VideoWhen field goal kicker Lawrence Tynes split the uprights with a 47-yard, overtime field goal to propel the New York Giants over the Green Bay Packers, and into Super Bowl XXLII, the stage was set. The Giants, who entered the National Football League playoffs as a mere wild-card selection, are headed into a classic showdown that pits them against the undefeated New England Patriots. "This is just what the NFL wants," quipped finance executive Ray Schaetzle, after watching the dramatic finish.
The former executive vice president of finance of pro-basketball's New Jersey Nets, who is currently a consultant with Resources Connection, was reacting to the bigger picture. The 2008 Super Bowl will pit the underdog Giants against the so-far unstoppable New England Patriots, reignite the New York-Boston rivalry, and put two high-profile quarterbacks center stage — the Patriot's Tom Brady and the Giant's Eli Manning — explained Schaetzle.
That kind of made-in-heaven match-up promises a nice boost for pro football's finances. But, in football terms, the dream match-up really just kicks in the extra point. Where the NFL really scores is its revenue-sharing model, salary cap, and debt level limits.
Those fiscal policies are why credit rating agencies put the NFL at the top of the list among pro sports when it comes to financial management. "You are not going to find a league that is rated as highly [as the NFL], or one that even comes close," asserts Neil Begley, an analyst for Moody's Investors Service.
Moody's gives the NFL's $635 million of senior unsecured debt an A3-rating with a stable outlook. Competitor Fitch Ratings gives the notes — which mature in 2017 — an A+ rating, reflecting the leagues "steady stream of strong, predictable revenue." Standard and Poor's doesn't rate the NFL debt, but in a report about the business risks of professional sports leagues, credit analysts say that the football league has "the most generous revenue sharing program and stringent expenditure controls" of any professional league. The S&P ratings team adds that the NFL "clearly has the strongest business and financial models" in pro sports, and a risk profile that is "of investment-grade quality."
Sounds too good to be true? Maybe, but the NFL backs up the credit-rating accolades with some impressive stats. To start, the league's guaranteed revenue stream is more like a waterfall. The NFL derives about 50 percent of its revenues from "the world's most lucrative fixed long-term national TV broadcasting, cable, and satellite sports contracts," writes Begley in a report he co-authored for Moody's. In 2006, television rights contracts pulled in $3.3 billion worth of gridiron gold, and long-term TV deals will generate $24 billion through 2013.
And, of course, those airtime rights are eagerly snapped up by large investment-grade rated companies that want to put their products and services in front of the coveted 18- to 40-year-old male, and whoever else makes up the 120 million weekly viewers that sit in front of their television sets to root for their favorite teams. As a result, the NFL has locked in broadcast contracts that average more than $2 billion a year for the next five years.
The revenue is broken into three segments, reports Moody's. Broadcast television rights, which includes deals with CBS, FOX and NBC, will generate $11.6 billion through 2011. Satellite broadcaster DirectTV's will pay the league $3.5 billion through the 2010 season, and cable sports powerhouse ESPN (a Walt Disney company) signed an eight-year deal for $8.9 billion.
Furthermore, the turnstiles at football stadiums seem to print money. Total league attendance exceeded 17 million for the third consecutive season, and represents a 99 percent stadium capacity factor, according to FitchRatings analyst Chad Lewis. Further, a scarcity of tickets (reportedly, waiting lists for season tickets in some markets are 10 years long) allows prices to remain steady. On average, a season ticket for an NFL team is $68.00 per game, with season passes for the Patriots and Giants running about $91.00 and $81.00 per game, respectively.
Throw in revenue collected from stadium naming rights, local advertising, luxury box sales, and merchandising, and the privately-held league is a multi-billion dollar moneymaking machine. What's more, Moody's reports that NFL franchises have far higher values than the teams that play in the National Hockey League, Major League Baseball and the National Basketball Association. Nevertheless, it is the fiscal policies that are set up around the revenue that makes the NFL the gold-standard among sports leagues, say the rating agencies.
For example, the league's "highly developed" revenue-sharing model spreads proceeds from television fees, gate receipts, and merchandising equally among the 32 teams, notes Moody's Begley. In that way, each member team isn't dependent on team performance and market size. However, as new stadiums are built or renovated, those teams pull in more non-shared ancillary revenue, throwing the income balancing act out of whack. The additional new stadium revenue is tied to luxury boxes, advertising, sponsorships, stadium naming rights and novelty and concession sales. Begley says that the league addressed the disparity to some extent by creating a pool of funds from the top 15 clubs to supplement the teams with low-revenue generation.
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