The NFL went from a backyard sport to owning a day of the week in the United States during the fall and winter. But what matters most is how it got here, and it starts with one thing: its perfect business model.
In the latest edition of Flashscore’s Livesport Daily podcast, our Czech colleagues spoke with the sports journalist Kurt Badenhause to discuss how the NFL created the perfect business model.
In a very varied interview, Kurt Badenhause analyzed the fundamental reasons for the success of the NFL and the differences with European football.
Salary caps and TV contracts are essential
How did the NFL achieve such economic success? A big reason, Badenhause said, is the $400 million each franchise receives from the league each year through mega-TV deals.
“From the number one team to the number 32 team, each of them received a check from the league for more than $400 million last year. Much of that is due to television contracts in the United States, because it is a must-see program If you look at the 100 most watched shows on television in 2023, 93 of them were NFL football games. There are only four programs other than football among the 100 most-watched TV shows in 2023. Smaller markets that aren’t as well known and don’t have large local sponsorship deals, the Jacksonville Jaguars, the Cincinnati Bengals, still receive over $400 million, which is very different from how the system is set up in major European soccer leagues.”
However, there is one essential reason for the financial strength of the NFL: the salary cap. Badenhause explains why:The essential difference between the NFL and the major football leagues, which are the only ones that can compete at the highest level in terms of revenue, is in costs. This is because salary caps on player costs guarantee you profits if you own an NFL team. By our calculations, each team generated an average of $140 million in operating profits last year. Comparing these figures to those of the Premier League, only four of the twenty teams made money, and the overall loss amounted to some $700 million. In the NFL, we are talking about an overall profit of around $4 billion. And it’s not about revenue, it’s about profits. This isn’t a new television cycle every three years. These are 10-year contracts, with guaranteed profits, and you share your revenue with the players 50-50. The NFL is an incredible economic machine.”
Comparison between the NFL and European football
These salary caps make the NFL’s financial structure more sustainable than the revenue-based model found in football. Competitions like the Champions League create an imbalance in financial revenue, as teams that participate in Europe’s premier competition earn millions of dollars more from television contracts than clubs that do not participate.
This imbalance is summarized by Badenhause: “You have teams at the bottom of the table spending to try to avoid relegation and teams at the top of the table spending to compete with the other big clubs on the continent in the Champions League. So the result is that everyone is spending money that its income cannot necessarily support. The new group of American owners who have arrived in the last 15 years have the hope of establishing a more American system. for the health of the league, it is logical, because you don’t want owning a football club to cost you hundreds of millions of dollars, as was the case for Shad Khan at Fulham.
As is the case in many European leagues, the Premier League has become a competition dominated by one club, Manchester City. The only teams capable of competing are those whose high revenues allow for elite sporting and financial models. Badenhause explains why this hierarchy in the Premier League is a problem and how the situation is different in the NFL.
“In the Premier League there are six clubs that can compete for the title. It’s not very good for the other 14 clubs that play in the Premier League. The way the system has been set up in the NFL, you can spending a little more than the salary cap from year to year, but over a five or ten year period, everyone is spending the same amount of money, because everyone has enough money to spend to reach the ceiling This creates a certain level of. parity If you can choose your players correctly and not botch this aspect, you have the same amount of money to spend, regardless of which city you are in. This creates a situation where, at the start of each season, your. team has a chance to make the playoffs. And you can say to yourself that in the next two or three years, I can be in the championship game, in the Super Bowl.”
