POPULARITY
Once upon a time, baseball ruled the American landscape and while it might still qualify as “America’s Pastime”, it is nowhere near as popular as it once was. The NBA has had its moments in the sun but it has never captured the imagination the way baseball or football has. Football is by far the most popular sport in American right now and it’s only getting more popular. I heard a statistic on Colin Cowherd’s radio show on ESPN Radio and I almost drove my car off the road; apparently 60% of women polled (I’m assuming this is adults; I don’t remember exactly) watch the NFL regularly. Forget about the particulars that I can’t remember and just think about that for a minute. Three out of every five women, who basically never have the opportunity to play this sport, watch the NFL on a regular basis. Granted, I’m sure that some of those only do because their boyfriends or husbands watch the games but that also shows how universally popular football has become. When you throw all of that together, it basically means that the NFL can do just about whatever they want and charge just about whatever they want for anything and people will pay it.
SOCIALISM
I know that this is a bit of a sticky word in the United States and frankly, it’s about time that we got over it. Socialism and Communism have become dirty words because of their association with our enemy in a cold war that lasted for nearly a half century. I get it, I really do. The fact of the matter is that the Soviet Union is no more. Its economy was not sustainable; capitalism outlasted socialism. On a national scale, socialism has not fared particularly well when compared to capitalism but for the sake of this discussion, we are talking about a far smaller scale. Socialism is an economic theory; it is not a dirty word. There, I got my rant out of the way.
The fact of the matter is that the NFL is run with a socialist model. Revenues are shared amongst the 32 owners and at the end of each season when the money is all doled out, teams make shockingly similar profits. The difference in profit margin between a really well run franchise (like the New England Patriots or the Pittsburgh Steelers) and a poorly run franchise (like the Cleveland Browns or the Cincinnati Bengals for most of the past 20 years) is very small. In many ways, it can be more profitable to field a bad team than a championship contender in the NFL.
Why does this matter when it comes to a discussion of business models? It all comes down to risk. By engaging in socialist practices, the risk to any one individual owner is greatly reduced. As I said before, the profit margins aren’t necessarily gaudy but they are consistent and when this many millions of dollars are on the line, which would you rather have; a 5-10% profit margin every year or a 50/50 chance of making 20% or losing 20%? Not everyone is the same and some people are more risk averse than others but if I was presented with those options, I would take the guaranteed profit every day of the week.
STRENGTH
This aspect of a business can manifest itself in many ways but I am focusing on just one; the relationship with the players’ union. In the constant give and take between the players and the owners, in the NFL, the owners have far more power. There is a hard salary cap which every player’s union opposes. There in an apparatus in place to restrict player movement in the franchise tag which is unheard of in other sports. Most importantly, contracts are not guaranteed.
Not long ago, the Washington Redskins signed Donovan McNabb to a 5 year extension worth $78 million. In any other sport, if McNabb failed to meet expectations as spectacularly as he did in Washington, that contract would become the albatross hanging around the necks of that team’s payroll for the length of the deal. Why was it not a big deal for the Redskins? The only part that was guaranteed was an extra $3.5 million that was added to his salary the year he signed the extension. After that, if the Redskins cut McNabb before the next year started, they owed him a grand total of zero out of the remaining $75 million.
To give you a good idea of just how much power the owners have, compare the NFL to Major League Baseball. In MLB, all contracts are guaranteed. Mike Hampton was paid millions of dollars by the Colorado Rockies years after he threw his last pitch for the franchise. When the Yankees resigned Alex Rodriguez to a 10-year, $275 million contract several years ago, they were on the hook for every penny of that money. If A-Rod got hurt tomorrow and couldn’t play out the second half of that contract, the Yankees would still owe him half that money. Unlike the NFL, there is no apparatus to restrict player movement in MLB. There is no franchise tag and there is no such thing as “restricted” free agency. Most importantly, there is no salary cap. There is a luxury tax threshold but that has to do with revenue sharing, not player salaries. When it comes to salaries, you can spend as much or as little as you want in baseball and indeed, teams do.
RESULT
When you put those three factors together, you get a league with unparalleled potential to make money and it is the envy of every other league. Other sports want the business model of the NFL and indeed, the NBA seems to be trying to incorporate aspects of the NFL’s model into their own but it’s not working and it likely never will.
