The Business Winners & Losers of an NFL Lockout

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Since their last work stoppage in 1987, the NFL has enjoyed great prosperity turning itself into a $9B dollar juggernaut and making millionaires out of its players. None of this growth would have been possible without the money generated from the sales of television rights, advertising dollars and a host of other, closely aligned commercial interests. The business of football extends well beyond the field. Of course while fans will be broken-hearted, it is the companies and industries with the greatest exposure to the NFL which may have the most at stake in this fight.

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The Business Winners & Losers of an NFL Lockout

  1. 1. Who Loses in an NFL Lockout?Corporate Interests Intrinsically Tied to the League Call Date: Wednesday, March 9, 2011, 11:00 AM ET CRG Host: CRG Expert: Michael Cohen Scott V. Steer Coleman Research Group Consultant, Branding, Strategy, Ad & Promo Steering IMC 280 Park Avenue, 12th Floor East Director, Partnerships & Business Development New York, NY 10017 The Miller Group 1
  2. 2. Background and HistoryThe Losers:• Fans• Advertising• Employment• Travel and Hospitality• Sponsors• Licensed Products• Host Cities and States Potential Winners 2
  3. 3. Billionaires VS Millionaires 3
  4. 4. By the Numbers • 2010 Revenue $9.3B • Avg. Player Salary $1.87M • Rookie Minimum $320K • Avg. Team Payroll $127M • Avg. Franchise Value $1.02BSource: CNBC 4
  5. 5. Labor History1982 Strike• Began on 9/21/1982 and lasted 57 days until 11/16/1982• No NFL games were played• Essential cause was dispute over the percentage of gross revenues that the league gave to players• NFLPA wanted the percentage increased to 55 percent1987 Strike and Decertification• Replacement and some NFL regular players crossed picket line• Back to work on 10/15/1987 without a collective bargaining agreement (CBA)• Officially decertified in 1989 and reformed as a union in 1993Return to Collective Bargaining• The NFLPA and the league have extended their 1993 agreement five times, most recently in March 2006 when it was extended through the 2011 season.• May 2008 owners decided to opt out of this agreement and play the 2010 season without a CBA in place.• 2010 season was played without a salary cap (or floor), and there is the looming possibility of no play at all in 2011 if an agreement cannot be reached. 5
  6. 6. The Key Issues1. Revenue Split – Owners wanting an additional $1 billion credit skimmed off the top before sharing with the players (despite resisting the opening of their books)2. Extend regular season to 18 games3. Rookie Wage Scale / Salary Cap4. Benefits for Current and Former Players5. Repeal of Bonuses for "Breach Of Contract” 6
  7. 7. Possible Options 1. A Deal or Another Extension New Deadline Friday 3/11, 11:59 PM 2. Union Decertification – The union could decide to pursue the strategy of dissolving as a union for legal purposes 3. Lockout 4. Impasse – A legal concept, exists after good-faith negotiations fail to reach a conclusion – The NFL could declare impasse at any time and force the players to: • Accept its last best offer, strike, or (as they did 20 years ago) decertify 5. Continue to operate under 2010 terms – Not a great option for players The clock is ticking…Options outlined by Andrew Brandt, President, National Football Post and Lecturer on Sports Business @ The Wharton School 7
  8. 8. “déjà vu – all over again” 8
  9. 9. 2004-05 NHL Lockout • NHL teams actually saw a growth in value following the lockout because the fixed number guaranteed for player wages out of league revenue fell from about 66 percent to 54 percent 1 – Same may happen if NFL owners get their way and shave a few percentage points of the current 60 percent figure of player payroll to revenue • NHL attendance did not suffer too much from the lockout 2 – 2004 avg. attendance = 16,719 – 2006 avg. attendance actually grew to 17,025 • The NHL television revenue/ratings got hammered after the lockout • Since the lockout – NHL games air on NBC, but only Saturday afternoons – NBC pays no rights fees, but has a revenue-sharing agreement • Cable broadcasts now hidden on the Versus Channel. A huge step down from 2004 five-year, $600 million deal with ABC/ESPN.Source: 1. Forbes, 2. Attendance figures from ESPN 9
  10. 10. 1994 MLB Strike• ESPN reported average MLB attendance was down 20% after the strike• Attendance did not return to pre strike levels until 2000• ESPN also noted operating revenue dropped 35.8% in 1994 and didn’t reach its former mark until 1997• For MLB, unlike the NHL, team value and attendance did take hits• MLB television revenue dropped after the lockout with Fox paying substantially less in 1995 that CBS did in the early 1990s 10
