Regulation of the NFL From Case Study

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On the other hand, we might be able to "incubate" a cable network by playing a Thursday night series of cable games, and such a network could be a long-run success that would strengthen our product as well." (Tagliabue, 2004)

Tagliabue states that prior to proceeding with a new package it is necessary to ensure that this new package is based on "sound television premises and that it is structured to complement our other television packages rather than to cannibalize our Sunday and Monday night audiences and move us down the road to commoditization. As previously mentioned, commoditization is ultimately very negative in a 400-channel universe, and the challenge we face is how to balance the need for revenue and viewers to ensure the long-run success of our sport. In theory, greater revenues are available from cable television, which is both advertiser and subscriber supported, than from broadcast television, which is only ad-supported, but despite cable channels' gains in viewership over the years; more viewers are still available from traditional broadcast television." (2004)

The third stated consideration is the NFL's ownership structure and Tagliabue states that there are some unique rules which include "...debt ceiling limits and clear limitations in terms of how teams can be financially structured with debt and equity. We are the only league that continues to prohibit companies with outside business interests from owning teams. Teams must be owned by individuals, corporations, or LLCs that are owned by individuals. For many years, in order to ensure that owners were football-focused, we even prohibited owners from owning teams in other sports leagues. (Now we allow our owners to own teams only in other sports leagues in their own community, but for both governance reasons and others, we do not allow an NFL owner to own a team in a community served by another NFL owner's club.) We have a governance structure that requires all decisions to be made by a three-fourths vote of our membership. Whether we are voting on a playing rule, on a new owner, or on some of the most fundamental economic decisions that affect the long-term future of the sport, it takes a three-fourths consensus and vote of the membership to be adopted as League policy." (Tagliabue, 2004)

Tagliabue states that the NFL spends a great deal of time considering the structure of the NFL and that recently addressed was the structure of the NFL's sponsorship and retail licensing business. Tagliabue states that the owners voted on a master agreement for conduction of this business including "...everything from apparel manufacturing to soft drink advertising and distribution." (2004) It is stated that the NFL has a "equity joint venture with Reebok through which a League-wide apparel business is conducted in addition to sponsorship agreements "at both the local club level and the League level -- with a variety of business entities." (Tagliabue, 2004)

Tagliabue cautions that the NFL needs to be careful in its pursuit of these business opportunities and in pursuit of all business opportunities to ensure that the long-run interests of the League are not imperiled. As an example Tagliabue states that "some clubs have sponsorship arrangements with hospitals, with the hospital sponsors receiving as part of the sponsorship arrangement both advertising privileges and the responsibility of providing medical care for the players. However, these arrangements raise ethical issues that must be considered -- including but not limited to our need to ensure that quality medical care is being delivered to the players." (2004) The result, according to Tagliabue is that the NFL has "...strongly discouraged some of these arrangements and have restricted these sponsorship agreements in a way that has dramatically changed the local sponsorship model originally conceived seven or eight years ago." (2004)

Tagliabue states that he feels sure that the "new master agreement will be refined in a similar manner over the next seven or eight years as circumstances change. This evolutionary approach -- refining our business models to reflect changing circumstances and to address new and previously unforeseen issues as they arise -- is in many ways driven by our structure, in which both individual clubs and League-level businesses seek out new opportunities that must be harmonized with existing lines of business and overarching long-term interests." (2004)

Tagliabue states that his role of "shepherding" the NFL which is a "diverse organization...is in many respects probably more akin to being the majority leader of the United States Senate and less like being the CEO of a typical corporation.

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Any time you need a super-majority vote among 32 owners, each of whom is operating in his or her own economic context and his or her own market and stadium, you have a federalist model that involves an element of consensus building and politics in the best sense of the word. All decision-making requires being responsive to the varying interests of the different constituent members of the League." (2004)

The economic interdependence of the NFL League is stated to be the fourth over-arching consideration of the teams in the NFL. The NFL teams each share equally in more than 50% of the total NFL League revenue and additionally share approximately 80% of the total revenue in some manner. However, Tagliabue states that the revenue from non-media is not shared equally and states as an example that "...66% of ticket revenue belongs to the team that generates the revenue by selling the tickets and the remaining 34% is divided equally among all the clubs." (2004)

There is some revenue which is in no way shared and included in that non-shared revenue is that of 'in-stadium advertising'. (Tagliabue, 2004) However, Tagliabue states that collectively recognized is "...the importance of growing all revenue streams and increasing the League's and clubs' exposure throughout the nation. This recognition has produced some new and innovative policies." (2004) The NFL is the only among all sports leagues to have invested as a league in stadiums including the new stadiums in Philadelphia, Chicago, New England and Green Bay. A stadium investment has been "in recent years...in the NFL...a three-way investment." (Tagliabue, 2004) Monies include those which are:

(1) Public money;

(2) Team money; and (3) League money. (Tagliabue, 2004)

The League money generated for these investments have over the past five years been has been through means of assessing each team up to the money of up to $1 million each year from the annual television revenue of the team totaling $32 million. The NFL next obtained a loan in the capital markets which were supported by the revenue assessments of teams in addition to "incremental shared revenues that will be produced by the new stadium, and used the proceeds to make grants to the teams building or reconstructing stadiums." (Tagliabue, 2004) Tagliabue states that the maximum grant amount is set at $150 million "...for a team in one of the top six television markets, and other grants are for up to $102 million. Through this subsidy program we have invested television revenue in stadiums throughout the League, with an eye towards keeping strong local presences in all our markets -- especially the largest -- which will, in turn, produce a continued mass audience for our games and strong television revenues over the long run. In the last five or six years, we have invested about $750 million, which we will amortize over the next 25 years. We are still making such grants to spur construction of new stadiums and will seek to devise means to continue to do so for a number of years, until every team has a new stadium. For teams in smaller markets we try to make certain that both direct and indirect economic returns are positive. Public authorities considering investing in stadiums in the context of a broad array of community obligations want -- and need -- to examine each potential investment carefully." (Tagliabue, 2004)

In addition, the NFL shares investment models of stadiums to help public authorities in other cities in their decision-making and the preferred business model is one in which should be one that sustains the individual team. The example given is that the Super Bowl will be played in Jacksonville, Florida the February following this 2004 report that that the reason was because the community had "...invested a significant amount of public money in the stadium and convinced us that we should put the team there as part of our expansion process in the mid-1990s. Jacksonville is the smallest community with an NFL team; with the Super Bowl there next year, both the team and the community will be able to realize many of the types of benefits they anticipated when they invested." (Tagliabue, 2004)

The stabilization of the relationships that the NFL has with its' player's association is stated by Tagliabue to be "one of the biggest accomplishments of the past decade..." (2004).....

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