Judge Nelson rules in favor of the players

[lamafist]

You mean like the housing market or internet bubble companies?

Reality is that values of assets can go up or down. Largely illiquid assets like NFL franchises are typically valued at a combination of Cash Flows and market comparable transactions. If the profitability of a franchise goes down, then guess what? The value goes down. Even if profitability stays even, eventually appreciation will slow or plateau unless new revenue streams are invested in or discovered.

You want to know why franchises continued to grow? NFL Network, Thursday night games, Flexing of games, NFL Sunday Ticket. They went up because the owners were beating down every revenue path they could. Eventually though there is only so much water you can get from a stone.

So you're saying that the NFL's 20 years of sustained, steep growth in popularity and profitability alike, it's tripling in average franchise value in the past 15 years, and sterling track record of revenue stream development is an argument why it's going to suddenly start losing money?

Seriously?

 

[lamafist]

I misread your post before thinking you meant the average NFL franchise and not just the Patriots. That being said, I think eventually they will reach $1.5 billion but then again they are one of the top three franchises. Franchise values have on a whole been flat or decreasing over the past few years. That decrease is a result of the economy's effect on ticket sales, but that is with the existing long term TV contracts still in place. What if new TV contracts had to be done during these economic times? We will really only get to see where revenues, and hence franchise value, will be when the next TV contracts are signed. Given the recent popularity I wouldn't be suprised to see them stay level, but I could also see them go down.

The 19 most watched television broadcasts of 2010 were all NFL games, as well as 28 of the top 30. It was the NFL's most watched season in league history. For the first time in tv history, a sports series -- SNF -- was the highest rated primetime show of the year. MNF was the most watched series on cable.

This is absolutely mind-blowing, in the context of how terrible this year was for every other area of television broadcasting. And unlike the rest of network tv's flagging products, the NFL is hardly affected by time-shifting, making it increasingly popular among ad buyers wary of incursion by the web and VOD. The NFL will essentially be able to write its own ticket when the TV contracts expire in 2013.

And this isn't even the good news for the NFL. In the last TV contract, the NFL made a rare misstep, essentially tossing live web-broadcast rights into their deal with DirecTV for next to nothing, which DirecTV proceded to do spectacularly botch. In 2013, the NFL will finally be able to take over and give their web broadcast delivery the technological infrastructure and centralized distribution network it requires. This will quickly become the largest new revenue stream for the NFL in years, and position the league well for the inevitable post-network, post-broadcast era of television.

 

[Wolfpack]

I misread your post before thinking you meant the average NFL franchise and not just the Patriots. That being said, I think eventually they will reach $1.5 billion but then again they are one of the top three franchises. Franchise values have on a whole been flat or decreasing over the past few years. That decrease is a result of the economy's effect on ticket sales, but that is with the existing long term TV contracts still in place. What if new TV contracts had to be done during these economic times? We will really only get to see where revenues, and hence franchise value, will be when the next TV contracts are signed. Given the recent popularity I wouldn't be suprised to see them stay level, but I could also see them go down.

I don't see any way they go down. The lion's share of NFL revenue comes from the TV contracts and ratings are through the roof. The networks will just be giving the league some blank checks when the next negotiation period comes due.

 

[E Belichick Unum]

It doesn't increase the league's power. It weakens it, significantly. In the absence of a CBA, every single rule the league tries to impose is subject to suit, with treble damages. Nothing league wide is safe, and the focus would, of necessity, either be done by individual teams or be open to charges.

When cases get to the courts, you never know what's going to happen. I'm sure the PGA thought it had a good case before Casey Martin won in court, and I'm sure the NFL thought would win the American Needle case before it got smacked down, 9-0, by the U.S. Supreme Court.

Does the ownership get punished for having the union decertify? As far as I can tell, and I never played a lawyer on TV either, their business model is no different than a large defense contractor that doesn't have a union. They business sets the rules, and the employees follow them. The American Needle case, imo, further defines what the owners can and cannot do in the "new" NFL. There cannot be an official salary structure, there cannot be a group insurance policy, there cannot be a blanket player discipline policy. There can, however, be team based retirement, medical, discipline and salary policies. It will be a tight rope for a while, trying to implement all these new rules, line up new insurance carriers, negotiate new contracts without the union verbage in them.

As far as I can tell, this is a blessing for the owners if they want to take advantage of it. They are just another big business again. They belong to the same organization because they compete against each other, but on field rules and off fileld rules are handled differently. Like every other situation there will be dumb owners who do not want to be competetive and there will be owners who are ultra competetive. Coaching will become much more important because the coach will become a recruiter as well as a manager.