  11. 11. Who Are the potentialwinners and Loser without Football??? 11
  12. 12. Broadcasters $3.6B $8.8B $3.73B $4.27B ??? $20.4 billionSource: Sports Business Daily 12
  13. 13. Top 10 NFL Advertisers (2009) Millions Anheuser-Busch (A-B inBEV) $134 The US Government (including General Motors) $127 Toyota $108 Ford $97 The NFL $97 Miller Coors $88 Sprint Nextel $82 Southwest Airlines $66 Verizon Wireless $64 AT&T $64Source: Media Post 13
  14. 14. NFL Ad Revenue Nearly $3 BillionFox ($944 million)NBC ($817 million)CBS ($804 million)ESPN ($144 million)Source: CNBC and Kantar Media 14
  15. 15. NFL TV Ratings • Viewership up 13 percent over last year • Games on CBS, Fox and NBC averaged 20 million viewers 20M Viewers = more than twice what networks get for their prime-time programming!!Source: Nielsen 15
  16. 16. Pay Per View / Satellite Packages• DIRECT TV ESPN $1B per year • In 2008, Dish Network moved for exclusive NFL Sunday Ticket the NFL Network from its and Red Zone Channels "Americas Top 100" package to• Could affect DIRECTVs positive the higher premium "Americas momentum Top 200" package – Double digit gains in Q3 and Q4 • The move cost the network 2010 to $6.03 billion four million subscribers – Analysts forecast DirecTV could lose as much as 10% to 20% of its 2.2 million subscribers of its Sunday Ticket packageSource: Multichannel News 16
  17. 17. Missed Games Actually Boost Networks Bottom Lines? - Maybe -• Judge blocked broadcasters from having to pay rights fees during any player lockout• Missing games might actually improve the networks bottom lines, according to FitchRatings – lower revenue for any aired replacement content, but with lower production costs too• Certainly won’t help all the local NFL based programming around the country 17
  18. 18. • 30M + players• For an estimated $5 billion business• Demo – Men: 79%, Men 18-34: 31% – annual HHI is $92,750 – Median Age 30.4 yrs,• Avg. fantasy football player spends $150/yr – league fees, premium websites, magazines and other ‘necessities.’ Source: Fantasy Sports Trade AssociationSource: Business Week and Fantasy Sports Trade Association 18
  19. 19. Top 10 Fantasy Sports Sites: September 2010 Unique Monthly YearlyRank Site Visitors Change Change 1 fantasysports.yahoo.com 6,115,530 47.77% -14.22% 2 games.espn.go.com 5,461,712 48.91% -0.64% 3 fantasy.nfl.com 2,709,801 60.83% No Data 4 football.cbssports.com 1,940,999 68.89% -26.14% 5 fantasynews.cbssports.com 896,204 25.71% -12.83% 6 rotoworld.com 651,002 16.41% -1.17% 7 streak.espn.go.com 588,362 15.46% -24.93% 8 fftoolbox.com 567,552 -10.88% 17.63% 9 fantasy.foxsports.com 389,254 31.57% -17.56% 10 baseball.cbssports.com 347,416 -11.74% -36.01% 19,667,832Source: ComScore 19
  20. 20. broadcasters andcontent providers It’s all about Lost Eyeballs • Broadcast advertisers could move their dollars to other "marquee" programming – College Football – Golf – Prime-time Dramas or Sit-coms • Is there enough ad inventory to absorb that money? • Internet advertisers Lots of inventory, but nothing that delivers that quantity of very passionate eyeballs • Some advertisers might also choose simply not to spend 20
  21. 21. SPONSORSHIP• Real numbers, but these are contractual obligations• NFL is riding a wave of tremendous popularity – Could diminish the premiums they have been receiving for sponsorships going forward 21
  22. 22. Other NFL Sponsors Include:• Papa John’s ($15M) - also the "Official Pizza" of 10 Teams• Gatorade ($45M)• Verizon - replaced Sprint ($720M)• IBM• Visa• FedEx• Bank of America• The Home Depot• Canon• P&G (Gillette, Old Spice, Prilosec OTC, Febreze, Head & Shoulders, Tide, Charmin) 22
  23. 23. The Game and a Bud • Bud Light takes over official sponsor in 2011, Est. at $1.2B • Coors was official sponsor from 2005 -2010 for $500M • Team sponsorships and pouring rights are done individually - often on a non exclusive basis • A-B has pouring rights with 28 teamsSource: Denver Business Journal 23
  24. 24. The Cola Wars Extend to the Gridiron Pepsi IS the Official Sponsor, but… 24
  25. 25. and Across All Sports Venues Sport Venue Coca-Cola Pepsi OtherSource: Sports Business Daily 25
  26. 26. • Stadium – parking, security, souvenirs• On Field – referees, coaches, trainers,• Front Office – staff, marketing, tickets 26
  27. 27. Food Service and Event Staff 27
  28. 28. broadcast production crews• Generally Freelance/1099 contractors – 45 person crews, most are within an hour commute to venue – < 20% travel for networks• MNF and SNF are traveling circuses for 16 weeks – 20+ trucks with drivers and engineers• Local broadcasts - pre and post game shows, etc 28
