Sunday, January 25, 2015

Let's call the NFL what it is ... A Capitalistic Endeavor

imageThe NFL is an almost perfect example of capitalism. It's Capitalism at it's finest. Well, perhaps it's really more of an example of Crony Capitalism. It's an almost perfect example of it.
Crony capitalism - A term describing an economy in which success in business depends on close relationships between business people and government officials.
I originally was thinking that the NFL is a Cartel. While there are some similarities and points of comparison (as noted below) ultimately the NFL is an example of a capitalistic endeavor. The NFL enjoys a a non-profit status. Which affords the league some discretion when negotiating.
Cartel – An organization of a few independent producers for the purpose of improving the profitability of the firms involved.
In this post I’ll cover a few points that have come up in the past few days:
  • Is the NFL a cartel?
  • The NFL Non-Profit Status
  • Why Roger Goodell (NFL Commissioner) makes 51 times more than the lowest paid employee (aka NFL player)
  • DeflateGate and Congressional Hearings
  • And … Can the world live without the NFL?
Full Disclosure: I am a fan of capitalism. Some of this may come off as a rant. That’s not my intent. I hope it spurs conversation and thinking.

Comparing the NFL to OPEC
Most everyone knows that OPEC is a cartel. For those that don't ... OPEC is the cartel that controls the flow of oil from the Middle East. As we have seen in the past few weeks with the drop in gas prices at the pump there is no guarantee that cartels can always succeed. This is especially true when another form of supply becomes available. In OPEC’s case … it’s the rise of shale production.

There are some similarities between OPEC and the NFL. However, unlike OPEC there will likely never be another major supplier of “American Style Football” that will replace the NFL. Yes, there are a few competitors, but by the definition of a cartel I think the NFL has utilized it’s power, it’s non-profit status and if’s influence to insure they never grow too large to be a worry. The NFL has something else to worry about … an alternate supplier. The likely alternate supplier is soccer (aka futbol).

The big question to be answered is ... Can the world live without the NFL? 

Is the NFL a Cartel?
  • I think the answer is yes. But, not in every sense of the definition.
  • The NFL currently can only manage the Supply.
  • They slap fees and fines onto teams for "breaking the rules" yet these are merely band-aids and just a bit of sleight-of-hand to make the masses think there are real changes taking place. Guess what? It's a facade.
Supply and Demand
Cartels seek to control Supply. Of course, they can't always control demand. But, in a world where demand is ever present they can rest assured that Demand will continue to increase or at least stay at a steady state. This is not always a guarantee. As noted above with OPEC and Shale. The NFL faces a decreasing demand … from Millennials and Gen Z. These two will likely kill the NFL.
  • The only thing that is going to change the behavior of the NFL is to decrease the demand.
  • Currently there is an almost insatiable desire for football and more football.
  • Guess What? The NFL has the public eating out of their hand. For now.
Should the Non-Profit Status be ripped from the NFL?
A friend mentioned / suggested this on Facebook the other day in relation to the NFL scandal of the week “DeflateGate” and while I think there is some merit to this it won’t matter in the long run. The NFL has bigger problems. So, would ripping the Non-Profit status have an impact?
  • Would it make any difference?
  • Not likely.
  • There are multi-millionaire and multi-billionaire owners with a lot at stake. The non-profit status is just a factor that allows the league to do what they want. To appoint who they want. To have scapegoats when they need them. The scapegoat in this case is paid very well and goes by the title of NFL Commissioner.
Will there be congressional hearings about this DeflateGate?
  • They will probably be proposed. Whether they actually happen is anyone's guess. Personally, I hope not. Congress doesn't do much else. This is the least of their concerns. Congress should focus on things that matter to the country. Not on things that impact multi-billionaire owners of sports teams. But, again ... this flashes back to Crony Capitalism.
  • It's really nothing more than a sideshow
  • As Mack Sigman often says ... look for the news they AREN'T talking about.
Why does Roger Goodell make 51 times more than the lowest player in the NFL?
  • Crony Capitalism
  • Scapegoatism
  • Because the NFL can do whatever it wants.
Who does Goodell report to?
Answer: The NFL Owners. If Roger Goodell can pull down $44M for being “the face” of the NFL and taking the heat for the Scandals of the Week … more power to him. As a capitalist he is making it happen. Sure, his handlers are parading him around like a marionette, but if he can live with himself … more power to him. His handlers (aka the NFL team owners) are the true Crony Capitalists here.

Clearly, they have figured out how to keep themselves out of the limelight and prop up a front man. The current front man happens to be Roger Goodell and he’s pulling down a hefty salary for it. More power to him. Crony Capitalism at it's finest.
  • Clearly the owners are willing to pay him an exorbitant sum to be their scapegoat.
  • It's working.
  • His $44M compensation package is 51 times higher than the lowest paid NFL player. Why?
    • The lowest paid NFL player in 2012 was an $863,414 average annual salary
What would change the behavior of the NFL?
  • A decrease in demand.
  • Millennials are killing the NFL - As I had written about earlier in Will Millennials Kill Football?
  • Fear. The fear of the declining power of the NFL is driving more public outreach.
What the NFL is realizing --- based on all the PR efforts they have been spinning out over the past few years (Play 60, Certified Coaches, etc.) they know the NFL needs to do something to change perception. Before it's too late.
Nothing will change, until something changes.
The Big Difference between OPEC and the NFL?
Currently the world cannot survive without oil. The same cannot be said about the NFL.

As a Capitalistic Endeavor the NFL will fight to remain relevant and to keep the cash flow coming in. Just as it should be in any capitalistic endeavor. Can the NFL make the necessary adjustments to remain relevant? It will depend upon the NFL’s ability to maintain and/or grow demand. I think the NFL needs to make more than a few changes in order to insure the future of the league.

It remains to be seen if any real change comes from the NFL, but if I were to be playing the odds in Vegas I'd say there will be no immediate changes. The NFL has the public eating out of it's hand.

While the other hand is in the public's pocket extracting cash for stadiums, exorbitantly priced tickets and any other concessions they feel that can extort (err, I mean extract) from the public.

image image

Capitalism is Great

The NFL has it figured out … for now. However, there is a much larger machine at risk. All of the supporting elements --- TV, Advertisers, Agents, City Government, State Government, perhaps Federal Government, not to mention the billionaire owners.

Supply and Demand will determine the ultimate fate of the NFL. Will the NFL fight hard to keep their cartel? YES! However, market dynamics are influenced by the population as much, if not more, than the advertising and governmental spending.

In the end … the NFL will die off. It will take a while, but all things run in cycles. Sports are no different. The question remains … What will the NFL do to protect it’s franchise? Expect a full on blitz!

Copyright 2015 Jeff Shuey Some Rights Reserved Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution 3.0 License

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