I don't know, it kind of seems like a do over to me. The owners could think "We screwed up and let our league get away from us, we can't make the same mistakes again".

 

[Deus Irae]

Does the ownership get punished for having the union decertify? As far as I can tell, and I never played a lawyer on TV either, their business model is no different than a large defense contractor that doesn't have a union. They business sets the rules, and the employees follow them. The American Needle case, imo, further defines what the owners can and cannot do in the "new" NFL. There cannot be an official salary structure, there cannot be a group insurance policy, there cannot be a blanket player discipline policy. There can, however, be team based retirement, medical, discipline and salary policies. It will be a tight rope for a while, trying to implement all these new rules, line up new insurance carriers, negotiate new contracts without the union verbage in them.

As far as I can tell, this is a blessing for the owners if they want to take advantage of it. They are just another big business again. They belong to the same organization because they compete against each other, but on field rules and off fileld rules are handled differently. Like every other situation there will be dumb owners who do not want to be competetive and there will be owners who are ultra competetive. Coaching will become much more important because the coach will become a recruiter as well as a manager.

I don't know, it kind of seems like a do over to me. The owners could think "We screwed up and let our league get away from us, we can't make the same mistakes again".

Let's put it this way. If the owners agreed with you, they wouldn't be contesting the players' decision to decertify. They'd be dancing a jig right now.

 

[E Belichick Unum]

Let's put it this way. If the owners agreed with you, they wouldn't be contesting the players' decision to decertify. They'd be dancing a jig right now.

I know what you are saying, but the worst case scenario for the owners, short of anti-trust violation, is a net gain in control over their league. The players will eventually reform their union, they lose too much under the scheme I theorize, but only if the owners are willing to tell the players to screw.

Also, if they do what I suggest they can do, football starts up again as soon as tomorrow.

 

[PatsFaninAZ]

I know what you are saying, but the worst case scenario for the owners, short of anti-trust violation, is a net gain in control over their league. The players will eventually reform their union, they lose too much under the scheme I theorize, but only if the owners are willing to tell the players to screw.

Also, if they do what I suggest they can do, football starts up again as soon as tomorrow.

The owners don't want football to start tomorrow. The players don't want to not be a union. Everything is negotiation toward the next CBA.

FWIW, I think perhaps you don't understand American Needle or anti-trust law that well. The defense contractor analogy has some problems. Players aren't employed by the league. They are employed by teams. They also could theoretically be independent contractors. Either way, the NFL as we know it would suck if it truly attempted to operate without a CBA and without violating anti-trust laws. It would be a mess and the entire league would very quickly degenerate into haves and have nots.

 

[Deus Irae]

A stay will likely get the owners 1 month or less, maybe 2 on the outside if they are lucky. The players have won an injunction asserting irreparable harm based upon what's happening even in the offseason. There's no way the appeal of the injunction will be dragged out.

Don't agree. A stay gets them months, and maybe a year. Not even the NFL is arguing that the lockout can be indefinite. Their argument is that there needs to be a cooling off period before the law suit can said to no longer "arise out of" labor negotiations. They posited something like 6 months to a year in their briefs. Alternatively, they argued that the litigation should be stayed until the NLRB rules on their "sham" motion, which is not going to take years, but months.

What they want is what they have always wanted -- the season to start without football and players not to get checks. They know that every week that goes by creates dissention in the ranks, and they have more money than the players and gets them a more favorable deal.

A stay that puts the lockout back into effect would be incredibly valuable.

The Appeals court has just agreed to hear the expedited appeal on June 3, 2011. That's inside the 2 month window I'd mentioned.

 

[PatsFaninAZ]

The Appeals court has just agreed to hear the expedited appeal on June 3, 2011. That's inside the 2 month window I'd mentioned.

Still don't know when they will actually decide it, but mid-June does now look likely. The NFL took a calculated risk to ask for an expedited appeal, which happened after the exchange discussed. It was probably the right move to get the temporary stay granted.

At this point, though, evertyhing is conflated. The question the court is considering in deciding whether to grant the stay is very close to the merits. If they grant the stay, it is highly likely the NFL will win the appeal. (It's possible they could grant the stay but then rule for the players, but unlikely.) In which case the preliminary injunction is dissolved until the trial court holds a trial on the merits of the anti-trust claims, which should be at least a year unless she gets a bee in her bonnet.

 

[BSR]

So you're saying that the NFL's 20 years of sustained, steep growth in popularity and profitability alike, it's tripling in average franchise value in the past 15 years, and sterling track record of revenue stream development is an argument why it's going to suddenly start losing money?

