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NFL Says Player Costs Cut Incentive for Investment

Uploaded by 6412659 at GMT:2011-01-27T20:38:05
The Pittsburgh Steelers huddle during the AFC Championship game against the New York Jets on Sunday. Photographer: Al Bello/Getty Images

Jan. 27 (Bloomberg) -- National Football League owners have little incentive to create new revenue streams because the current labor contract gives players too much of a share before accounting for costs, said Eric Grubman, the league’s executive vice president of business operations.

Grubman said that since players get a percentage of revenue, while owners bear the cost of new ventures, clubs could increase income and still see tighter margins.

“We have a healthy business,” Grubman said today during a lunch with reporters in New York. “We are not losing money; we have never said that. We do not have a healthy business model.”

Owners voted in 2008 to end the current labor agreement, which is due to expire March 3, saying it didn’t account for costs, such as those of building stadiums. Jeff Pash, the league’s chief negotiator, said the sides are still talking about when to meet next.

The U.S.’s most-watched television sport is coming off a season of record ratings going into next weekend’s Super Bowl between the Pittsburgh Steelers and Green Bay Packers, two of the NFL’s five most popular teams according to the Harris Poll. The league’s conference championship games both set audience records.

Union spokesman George Atallah said “every economic indicator” suggests that the NFL is incredibly successful.

“None of the facts, arguments or numbers they have presented since May of 2008 justifies a lockout,” he said in an e-mail.

Players’ Share

Players have gotten about 70 percent of incremental revenue since the 2006 labor agreement, or about $3.8 billion of a total of $5.5 billion in new money, according to NFL data.

Grubman said that if an NFL team were to operate the stadium food business itself rather than hiring an outside contractor, the club would increase revenue. Since the team then would have to pay the players more, while hiring workers and buying the food needed to run such a business, the club might still make less overall.

The threat of interruption to NFL games has immediate financial consequences for both teams and players, consequences that accelerate if the two sides can’t reach an agreement before the deal expires in March, Grubman said.

The league estimates that it may lose $120 million in ticket sales, sponsorship and media revenue by that month and $1 billion if it takes until September to reach a new deal. Each week of missed games would mean a lost $400 million, Grubman said.

Fleeing Tickets

It’s easier to hang on to existing season-ticket holders than sign up new ones, for example, so it may take several years to recover fans who give up their seats, Grubman said. Some sponsors have said they won’t renew if there’s a work stoppage, and other sponsors or licensees are more reluctant to commit to the NFL without being certain that games will take place, he said.

“If you commit to something that might not occur, you cannot go back and later recover that money,” Grubman said. “Their plan-and-spend cycle is often 12, 18, 24 months out.”

Grubman said the league has had a “major revision” to one unidentified licensing contract that will result in a reduction of revenue in 2011, though the league was able to get some benefits in future years.

The NFL estimates that 569 of its 1,900 players may miss out on as much as $473.5 million in combined bonuses and salary advances due in March without a deal. About 495 are scheduled to be free agents and unable to sign with teams, while 74 players already under contract are due $143.5 million that month.

To contact the reporter on this story: Aaron Kuriloff in New York at akuriloff@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

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