What is a fair profit for an NFL owner?

[bobblehead]

And how can you make this statement? How can you use all of that wonderful business school education and determine ROI in the NFL? The owners have not once stated a number for their profits. That seems to be a critical number to calculate ROI. In fact, gross income numbers aren't used to calculate ROI so the one number we know for sure isn't useful to determine ROI. Just looking at the values of the franchises you can see how much owners will make on the sale of their teams without looking at yearly profit/loss.

I am a CPA and I can't tell you the ROI for the owners without looking at the books.

2 points. The owners offered to let a third party examine actual numbers. They might even choose you if you can be trusted not to leak it to the press. What are the odds the NFLPA would not leak it to the press if they were given the information?

[pbmax]

2 points. The owners offered to let a third party examine actual numbers. They might even choose you if you can be trusted not to leak it to the press. What are the odds the NFLPA would not leak it to the press if they were given the information?

The owners have probably offered to let a 3rd party look at some numbers, not the actual numbers behind the summaries. No one seems to know which numbers they were, but its clear it wasn't the full picture.

[pbmax]

Didn't Jones end up paying almost three times as much as the taxpayers? I think Arlington paid $350 million, and Jones something like $900+ million.

I believe the Giants and Jets paid the entire cost, or at least most of it, with no taxpayer input.

A significant portion of that funding in each case comes from PSLs. Definitely a more targeted fund raiser than using government money, but not exactly the owner's pocket either. I think Richardson in Carolina did this for their expansion franchise stadium, didn't he? I am not sure this represents a recent change in stadium financing.

A PSL could represent a revenue source that could be tapped for other uses by the team, but I am unsure it would be as easy a sell if the funds did not go to stadium construction costs.

[Patler]

A significant portion of that funding in each case comes from PSLs. Definitely a more targeted fund raiser than using government money, but not exactly the owner's pocket either. I think Richardson in Carolina did this for their expansion franchise stadium, didn't he? I am not sure this represents a recent change in stadium financing.

A PSL could represent a revenue source that could be tapped for other uses by the team, but I am unsure it would be as easy a sell if the funds did not go to stadium construction costs.

PSLs have been around for 25 years, even when taxpayers were footing the bill for large portions of stadium construction costs. About half the NFL teams already have them in one form or another. Many Big 10 schools have them, but refer to them as a "priority seating surcharge" or other such nonsense. Wisconsin calls them priority seating "contributions" and they apply to only some seats, as I understand it. I don't see a PSL as any different than increasing the package prices for season tickets, its still the owner raising the money, and theoretically, in most cases, the owner is on the hook for the cost if the PSLs don't sell (although it is unlikely to happen).

Didn't the Packers have a one-time surcharge for season ticket holders as part of their renovation financing? Or did they just talk about it but never implement it?

[Guiness]

2 points. The owners offered to let a third party examine actual numbers. They might even choose you if you can be trusted not to leak it to the press. What are the odds the NFLPA would not leak it to the press if they were given the information?

About 0%. I expect if the owner's opened up their books to the NFLPA itself, I would fully expect to see the Dallas Cowboy's general ledger being tweeted, one entry at a time, from the bathroom in the hallway outside the meeting room.

[retailguy]

And how can you make this statement? How can you use all of that wonderful business school education and determine ROI in the NFL? The owners have not once stated a number for their profits. That seems to be a critical number to calculate ROI. In fact, gross income numbers aren't used to calculate ROI so the one number we know for sure isn't useful to determine ROI. Just looking at the values of the franchises you can see how much owners will make on the sale of their teams without looking at yearly profit/loss.

I am a CPA and I can't tell you the ROI for the owners without looking at the books.

Me neither, and like you Dan, I've also done this for a living. But, you can look at one parallel related to ROI. I've done literally tens of thousands of tax returns, and virtually NONE had a great ROI when payroll was above 50%, much less 60%. I recognize that the NFL is not a "typical" business, but, realistically, their other expenses are also high. Everything they do is 1st class. Charter flights, the best weight rooms, the best medical care, the best facilities, the best of everything.