Seriously?

Er...no, that isn't what I said at all. I have no idea how you got that from what I wrote.

Again you said:

And the idea that the labor deal will harm the value of the franchises is just absurd.

When in fact value is a direct result of profitability. The idea that a labor deal couldn't effect the value of the franchise simply ignores how valuations are derived.

And as far as your comments regarding sustained growth go, look at the values this year. They've gone down from last and were flat the previous year and this is with record viewership. True, values are up tremendously over the last 15-20 years, but the value growth has been much more modest since 2006. There is an argument to be made that the value growth curve is flattening as revenue streams are being maxed out.

That is the reality, whether you chose to believe it or not.

 

[BSR]

I don't see any way they go down. The lion's share of NFL revenue comes from the TV contracts and ratings are through the roof. The networks will just be giving the league some blank checks when the next negotiation period comes due.

And what if there is no football for all or part of 2011? I could be wrong, but I believe that viewership falls off tremendously for every sport when games are lost to strikes/lockouts.

I'll defer to someone who is linked in with advertising budgets, but I find it hard to believe that ad budgets are at the same level as they were in a good economy when the last contracts were signed. We shall see.

 

[lamafist]

Er...no, that isn't what I said at all. I have no idea how you got that from what I wrote.

Again you said:



When in fact value is a direct result of profitability. The idea that a labor deal couldn't effect the value of the franchise simply ignores how valuations are derived.

And as far as your comments regarding sustained growth go, look at the values this year. They've gone down from last and were flat the previous year and this is with record viewership. True, values are up tremendously over the last 15-20 years, but the value growth has been much more modest since 2006. There is an argument to be made that the value growth curve is flattening as revenue streams are being maxed out.

That is the reality, whether you chose to believe it or not.

That would be a good point, if it were even remotely true. League profits have actually risen 88% since 2006:

 

[Wolfpack]

And what if there is no football for all or part of 2011? I could be wrong, but I believe that viewership falls off tremendously for every sport when games are lost to strikes/lockouts.

In the short term, yes. In the long term, nope.

I'll defer to someone who is linked in with advertising budgets, but I find it hard to believe that ad budgets are at the same level as they were in a good economy when the last contracts were signed. We shall see.

Ad budgets are tied in to ratings. Higher ratings = higher ad revenue = more money in the NFL's pocket.

Why you're disputing these notions is beyond me.

 

[BSR]

That would be a good point, if it were even remotely true. League profits have actually risen 88% since 2006:

Which point are you trying to dispute. That chart talks about increasing operating inc not profitability. And my point was about decreasing franchise values not operating income. I think this would have been the more appropriate chart to link:

And this is from the same article:

Since 1998, the value of the average NFL franchise (according to Forbes.com) has risen 290.8% from $279 million to $1.022 billion. However, since the most recent extension (2006) team values have only risen by 13.9% ($125M). And total team values are actually down more than $500 million (1.7%) in the last two years.

Read more: CHART: NFL Franchise Values Dip Slightly In Last Two Years

 

[lamafist]

Which point are you trying to dispute. That chart talks about increasing operating inc not profitability. And my point was about decreasing franchise values not operating income. I think this would have been the more appropriate chart to link:

And this is from the same article:

Your argument, at least originally, was that a player-friendly CBA would lower franchise values by reducing team income relative to player income. The chart I posted shows that, far from a reduction in team income, since the 2006, NFL team's have seen their profits dramatically rise. According to your reasoning, this should raise the average value of franchises.

Of course, many factors play into a franchise value, many of them having nothing to do with football. In the chart you posted, franchise values continue to rise as steeply as ever for two years after the '06 CBA, only to level off in '08 and '09, and finally fall for the first time in more than a decade in '10.

Hmmmm... I wonder what could possibly have happened in 2008 that might affect an assets estimated value. You know, crazy as it might sound, maybe it had something to do with the biggest economic crisis since the great depression and the trillions of dollars of wealth lost hurting the market for billion dollar properties.

 

[PatsFanNM]

One thing to keep in mind is that franchise value is tied to at least something other than net income -- the two graphs demonstrate that. Operating income, which is usually short for profit (though there are other things that can affect profit, but income is a good proxy), has gone up dramatically since 2006, though not so dramatically since 2004.

Franchise value has gone up dramatically since 2004, but more modestly from 2006. There's an obvious disconnect.

Also, since average franchise value for 32 teams is approximately the same as total operating income for 32 teams, the rough multiplier of operating income, to determine franchise value, is 32:1. Very high. It's clear that the big money in owning an NFL franchise comes when you sell it, not while you operate it, though there are probably some franchises doing really well just on their annual income.