  29. 29. Travel + Hospitality or Entertaining at Home? Game Stats Avg. NFL Broadcast Viewers 20 Million Viewers who watch at a restaurant or bar 23.8%Source: Arbitron 29
  30. 30. Can’t Watch at Homeor Tailgate?Top 10 Grocery Retailers & WholesalersSource: Supermarket News 30
  31. 31. On-Premise SalesIf you serve chicken wings andbeer, football season is reallyimportant to your business!• Hooters Average Price 2009 2010• Houlihans Lunch Entrée $7.14 $8.07• Applebee’s Dinner Entrée $12.98 $13.88• Buffalo Wild Domestic – Draft $3.66 $3.58 Wings Import – Draft $4.74 $4.64• Brick House Domestic – Bottle $3.69 $3.73 Tavern Domestic – Draft $3.66 $3.58Source: Intellaprice 31
  32. 32. On-Premise Sales: Food Service 32
  33. 33. On-Premise Sales: Beer • Outsells wine 3.5-to-1 • Outsells liquor by nearly 1.5-to-1Source: 2007 IRI On-Premise Study 33
  34. 34. Top 10 Distributed BrandsSource: IRI Syndicated On-Premise Survey – Fall 2007 34
  35. 35. Hotels + Lodging Attendance Avg. Stadium Attendance 67,000 / game Total Attendance 17 MillionSource: ESPN 35
  36. 36. Vegas Sports Books Rank Company Name Casino sq. ft. Sports book sq. ft. 1 MGM Mirage 1.1 million 59,235 2 Station Casinos 1.1 million 82,796 3 Harrah‘s 634,616 37,169 4 Boyd Gaming 579,588 29,138 5 Las Vegas Sands 243,684 6,430Source: In Business Las Vegas -Ranked by casino square footage as of June 30, 2009 36
  37. 37. Casinos keep less than 1% of their handleSource: State Of Nevada Gaming Control Board 37
  38. 38. Licensed Products• Topped $3.2 billion in U.S. & Canada (2007) – Fans Stop Buying – Retail sales fall (Modell’s, Amazon, NFL.com) – Manufacturers stop making – Min 16 week lead time to get stuff produced overseas 38
  39. 39. NFL Properties LLC• Reebok out as NFL uniform supplier (April 2012)• Citigroup estimate $350 million of Reebok’s $565 million annual US sales comes from the contract with the NFL 39
  40. 40. 2012 Starting Line Up• Nike - Uniforms• New Era will handle on-field headwear• Under Armour will be sponsor of the NFL Scouting Combine• Gill will manufacture fan gear, as will VF.• Outerstuff will continue as the leagues youth apparel provider• 47 Brand will do headwear for fans• Revenue for NFL-licensed apparel at retail in the United States totaled about $1.9 billion in 2009, but had fallen at a mid-teen percentage rate so far this year, according to SportsOneSource. 40
  41. 41. Home Electronics: Stores and Installers• The weeks before the Super Bowl are second only to the holiday shopping season for TV sales.• Football Playoffs and Super Bowl push custom installs of home entertainment systems up 25%• Consumers were predicted to purchase nearly 4.8 million televisions up 25 percent in advance of the 2011 game – Up from 3.6 million last year and 2.7 million in 2009Source: IBISWorld 41
  42. 42. City and State Hosts• Lost tax revenue from sales tax, road tolls, parking, etc. Game Stats Avg. Cost to take a family of four to an NFL 2 $413 game (2009) Avg. Stadium Attendance 3 ~ 67,000 / gameSource: 1. Arbitron, 2. USA Today 3. ESPN 42
  43. 43. City and State HostsPayroll TaxesTotal Team Payrolls $3,401,549,790Average Payroll = $127MMedicare Withholding $86,075,948States w/ tax avg. 6.5%(CA 10.9 , NY 8.97, NJ 8.97, MN 7.85 are all in the top 10)Est. State Income Taxes $154,343,080Est. Federal Income Taxes $761,947,152 43
  44. 44. Potential Winners• NCAA – Broadcasts might be short-term winner – Merchandise, Attendance• MLB, NBA and NHL – could all be a longer term winners Broadcasting, Merchandise, Attendance• Soccer• Arena Football• CFL• Office Productivity 44
  45. 45. Summary• Teams could end up with permanent/long term revenue issues as they work to restore fan interest after a lockout.• This wont be true for teams like Green Bay or Pittsburgh, where loyalty is inbred, but for teams like Carolina, Jacksonville, Miami, Minnesota, etc where fan interest is finicky, the impact will go well beyond the work stoppage.• Throw in the pending lockout of NBA players and fan/consumer sentiment towards professional athletes is an interesting topic. 45
  46. 46. Important Dates• Friday March 11th• April 28-30 -- NFL Draft, New York City• Aug. 6 -- Pro Football Hall of Fame, Class of 2011 Enshrinement, Canton, Ohio• Mini Camp - Clubs are permitted to hold a rookie minicamp on one of the first two weekends after the NFL Draft and conduct one mandatory minicamp for veteran players. 46
  47. 47. So how does it end?For more information contactScott V. Steer Director, Partnerships & Business Development The Miller Group Scott@MillerGroupMarketing.com Consultant, Branding, Strategy, Ad & Promo Steering IMC Scott.Steer@SteeringIMC.com 47

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