The problem is that the unions are relatively set in their ways and they are used to certain things being in their respective Collective Bargaining Agreements (CBA). The fact of the matter is that the NFLPA accepts a hard salary cap because they have always known one. The MLBPA has never and will never accept a salary cap because they have never known one. You could easily argue that at the very beginning when the players challenged the owners in court, the MLBPA was able to get more concessions from their league than the NFLPA.
However, all of this discussion makes for interesting fodder but it is not the heart of the matter. The heart of the matter is simply control. The NFL has enormous control over the careers of individual players and with the latest CBA that went into effect before the 2011 season, that level of control (in some aspects) has increased. Nowadays, when a player is drafted there is a small range of salaries in which the player’s first contract will be. After several years, the player becomes a restricted free agent, meaning the drafting team can match any contract offer that the player receives. Then, at long last, the player becomes an unrestricted free agent… and then this is put on hold by the franchise tag.
Put it all together and we’ve arrived at the one issue that separates these three leagues and makes the NFL the envy of all others; control over player movement and the competitive model.
COMPETITIVE MODEL
What do I mean by “competitive model”? In essence, the competitive model for the purposes of this discussion is the answer to the question “how do I build a winning team/franchise”?
Owners like parity. The 32 NFL owners love the fact that for each of the last several years, a team that was in last place one year makes the playoffs the next year. What they don’t mention is that while there is parity amongst playoff participants, there is not parity when it comes to championship teams. There have been 46 Super Bowls and of all those titles, 33 of them (or 71.7%) have been won by eight franchises (the Steelers with 6, the 49ers and Cowboys with 5, the Giants and Packers with 4, and the Patriots, Redskins, and Raiders with 3). In fact, there are 10 franchises that have never won a Super Bowl and another 4 that have never even been to a Super Bowl. As you can see from the following graphs, parity at the highest level of all of these three leagues is a myth. Just so you have an idea of what you’re looking at, the red line that runs diagonally at a 45 degree angle is what the graph would look like if there was perfect parity. The farther from that line the graph is, the less parity that exists.
Figure 1 – Parity when it comes to Championship appearances (NBA Finals, World Series, and Super Bowl)
Figure 2 – Parity when it comes to Championship Wins (NBA Finals, World Series, and Super Bowl)
So we’ve established that parity doesn’t really exist when it comes to winning championships and this doesn’t come as a huge shock. Some franchises are run better than others and inevitably, this leads to performing at a higher level with more consistency.
Still, there is more parity in the NFL than the NBA or MLB and all you need to look at are the rates of worst-to-first transitions and first-to-worst transitions. In both MLB and the NBA, they are quite rare. In 1990, both the Minnesota Twins and Atlanta Braves were in last place and in 1991, the played each other in the World Series. In the 1996-97 season, the San Antonio Spurs went 20-62. In 1997-98, they went 56-26 and finished second in their division. In 1998-99, they went 37-13 in the lockout shortened season and won the NBA title.
You don’t hear about stories such as this when it comes to the NFL because they are commonplace. Teams go from worst to first and make the playoffs by having their young core players put it all together or they go from first to worst due to an injury (most notably Peyton Manning in recent years) or due to an aging team that just isn’t as good.
What that essentially means is that the margin between the best team and the worst team is razor thin in the NFL. Oftentimes experience and coaching can be the trump card to put you over the top because the talent on any two teams is so similar. In MLB, the talent margin is greater and so you can get teams like the Yankees and Red Sox that always have superior talent to teams like the Royals and the Pirates. Granted, they pay more for that talent but it is there nonetheless. That is one small reason why the talent margin is larger in baseball than it is in the NFL; the salary cap. If an NFL team had a player who was in the top five at his position at every position, that team’s payroll would be five times the salary cap. In the NBA, the talent gap is enormous and the owners are doing everything they can to compensate for it and so far, nothing is working.
If you team up two guys who have a chance to go down as “all-time greats” it can mean very different things for your team. In the NFL, it might mean a good offense or defense (if they play on the same side of the ball) and maybe a few playoff runs. In MLB, it means… well, more or less nothing until you take into account the other 23 guys on the roster. In the NBA, it means you win championships. One player can affect the direction of a franchise more in the NBA than in either of the other leagues and this is the central problem.