How the NFL Model Came to Be
The NFL hasn’t always been what it is today, and it might not have become the commercial giant it is if the owners of the New York Giants hadn’t thought outside the box years ago. over 60 years old. “It dates back to the early 1960s with the Mara family, owners of the New York Giants.”explains Mr. Badenhause. The Giants were arguably the greatest brand, one of the first teams in the NFL. They decided to collectivize all television rights. So they negotiated together and everyone got a fair share. The New York Giants, the Mara family, went to the commissioner and told him that this was the way to do it: ‘our market now has 20 million inhabitants; it should receive the same as Green Bay, which has 200,000’. And that’s really what it is. The way television rights work in baseball applies at the local level. If you’re in a big market, you get a lot more money than if you’re in a small market. So the Dodgers and Yankees are making ten times more than other teams right now. In the NFL, there is no money for local television. Everything is done collectively at the national level, like in football leagues, but the difference is that the money is distributed equally among the 32 teams. It’s 100% socialist!”
In short, with MLB, teams make money from local broadcasts, which is not the case with the NFL.
The NFL is simply the most popular sport in the United States and, unlike other sports, it is an event that must be watched live – recaps don’t do the game justice. Badenhause explains: “The NFL is America’s sport and no one wants to see anyone spoil the goose that lays the golden eggs that fans love so much.”
“The reason it’s 93 of the 100 most-watched programs is because you have to watch it live (…) People are tuning in. It was once a week and they’ve gotten bigger. It is certain that they will reserve another television slot for themselves when they have a full series of international matches. A new television slot will open, that of Sunday morning at 9:30 a.m., which will broadcast matches mainly for Europe, at a rate of one match per week, once they have increased to 16 matches per year.
How the NBA is trying to copy the NFL
The financial success and popularity of the NFL is the envy of other popular American sports, so much so that the NBA is now trying to jump on the bandwagon.
“No one has as much TV money as the NFL, but the NBA gravitates toward that model and is the NFL’s best competitor. The latest TV deal it just signed is worth nearly of $80 billion over 11 years and that turns into a model very similar to that of the NFL, where each team is going to receive a huge check.
Basically, lower market teams start raking in more revenue because the league gives them a check and the new collective bargaining agreement prevents teams from going over the cap and making fun of the penalty, which is the main problem of the MLB. She hasn’t reached the NFL level yet, but she’s getting closer and closer.
“You can’t buy an NBA team for less than $3 billion. $3 billion is kind of the new entry threshold, and that was before the new TV deal. While the NBA is looking to expand and is looking at expansion fees of at least $5 billion, some owners want $6 billion, there will be two So there will be $10 or $12 billion coming in. Everyone. will receive one thirtieth of this sum. So this is a quick payout of $400 million that won’t be shared with players and will go straight into your pocket. However, some owners are pushing back, saying they don’t want to share the money because they think there will be more money in the future. They say ‘so we don’t want to have to split the money into 32 parts. Let’s stick to 30’.
So the problem is that the owners don’t want to share a piece of the pie with the teams at the bottom of the pyramid – a very real economic system and conflicts, but in the world of sport.
The Americanization of football
Since its inception in 1995, MLS has broken the traditional mold of promotion and relegation soccer as a single-tier, closed league.
People object to the idea that MLS is a closed league and not a “real soccer league” because the idea of promotion and relegation is so inherent to European soccer leagues.
“We have seen soccer leagues close in the United States because there was no financial stability and the way MLS is organized will be one of the challenges for MLS, which aspires to become one of the five best leagues in the world, but who doesn’t want to lose $700 million a year like the Premier League does. In the Premier League there are a lot of owners for whom profits and losses are probably secondary to how they view ownership. So it will be a challenge, because it will take better talent to come to MLS to raise the bar, and better talent costs more. Whether there is a revenue structure capable of supporting this talent remains to be determined.”
The big problem with MLS is that while all the best American football players in the world play in the NFL, football is a much more global sport and the United States does not have some of the best football players in the world. The talent problem is real and good players aspire to play in Europe.
While MLS has had mixed success so far, Americans are not discouraged from buying soccer clubs and some of them have been hugely successful.
“The Americans have had a lot of success in football. Fenway Sports has done a great job with Liverpool and continued the transition this year with a new manager and so on and I think they have managed the asset very well, both on the field and off the field with what they did The reality is that if you win, everyone appreciates you more And it’s no different than any other. sports league.
