Raiders – corporate and otherwise

The Oakland Raiders are moving to Las Vegas and my news feed is filled with the lamentations and angry voices of outraged fans.

Ah, I remember what that felt like… the last time a member of the Davis family decided to follow his dreams of wealth away from the East Bay.

I no longer care about the Raiders, or the NFL. I stopped caring about the Raiders when they moved to Los Angeles when I was a kid, and I never understood how anyone who was hurt, as a fan, by that move was able to forgive, forget and re-embrace their fandom when Al Davis moved them back to Oakland. Of course by the time they did move back I was done with watching NFL games, except for the odd, occasional Super Bowl (mostly for the commercials).

But I do care about economics, business and sports, and I pay attention to all the pro leagues the same way some people pay attention to certain other segments of business.

Smarter writers and better researchers have expended a lot of ink on what’s wrong with the NFL’s approach toward host cities. It’s flat out extortion and amounts to “Build me a palace or I will leave and find another city whose citizens will build me what I want.” The NFL and supporters of public-financed stadiums have a standard pitch – having an NFL team brings in jobs and revenue to the city who hosts it, but that’s a steaming load of turds.

The NFL – as in all the teams – generate a total of about $14 billion in revenue each year. Most of that money comes from the sale of TV rights to the broadcast networks who carry the games. On the ground, each team makes about $300 million annually. Seems like a lot. It’s not.

Wal-Mart Stores Inc. takes in more money in 5 hours than your average NFL team does all year. In fact, Walmart operates a store in suburban Miami that generates as much revenue as the Miami Dolphins do (the Walmart location wasn’t built with taxpayer funds, either). (Greg McFarlane – Investopedia.com)

Let that sink in.

The Miami Walmart makes more money than the Miami Dolphins. Roughly 2/3 of the revenue the NFL takes in comes from TV. What’s left is relatively meaningless in terms of local impact for each individual team. This is a very big part of the reason, if not the sole reason, that team owners want big, publicly-financed stadiums. NFL teams share equal parts of the revenue from TV. A team that gets more viewers doesn’t make more money. The only way for an owner to put more money into his pocket is to figure out a way to inch that local revenue up. More butts in seats, more luxury boxes and a building he didn’t have to pay for are basically the only ways to do this.

Or, look at it another way – to buy into the NFL as a franchise owner is going to cost you about $1 billion. With revenue of $300 million per year the actual profits per team run around $30 million (for well-run teams – teams like the Raiders, who are managed poorly are probably closer to $10 million per year in profits) paying off that buy-in will take the average owner over 30 years (and that’s assuming player salaries and other expenses stay static – which they haven’t, they keep going up).

So, imagine your favorite NFL team is a publicly traded company you can invest in. Would you do it? Not as a fan, mind you. As an investment. I wouldn’t.

TV is dying. Even the mighty NFL’s ratings are slipping, with fewer people watching games year over year for the past few years. This is a trend for broadcast TV overall. Younger eyeballs are more interested in streaming entertainment on their own schedules. The NFL and the broadcast networks are in a dance of death on this. The only programming that has been retaining viewers are major sports broadcasts, but at some point sports programming has to follow the eyeballs. But streaming revenue isn’t close to the kinds of advertising dollars TV networks have historically been able to command. What happens when the gravy train stops pulling into the NFL’s station?

So, I ask again, would you invest in a business whose main source of income is teetering on the brink of irrelevance, who cannot afford to invest in building their own facilities and, by the way, whose supply of its most important asset – players – could dry up due to growing lack on interest on the part of parents in letting their children play the sport due to mounting evidence that doing so leads to horrifying brain damage later in life.

If you think this Raiders move is the last one, you’re wrong. Owners are going to get more, not less, aggressive about pursuing bigger arenas and better deals on the backs of taxpayers who are willing to pay for stuff that doesn’t actually do anything positive for their communities.

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