Economy in NFL History
The World's Richest Sports League
The National Football League is today the most profitable and valuable economic force in sports, easily eclipsing baseball, basketball, and all other competitors in the American sports-business universe. In recent seasons the NFL—by far the richest sports league in the world—has generated more than $6 billion a year in revenue. In 2007, Forbes magazine estimated that the NFL's 32 teams were worth an average of $957 million each; five franchises (Dallas, Washington, New England, Houston, and Philadelphia) were valued at more than $1 billion apiece. Even the NFL's least valuable franchise—the Minnesota Vikings, appraised by Forbes at $782 million—was worth more than every hockey, basketball, or baseball team in North America save the New York Yankees. (And recent evidence suggests that Forbes may have underestimated in its NFL valuations; in April 2008, Miami Dolphins owner Wayne Huizenga agreed to sell half his team for $550 million, a figure that suggested the full market value of the franchise was $1.1 billion—$158 million more than Forbes projected.)
The league receives more than $2 billion a year from its television contracts alone and rakes in billions more from sales of tickets, advertising, and merchandise.18 A hard salary cap on player contracts, which fixes spending on players' salaries at 59.5% of gross revenues, all but guarantees profitability for even the worst NFL teams while allowing the players to enjoy an average salary of more than $1.4 million a year. Most NFL teams play in palatial stadiums whose ever-increasing construction costs have been paid for, in whole or in part, by the taxpayers of the localities the teams represent. Pro football is not only America's most popular sport; it is a veritable cash machine.
But it wasn't always so. The NFL's incredible wealth and popularity is a comparatively recent phenomenon. The league's origins were humble in the extreme, and through its first several decades, the NFL struggled merely to achieve basic financial stability and sporting credibility.
Origins and Early Struggles
The NFL was born during a beer-fueled, late-night meeting held in August 1920 inside the Hupmobile auto showroom in Canton, Ohio. There, representatives of four Ohio football clubs gathered to join together in a single league, playing under a single set of rules. Having formed the American Professional Football Association (the association would be renamed the National Football League in 1922), the four Ohio teams reached out to other pro teams from the Great Lakes region. The 1920 season began with the league boasting a lineup of teams that would appear utterly foreign to modern-day football fans; the NFL's inaugural franchises were the Akron Pros, Canton Bulldogs, Cleveland Indians, Dayton Triangles, Columbus Panhandles, Hammond Pros, Muncie Flyers, Rochester Jeffersons, Buffalo All-Americans, Detroit Heralds, Rock Island Independents, Decatur Staleys, Racine Cardinals, and Chicago Tigers. The early NFL was mainly a small-town league and most games were played before a few hundred fans, at best. Many of the teams were poorly organized and woefully underfunded; only four of the original fourteen clubs were even still playing football by the end of the league's first season. Throughout the 1920s, new teams came and went with dizzying speed; the league fluctuated in size from as many as 22 to as few as ten franchises. (It wasn't until 1936 that an NFL season finally began with the same lineup of teams that had played the year before.) The Green Bay Packers, the oldest surviving team in the NFL today, joined the league in 1921. Two of the NFL's charter franchises from 1920, the Decatur Staleys and Racine Cardinals, also survived into the modern era, but only after relocating to become the Chicago Bears and Chicago/St. Louis/Arizona Cardinals, respectively. All the other early teams—more than 40 of them, from the Duluth Eskimos to the Providence Steam Roller to the Oorang Indians—eventually ceased operations and faded into the mists of history.
In 1927, hoping to curb its own rampant instability, the NFL made a fateful decision to weed out its financial weaklings, restricting league membership to just twelve relatively prosperous teams. Over the next few years, the league's center of gravity shifted from small midwestern towns to large eastern cities, as the NFL left places like Akron, Canton, and Muncie and launched new franchises in major metropolises like New York, Boston, and Philadelphia. By the late 1930s, when the rapid pace of franchise turnover finally slowed, only Wisconsin's Green Bay Packers remained to remind the NFL of its small-town origins. (And the Packers' unlikely survival into the modern era has been a function largely of the franchise's unique ownership structure; since 1923, the Packers have been organized as a non-profit corporation, its ownership spread among thousands of shareholders more interested in supporting the team than making money from it. The Green Bay Packers are literally owned by their fans.)