Something has to give somewhere, and ultimately, it's got to trickle down to the ROI. How can it not?

Keep in mind that the 59.6% salaries are really just player salaries. It doesn't include any other team salary. Even backing it back down to 50% of total revenue, which is what we are told it approximates, what about coaches, admin staff, finance, IT, grounds maintenance, training staff, building personnel, and the list goes on....

It would not surprise me if some of the lower market teams have a total loaded payroll approaching 65%. That'll put a strain on any ROI analysis and you don't really need financials to figure that part out.

[Joe]

PSLs have been around for 25 years, even when taxpayers were footing the bill for large portions of stadium construction costs. About half the NFL teams already have them in one form or another. Many Big 10 schools have them, but refer to them as a "priority seating surcharge" or other such nonsense. Wisconsin calls them priority seating "contributions" and they apply to only some seats, as I understand it. I don't see a PSL as any different than increasing the package prices for season tickets, its still the owner raising the money, and theoretically, in most cases, the owner is on the hook for the cost if the PSLs don't sell (although it is unlikely to happen).

Didn't the Packers have a one-time surcharge for season ticket holders as part of their renovation financing? Or did they just talk about it but never implement it?

It was $4k per seat, I believe, and yes, it was implemented at least partially. I have no idea if it was every ticket holder or not.

[Tarlam!]

Thanks, RG.

[Guiness]

Me neither, and like you Dan, I've also done this for a living. But, you can look at one parallel related to ROI. I've done literally tens of thousands of tax returns, and virtually NONE had a great ROI when payroll was above 50%, much less 60%. I recognize that the NFL is not a "typical" business, but, realistically, their other expenses are also high. Everything they do is 1st class. Charter flights, the best weight rooms, the best medical care, the best facilities, the best of everything.

Something has to give somewhere, and ultimately, it's got to trickle down to the ROI. How can it not?

Keep in mind that the 59.6% salaries are really just player salaries. It doesn't include any other team salary. Even backing it back down to 50% of total revenue, which is what we are told it approximates, what about coaches, admin staff, finance, IT, grounds maintenance, training staff, building personnel, and the list goes on....

It would not surprise me if some of the lower market teams have a total loaded payroll approaching 65%. That'll put a strain on any ROI analysis and you don't really need financials to figure that part out.

a counterpoint to that would be that 59.6% is the cap. Last several years, a lot of teams were well under the cap. There's also the billion or so off the top to account for. Look at the 'A CBA Math Problem' thread.

From PFT via the NFLPA, the percent of player costs versus all revenue:

2002: 51.87%
2003: 50.23%
2004: 52.18%
2005: 50.52%
2006: 52.74%
2007: 51.84%
2008: 50.96%
2009: 50.06%

According to that, player salaries are a lot closer to 50% than 60% of Total Revenue.

[Smidgeon]

According to that, player salaries are a lot closer to 50% than 60% of Total Revenue.

Isn't the players cut 59.something percent after $1 billion taken off the top? That would lead to the flowing proportion that hovers around 50%.

[retailguy]

a counterpoint to that would be that 59.6% is the cap. Last several years, a lot of teams were well under the cap. There's also the billion or so off the top to account for. Look at the 'A CBA Math Problem' thread.



According to that, player salaries are a lot closer to 50% than 60% of Total Revenue.

Yes, that's true, I stated the 50% of total revenue figure in my post. I get the difference, but personally, I believe this debate is 90% political, and 10% financial.

Honestly, I think the NFLPA* only wants to see six or seven teams financials. I don't believe they care about the rest. Hell, the union has financial people. They understand the numbers, much better than we do, even without "looking" at the numbers. It really isn't about that.

