How the NFL Blitzes in Business, Part 2

Continued from How the NFL Blitzes in Business, Part I

Ultimately, the team owners came up with a compromise. The players would receive at least 60% of every team's revenue, which resulted in a bigger pool for the salary cap. But this caused a problem for the lower-revenue teams, like the Buffalo Bills and Jacksonville Jaguars, who might see 70% of their revenue going into player salaries while the New England Patriots and Washington Redskins would be spending only that 60%. So to try and make up the difference, the owners agreed that the 15 highest-revenue teams would pay equally into a pot totaling $30 million to be redistributed to the 17 poorest clubs.

It only adds up to a couple of million for each small-revenue franchise but other concessions were made. At the same time, the owners agreed that the 15 larger teams would also give up their profits from the league's new media ventures and share that money with the smaller-market teams as long as those small-market clubs dedicated at least 65% of their revenue to player salaries.

Unfortunately, some of the small-market teams still feel left out in the new contract, unsure how a trickle of money from the richer clubs is going to help them catch up. The potential solution is to aggressively generate revenue from any new media ventures and to squeeze more revenue out of the existing media properties. Hence, the bolstering of the NFL Network by adding those eight Thursday and Saturday night games.

Those games that are being shown semi-exclusively by the NFL Network can be directed at a wide variety of media as exclusive content that FOX, CBS, NBC, and ESPN can’t duplicate. The NFL Network will help feed content to the Internet, cell phones, iPods and whatever else has yet to be invented. These various new media connections, when filled and under the NFL's control, have the potential of becoming viable revenue streams for all NFL team owners.

"There's going to be peaks and valleys and some acceleration and deceleration [in new media]," said David Katz, the head of sports and studios at Yahoo!, which currently streams NFL games on the Internet overseas. "The NFL has proven to be the best at exploitation and management of their assets. I have no doubt they will continue to be good at what they do." It's a delicate balance. The NFL needs its revenue quickly to try and fill some of the gulf between big- and small-market owners, but moves cautiously in the ever changing new media markets.

No one really knows how much revenue could be generated because no one has a grasp on exactly what forms and opportunities the new media will present and partially because the league is only starting to cut deals in this new media world (adding games to the NFL Network, signing contracts for podcasts, cell phone telecasts, and just last month, the owners voted to operate the league's Web site, NFL.com, themselves – previously CBS SportsLine held the contract).

"We hope that [new media] will be a real contributor and hopefully it will ameliorate some of that" big-market/small-market tension, Jeff Pash, the NFL's executive vice president, said recently after testifying before a congressional antitrust hearing. "And also by bringing it in house we can keep that revenue as a league asset and share it equally among the 32 teams as opposed to having yet another revenue source that exacerbates revenue disparities between teams."

Or as Broncos owner Pat Bowlen said, "If [the media money] is coming from a league-owned asset, then it will be easier to cut it up and give it to the smaller market teams rather than to just take it from the higher-revenue teams." Those previously mentioned eight games will be used to generate that media money. One question down!!!

Concluded in How the NFL Blitzes in Business, Part III