The NFL's movement into America's major urban centers did help the league to increase attendance and achieve a measure of stability. Still, pro football faced a continuous struggle to prove its financial viability and cultural relevance. In the first half of the twentieth century, baseball—the so-called "national pastime"—was far and away the most popular professional sport in America. Baseball heroes like Babe Ruth were able to fill huge venues like Yankee Stadium with diehard fans at a time when NFL games were lucky to draw a few thousand spectators. Even among football fans, the college game remained much more popular than the NFL until well after World War II. (One suggestive indication of the relative popularity of college and pro football in the first half of the twentieth century: for many years, the NFL ended its season not with a Super Bowl, but with an All-Star Game pitting the best NFL team against a squad of collegiate all-stars. The amateur student-athletes typically brought more fans to the game.) Pro football simply wasn't a major sport, which meant that it didn't pay well. As a result, the best college players often chose to take regular jobs in the business world rather than turn up to play after being drafted into the NFL. (Jay Berwanger, the Heisman-winning quarterback who was the very first player chosen in the very first NFL draft, spurned pro football for a career in the plastics industry.) Frequent scandals over payments to players and controversies over flexible interpretations of the rules tarnished the game's reputation. Not unlike pro wrestling today, pro football before World War II occupied a place on the fringes of America's sporting culture, regarded as a vaguely disreputable sideshow to the real action taking place on the baseball diamond and college gridiron.
The NFL's Postwar Ascent
The NFL barely survived World War II, which carried away most of its players and fans to serve on the battlefields of Europe and the Pacific. Several teams survived only by temporarily merging with their rivals; for example, the remnants of the Philadelphia Eagles and Pittsburgh Steelers joined forces to play the 1943 season as the Phil-Pitt Steagles.
The end of the war brought an unprecedented affluence to American society and a corresponding improvement to the fortunes of the NFL. In the 1950s the game grew more and more popular, especially among blue-collar men in the nation's booming industrial cities. The rough-and-tumble nature of the game appealed to working-class male fans, and a new generation of stars—many with ethnic working-class names like Ray Nitschke, Dick Butkus, and Chuck Bednarik—drove popular interest in the pro game to new heights. Still, the NFL had hardly become an economic juggernaut. Teams continued to derive nearly all their revenue from ticket sales and there were no sales of merchandise or broadcast rights to fill the league's coffers. The league's corporate headquarters was located in the utterly obscure (and nearly unpronounceable) suburban hamlet of Bala Cynwyd, Pennsylvania.
Pete Rozelle, Television, and the Modern NFL
While the NFL finally achieved a respected status as an indisputably major professional sport in the 1950s, it wasn't really until the 1960s that the league began to lay the foundation for its rapid ascent to economic dominance. In 1959, longtime NFL Commissioner Bert Bell—an old-timer who had been involved in running the league since 1933—died of a heart attack suffered in the final minute of an intense Steelers-Eagles game in Philadelphia. Early the next year, after 23 rounds of disputed voting by the league's owners, a bright young Los Angles Rams executive named Pete Rozelle was elected the new Commissioner. Rozelle would serve in the position for nearly thirty years, overseeing the NFL's rise to the pinnacle of the American sports business.
Rozelle's most important insight was to see that the NFL's future would be intimately bound up with the rise of television as America's most important medium of popular culture. Unlike baseball, which was always better experienced live in the ballpark rather than on TV, football naturally made for good television. The game's highly concentrated bursts of violent action fit neatly into a single camera shot. The do-or-die nature of third downs provided frequent peaks of dramatic tension. Even the game's frequent timeouts and stoppages in play provided plenty of breaks in the action, which could be filled with commentary from popular announcers or revenue-generating commercials. In Rozelle's mind, it seemed obvious that football and television were practically made for one other.