The Packers numbers are published. I think it was reported that we rank somewhere around 9th in the league in total revenue. By any standard we're one of the healthiest teams in the league. On that basis, you know that 2/3rd's of the league has (on average) less robust financials than we do. You can see from the Packers numbers, good evidence that what the owners are maintaining is true. But, there will be exceptions. If the NFLPA* can find even one example, then, that'll be all the financial details that we will see, because the real battle is not about money.

Regarding the cap, I don't believe that some of the lower market teams can afford to spend all the money that the cap affords them. They are doing the best that they can, in the environment that they have. The NFL is really becoming the "have's" and the "have nots", in a matter of speaking. Mike Brown's world is much different than Jerry Jones' world. It's just true. The single biggest thing that most of the worlds business can control is payroll. The CBA limits that control to a certain extent. The NFL reality limits the rest. You have some flexibility in the cap, and you can cut back, some years. Not all. Eventually, you won't be competitive.

Finally, I wasn't talking about player salaries. I started there. I was talking about total salaries. That boosts the number for the team. Player salaries are the biggest component of that, but only one. Coaches salaries have skyrocketed in the past 10 years, as have GM's and scouts also to an extent. It used to be that a coach getting $2m was a big salary, now, it's $8m. At the end of the day, all I was maintaining is that there must be downward pressure on ROI, and that a reasonable person could come to that conclusion without seeing the financials. (I do believe that the very top tier of revenue teams are not experiencing this to the level of most of the teams, but they are probably the exception, and not the rule).

You can look to Miami as a great example of this. Ross is selling off little bits and pieces of the team. Why? I think he needs the cash, and it's the only way you can tap into the equity besides borrowing the money. I think there is a small bit of marketing going on in Miami as well, but I think those funds are being invested into the team to try and make it grow. It would be illogical to sell off part of your team if you didn't have a financial reason to do so. (in most cases)

[Guiness]

I agree with your numbers, to a point. I just thought your previous post used the wrong starting point, which makes the 65% number unlikely, IMO.

You could be right, you could be wrong. I've stated before that I think the owners are trying to force the players into a game of blind baseball.

If it isn't necessarily about the money (and I think Patler tends to share your view) I'm not sure what it's about.

You use Miami as an example - but all we can do is divinate the reason for selling of pieces of the team. If the NFL has a problem, why don't they offer to open up ONE team's books - a sacrificial lamb, Mike Brown would be a good choice, he's a notorious cheapskate. Ralph Wilson perhaps, he's so old he doesn't care. Open up the one set of books, and show us that someone is in trouble.

[retailguy]

I agree with your numbers, to a point. I just thought your previous post used the wrong starting point, which makes the 65% number unlikely, IMO.

If you look back at my original post, you'll see that I said "some of the lower market teams approaching 65%". Like any business, some of the teams aren't run as well as they could be run. I think you'd find some candidates in the lower quartile of teams organized by revenue. I was thinking Jacksonville and Buffalo, but I'm certain there are others.

If you divide 9 bln by 32, you get just south of $300 million for the "average team". If you assume that "non player salaries" are 10% of revenue (that may be high, but maybe not depending on the structure). You could also assume that teams operate with significant contractor personnel, which always boosts payroll costs, as the firms have markup for expenses and profit. Anyhow, if you apply this to the Packers, it's easy to get the 1st 10 million in non player salaries - McCarthy, Thompson, and Capers probably cover most of that 1st 10 mil. Salaries drop precipitously after you get through the top level staff and the coaching staff, but, it's in the realm of possibility that costs could be in that area, depending on bonuses, benefits, incentive packages, training programs, travel, etc...

But again, my main point wasn't a monetary analysis, rather it was to point out the downward pressure of ROI in this situation, and pointing out that it may not be so unreasonable, even without looking at the owners books.

You could be right, you could be wrong. I've stated before that I think the owners are trying to force the players into a game of blind baseball.

And the players are trying to force the owners into a reasonableness discussion. Not much difference.

If it isn't necessarily about the money (and I think Patler tends to share your view) I'm not sure what it's about.

