the well-documented financial health of the league.

“My guess is it will be extinguished,” Joe Ellis, the Denver Broncos’ team president, said leaving the NFL owners meeting last week in Washington, D.C., where the issue was debated.

But not all clubs are in favor of such a move and believe the fund should remain.

Jim Irsay, owner of the Indianapolis Colts, said there should be a rainy day fund because he is worried about a revenue disparity of nearly double between the top-revenue club and the lowest-revenue club among the league’s 32 teams. He did not name specific franchises.

“It is concerning to me when someone is doubling the lowest-revenue team,” he said. “My feeling is I would like to see less disparity between the three at the top and the three at the bottom.”

Such revenue disparity between clubs would not be new, but the hope has been to narrow the revenue gaps over the years to maintain a team’s ability to spend up to the salary cap on players.

The NFL shares between half and three-quarters of all — national and local — revenue evenly among the 32 teams. That has not always been enough, though, to ensure competitive balance, so the league started the SRS program in the 1990s.

After the fund was established, it wouldn’t be out of the norm to have a number of high-revenue clubs shifting dollars to the lower quartile of clubs in the league, which would cause friction and even public rebuke from some owners who criticized the business acumen of their league partners. In this time, more than $200 million annually shifted between high- and low-revenue clubs to ensure competitive balance. Meanwhile, leading up to the 2011 CBA talks, the NFLPA often contended that the real problem in the league was not between owners and players, but was between the rich and poor in the NFL.

Changes in the CBA narrowed the financial gap between the clubs. Last year, the second season of the CBA, only three teams qualified for funds from SRS based on a complicated league formula, and this year only one team will qualify and receive between $5 million and $10 million, sources said.

With so few teams needing assistance, the SRS pool has exceeded the $100 million funding cutoff. There is a second funding mechanism, however, for the SRS fund. Club-seat premiums — the fee above the price of a ticket for the club areas — are assessed (unless the team received a league waiver to use the premiums for stadium construction), so the fund will continue to rise.

However, that is the issue owners started to discuss at their meeting last week. Why, some asked, keep the fund growing if it is not needed? While the revenue disparity referred to by Irsay still exists, that issue bedeviled the NFL before the 2011 CBA only because it threatened the ability of some teams to field competitive teams. That no longer appears to be the case with the changes in labor costs and teams’ ability to spend to the salary cap.

Irsay may simply be sending a message not to get too comfortable or to forget the issues of the past, but certainly some owners may question why the league is funding a nine-figure fund that is no longer necessary, with the NFL forecasting a flat to minimally rising salary cap for several more years and lucrative new TV contracts starting next year.

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