But NFL owners, who traditionally made their profits almost entirely from the gate revenues generated by selling game tickets, initially viewed TV as a curiosity at best and a threat at worst. If people could stay home and watch the game for free on television, some owners reasoned, why would they pay good money to come out to the stadium? But Rozelle foresaw that television could not only grow the game by exposing the NFL to fans unable to attend in person, but it could also provide its own significant revenue stream by allowing the league to sell valuable broadcast rights and advertisements.
In 1961, Rozelle moved the league's offices from sleepy Bala-Cynwyd to the epicenter of America's growing media and advertising industry: New York City's Rockefeller Center. Almost immediately, he struck a pair of deals that changed the NFL's economic fate forever. First, he convinced the league's owners (and Congress, which had to approve a special exemption to antitrust law) to agree to a new revenue-sharing plan that allowed the NFL to sell its league-wide broadcast rights as a single package then distribute the proceeds in equal shares to all teams. The NFL's unique (and, critics charged, vaguely socialistic) revenue-sharing plan guaranteed that small-market teams like the Green Bay Packers could remain financially competitive with teams located in larger and more lucrative media markets; the economic parity thus established helped to maintain the on-field competitive balance that has long distinguished the NFL from other sports—most notably Major League Baseball, where cash-strapped small-market teams typically know before the season even begins that they have little or no chance to compete against wealthy ball clubs like the New York Yankees.
Having secured agreement to his revenue-sharing plan, Rozelle quickly followed up by negotiating the NFL's first league-wide TV deal in 1961. The CBS network paid $4.65 million a year for the right to broadcast NFL games through the 1962 and '63 seasons. Under the revenue-sharing plan, that meant that each NFL team would begin the season with $332,000 in the bank. Since $332,000 was more than most teams' payrolls at the time, that meant that all NFL franchises were virtually guaranteed profitability, even before playing a single down or selling a single ticket. It took Pete Rozelle less than one year to prove the worth of his TV-centered economic model to the league's owners.
The NFL has never looked back. Over the years, the value of the league's television contracts has grown exponentially; the current six-year deals with NBC, CBS, Fox, and ESPN, which are locked in through 2011, will pay the NFL's 32 teams a staggering total of more than $12.7 billion.19
NFL Properties as America's Top Clothier for Young Men
While TV money has provided the foundation for the NFL's profitability since 1961, the league has also cultivated other sources of revenue. In 1963, Rozelle founded NFL Properties to manage the league's logos and sell officially licensed merchandise. At the time, the first helmet logos had only recently come into vogue. (The Los Angeles Rams were the first team to use a logo, painting yellow horns onto their leather helmets in 1948. The Eagles followed by adding wings to their hats in the early 1950s, then the Colts adopted horseshoes in 1954. Dallas entered the league with its lone star insignia in 1960, and the old-time franchises finally joined the logo era a year later, when the Bears' C, the Packers' G, and the Giants' lower-case ny all appeared for the first time.) The development of distinctive team logos created a new market in team-logo gear, and as fashion trends after the 1960s shifted in a more casual direction and sports fans got used to wearing caps, t-shirts, jackets, and jerseys bearing their favorite teams' insignias, NFL Properties became a billion-dollar business in its own right. Not even the truly hideous Zubaz pants trend of the early 1990s was enough to derail NFL Properties' momentum; recently, New York Times sportswriter Dave Anderson declared that "the NFL is America's clothier. Walk down the street, and all you see are guys with jerseys on, hats, or jackets, whatever it is."20And for every one of those jerseys, hats, or whatever, NFL Properties gets its cut.
Steady increases in the NFL's revenues from broadcast rights and merchandise licensing have been paralleled by booming ticket sales and increased corporate spending on NFL sponsorships and advertising. The entire package adds up to a massively successful business enterprise, making the NFL by far the most valuable sports league in the world. As an economic force, pro football has come a very long way since that fateful meeting in Akron's Hupmobile dealership in 1920.