The most likely guess is something that we are missing or are unaware of as Patler has stated. Obvious choice is always increasing power, which we've seen evidence of from both sides. I am certain that the main issue is NOT money, if it were, that's simple to fix, with or without numbers. Again, both sides have qualified financial people with access to plenty of data, certainly enough to bridge that gap.

You use Miami as an example - but all we can do is divinate the reason for selling of pieces of the team. If the NFL has a problem, why don't they offer to open up ONE team's books - a sacrificial lamb, Mike Brown would be a good choice, he's a notorious cheapskate. Ralph Wilson perhaps, he's so old he doesn't care. Open up the one set of books, and show us that someone is in trouble.

All we can do is speculate all of the issues. We have access to very limited data of any type.

Almost all of these owners are very successful businessmen in areas other than the NFL. They understand the risks and pitfalls of taking on partners. Ross is being very careful with his "partners" I am sure, but there is still a rationale. If it were one or two high profile folks, I'd say it's marketing, but it's more than that.

He needs (maybe a bad word) the money for some reason. Equity capital can be a way to raise capital without affecting existing debt ratios, or mortgaging the future with another payment. If there are no profits, there is no distribution. Agreements can be written limiting distribution of earnings, raising one time cash, with no near term future payments. Could be effective for certain expansion plans. Sheer speculation on my part, but not unreasonable either.

There already are one teams financials out there - OURS. It isn't good enough for the NFLPA*. Those numbers give some credence to what the owners are claiming. Again, glossed over by the union. My guess is that it's a game of "all or nothing" for the Union. That's why I think there is more to this than money. Hell of a gamble for that.

[Guiness]

And the players are trying to force the owners into a reasonableness discussion. Not much difference.

A reasonablness discussion? I'm not sure what that means (seriously)

The most likely guess is something that we are missing or are unaware of as Patler has stated. Obvious choice is always increasing power, which we've seen evidence of from both sides. I am certain that the main issue is NOT money, if it were, that's simple to fix, with or without numbers. Again, both sides have qualified financial people with access to plenty of data, certainly enough to bridge that gap.

That's a scary thought, and I hope you're wrong. Because you are correct, if it's about money, it's just a matter of dividing it up one way or the other. Then neither side will want to throw away a season, because they'll never earn that money back.

If this is about egos and power....ouch.

There already are one teams financials out there - OURS. It isn't good enough for the NFLPA*. Those numbers give some credence to what the owners are claiming. Again, glossed over by the union. My guess is that it's a game of "all or nothing" for the Union. That's why I think there is more to this than money. Hell of a gamble for that.

I know, but it's admittedly a small sample size, and I don't think the Pack is representative of the league as a whole. We're a unique situation in all of pro sports, being a public company, and likely the smallest city with a franchise in all of pro sports. You can hardly point at us and claim we're the status quo.

[retailguy]

Reasonableness - "Is it really reasonable how "team X" is spending their money?" "Shouldn't the money be spent in an xx manner instead of how team x spent it?"


The majority of our expenses would not be any different than any other team, except possibly mgmt salaries. Are we structured differently? Don't know. we certainly don't have an "owner salary", but other than that, what's the difference? we don't have distributions, or anything close. Maybe a bit for sarbanes oxley? Not sure, but I'll bet it's negligible.

Also, we have "high" revenue compared to most teams (I think we're 9th). The union better damn well hope we aren't "representative". If we are, then the owners are probably not wrong.

[Guiness]

Reasonableness - "Is it really reasonable how "team X" is spending their money?" "Shouldn't the money be spent in an xx manner instead of how team x spent it?"


The majority of our expenses would not be any different than any other team, except possibly mgmt salaries. Are we structured differently? Don't know. we certainly don't have an "owner salary", but other than that, what's the difference? we don't have distributions, or anything close. Maybe a bit for sarbanes oxley? Not sure, but I'll bet it's negligible.

Also, we have "high" revenue compared to most teams (I think we're 9th). The union better damn well hope we aren't "representative". If we are, then the owners are probably not wrong.