LEBRON JAMES
Yes, LeBron is the focal point of a discussion about competitive balance yet again. The fact of the matter is that he was a free agent and he could go wherever he wanted to go. I’m not going to discuss his decision making process or critique his choice (I’ve already critiqued the way he made his choice), I’m simply going to examine the results.
In Cleveland, he never played with an All-Star and yet they were winning 50-65 games and made it to the NBA Finals. The year after he left, they went 19-63 and got the number one overall draft pick. After winning the NBA Finals with Dwayne Wade and Shaq, the Miami Heat went 44-38, 15-67, 43-39, and 47-35 in the last four years. Not terrible records but not indicative of a dominant team. In year one after “The Decision”, the Heat went 58-24 and went to the Finals and this year they went 46-20 and are in line to go to the Finals again.
Players have enormous power and therefore enormous control in the NBA and the owners are terrified of that. You might have heard a lot of talk going around lately about owners trying to put in some sort of franchise tag or skew the numbers so that teams can offer their own players even more money all in an attempt to keep them in one place. The problem is that players don’t want to stay put. I don’t know why teams are able to keep players at a higher rate in small market in the NFL and MLB but they do. In the NBA it seems like the biggest stars only want to play in New York, Boston, Miami, and Los Angeles.
IS THERE A SOLUTION?
Is there an answer to this conundrum? Unfortunately, there is one and NBA owners aren’t going to like it. The answer is, there’s nothing you can do about it. NBA players are similar to moths, attracted to the bright lights of the biggest cities and frankly, who can blame them? If you have a chance to play for a storied franchise like the Lakers or Celtics or you get a chance to play your home games at one of the most famous arenas ever in Madison Square Garden, why would you ever want to play in Cleveland?
If things continue as they have, the stars will continue to align and a huge divide will form in the NBA between the good teams and the ones that would have trouble getting out of the first weekend at the NCAA tournament. When this happens, attendance will plummet in those cities and those franchises will face serious economic hardships. When that happens, the NBA will have two options. First, you can set up a series of “minor league” teams that aren’t in the same league (literally) as the NBA teams or you could set up a system like the Premier League does for soccer in Europe.
Secondly, you can make the NBA as a league far more sustainable and just contract six teams. There simply aren’t enough stars to go around and they are exercising the freedoms allowed to them in their CBA. The players are making decisions with their own best interests in mind and at the end of the day, can you really fault them for that?
CONCLUSION
The NFL has a sustainable business model and so does Major League Baseball. The NBA does not. The difference is the amount of impact a single player can have and therefore, the balance of power between the players and the owners.
During the lockout last summer, the NFL owners were floating the idea of an 18 game season and the players were completely against it. At the end of the negotiations, the owners kept the same schedule but Commissioner Goodell’s enormous amount of power (which was a big issue for the players at the beginning of the lockout) was never seriously addressed. Is it possible that the owners floated the idea of the 18 game schedule because either they all get another home game and more TV revenues (from the added games) or the NFLPA would be so adamant in fighting it that they would overlook other issues that they had in the first place?
The other aspect of these issues is the relationship between the league and the teams. It seems to me that the NFL is bigger than every one of the 32 teams and all the owners know this; they are committed to the long-term viability of the league. It also seems that the NBA owners aren’t quite on board with the concept that they need to build this league to survive for decades to come and so you get owners like Dan Gilbert of the Cleveland Cavaliers writing scathing letters to the transcendent star of the league trashing his decision. Can you imagine the late George Steinbrenner doing something like that?
Ok, bad example…
Except it isn’t because he would be the ONE baseball owner to do something like that. I also can’t think of an NFL owner that would do that as well. The fact of the matter is that the NBA is a league ruled by players and the NFL is a league ruled by owners. Major League Baseball accepted long ago that the players had much more power than the owners liked and as soon as the NBA accepts that, they can get on with life.
What these 3,000 or so words essentially boil down to is this: love it or hate it, there’s only one NFL and it’s not going anywhere anytime soon.
Interesting. If they are looking for a league commissioner in any of the three, tell them I'm available.
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