You think they don't just want to audit the books, but critic the spending habits as well? I'm not so sure about that. I think that the players want to see the books to make sure the owners aren't cooking them. I made another post earlier that talked about some of the expenses that were found when they opened the books in '82 - like owners taking large salaries, and declaring it an expense rather than profit.

[Patler]

You think they don't just want to audit the books, but critic the spending habits as well? I'm not so sure about that. I think that the players want to see the books to make sure the owners aren't cooking them. I made another post earlier that talked about some of the expenses that were found when they opened the books in '82 - like owners taking large salaries, and declaring it an expense rather than profit.

Those become interesting discussions. If the owner is an active participant in day to day operations (for example, he functions as the GM, and does not pay a true GM) is he entitled to be a paid employee as well as the owner, with at least some of his compensation considered an expense?

[Guiness]

Those become interesting discussions. If the owner is an active participant in day to day operations (for example, he functions as the GM, and does not pay a true GM) is he entitled to be a paid employee as well as the owner, with at least some of his compensation considered an expense?

lol - I guess the concept of 'fair' gets dragged back into things kicking and screaming!

In a corporation, an "owner's" salary would be considered an expense, if he's an employee of the company. The fact that that employee happens to own the majority of the company's shares doesn't change that.

However, when a certain employee receives a salary an order of magnitude larger than the next highest paid employee, and he happens to also have a controlling interest, it's pretty obvious things are being done that way to control the visible bottom line.

In 1982, the average NFL salary was $90K. One of the owners was shown to have taken a "salary" of $6million. He must've been doing some heavy lifting!

I make no judgment as to whether or not that was a 'fair' amount for the owner to take. He can take whatever he wants out of the company, its his. I take issue, however, with him using that salary to affect the perceived profit of the team, then point to the bottom line and say "we're barely treading water!"

[Patler]

lol - I guess the concept of 'fair' gets dragged back into things kicking and screaming!

In a corporation, an "owner's" salary would be considered an expense, if he's an employee of the company. The fact that that employee happens to own the majority of the company's shares doesn't change that.

However, when a certain employee receives a salary an order of magnitude larger than the next highest paid employee, and he happens to also have a controlling interest, it's pretty obvious things are being done that way to control the visible bottom line.

In 1982, the average NFL salary was $90K. One of the owners was shown to have taken a "salary" of $6million. He must've been doing some heavy lifting!

I make no judgment as to whether or not that was a 'fair' amount for the owner to take. He can take whatever he wants out of the company, its his. I take issue, however, with him using that salary to affect the perceived profit of the team, then point to the bottom line and say "we're barely treading water!"

I agree regarding your example from 1982, but that was in an entirely different era, with entirely different financial relationships between players and owners. But even if the $6 million was not justified, should $150 K (or some amount appropriate for the job he held) been rightly considered as an expense (assuming he held a legitimate position)?

[Guiness]

damn, just lost my post! Stupid auto-logout.

You're asking me to make a 'fairness' judgment again. It depends on the job - Jerry Jones once appointed himself assistant coach. What if he called himself head coach, and decided to pay himself like a top one, at $10mil/year? Al Davis could be called head of football operations, that worth a couple million. In today's salary structure, I don't think anyone would care about those numbers.

What would they care about? Using my 1982 example, $90K is 1.5% of 6 million. Today's annual NFL salary is hard to pin down, but I'm pretty sure it's over $1.5million. Let's use that number, it makes the math easy. $1.5 million is 1.5% of 100 million. If an owner was paying themselves that, it should rightly be considered profit, not an expense for the purpose of league calculations (even if Uncle Sam doesn't care).

IMO I'm not so sure that isn't happening. New England sells out their home games, and I think they have a pretty good stadium. However, their 09-10 cap number was relatively low at $97million. How much is Robert Kraft taking home? What about Clark Hunt in KC, with his league lowest cap number of $82million? (source: USA today, http://content.usatoday.com/sportsda.../salaries/team). You might think it's unlikely, but no one knows, do they?