Given how scarce NFL franchises are, I don't think any of the owners will have a hard time selling theirs if they get dissatisfied with their income, regardless of how the new-CBA negotiations -- assuming there is a new CBA -- come out, assuming they're resolved before the 2011 season.

On the other hand, missing a year of football, or playing with replacement players, would impact every franchise a lot. Obviously, the players would be affected as well, but not their net worth so much, I would imagine. I think both sides have a lot of incentive to get a deal done, but particularly the owners in lesser markets.

 

[BSR]

Your argument, at least originally, was that a player-friendly CBA would lower franchise values by reducing team income relative to player income. The chart I posted shows that, far from a reduction in team income, since the 2006, NFL team's have seen their profits dramatically rise. According to your reasoning, this should raise the average value of franchises.

My argument has always been that profitability of a franchise will effect its value and that player costs effect profitability. Your chart shows nothing to dispel this notion and it is in fact a basic premise of enterprise valuation.

Of course, many factors play into a franchise value, many of them having nothing to do with football. In the chart you posted, franchise values continue to rise as steeply as ever for two years after the '06 CBA, only to level off in '08 and '09, and finally fall for the first time in more than a decade in '10.

Many factors like say profitability?

[Hmmmm... I wonder what could possibly have happened in 2008 that might affect an assets estimated value. You know, crazy as it might sound, maybe it had something to do with the biggest economic crisis since the great depression and the trillions of dollars of wealth lost hurting the market for billion dollar properties.[/QUOTE]

Weren't you also the one that said that there was no real world difference between unrealized and realized values? Do you see now why people are arguing that with you? That value is always at risk until you sell especially with large dollar low liquidity assets like NFL franchises.

 

[BSR]

One thing to keep in mind is that franchise value is tied to at least something other than net income -- the two graphs demonstrate that. Operating income, which is usually short for profit (though there are other things that can affect profit, but income is a good proxy), has gone up dramatically since 2006, though not so dramatically since 2004.

Franchise value has gone up dramatically since 2004, but more modestly from 2006. There's an obvious disconnect.

While I agree with you that there is more to a valuation than just net income, I don't necessarily believe there to be an obvious disconnect between the two schedules. We don't know exactly how Forbes comes to their values, but typical valuations are not calculated on a single year of past performance. Typically you would evaluate both prospective and past earnings to come to an enterprise value. As such, a single year dip or peak isn't necessarily going to make the value drop or jump. The dip in value over the past couple of years could be due a drop in anticipated net earnings. Of course without seeing Forbes' calculation it is impossible to know how much is related to that factor.

Also, since average franchise value for 32 teams is approximately the same as total operating income for 32 teams, the rough multiplier of operating income, to determine franchise value, is 32:1. Very high. It's clear that the big money in owning an NFL franchise comes when you sell it, not while you operate it, though there are probably some franchises doing really well just on their annual income.

And yet transactions are few and far between and typically involve owners that have either died (Redskins?) or are in financial distress (Dolphins, Vikings, Raiders). There isn't much cashing in as one would imagin and as such, the "big money" isn't all that usefull unless you want to borrow against it. Its similar to the equity that you build in your house. Its nice to have it appreciate, but it doesn't necessarily help you pay the bills from month to month.

Given how scarce NFL franchises are, I don't think any of the owners will have a hard time selling theirs if they get dissatisfied with their income, regardless of how the new-CBA negotiations -- assuming there is a new CBA -- come out, assuming they're resolved before the 2011 season.

On the other hand, missing a year of football, or playing with replacement players, would impact every franchise a lot. Obviously, the players would be affected as well, but not their net worth so much, I would imagine. I think both sides have a lot of incentive to get a deal done, but particularly the owners in lesser markets.

The real problem is that there are a good number of franchise that aren't doing well at all for a variety of reasons. If a number of these franchises go up for sale at the same time then the market is really going to take an impact. It isnt as if there are a ton of buyers for billion dollar problem sports franchises.

 

[lamafist]

My argument has always been that profitability of a franchise will effect its value and that player costs effect profitability. Your chart shows nothing to dispel this notion and it is in fact a basic premise of enterprise valuation.



Many factors like say profitability?

[Hmmmm... I wonder what could possibly have happened in 2008 that might affect an assets estimated value. You know, crazy as it might sound, maybe it had something to do with the biggest economic crisis since the great depression and the trillions of dollars of wealth lost hurting the market for billion dollar properties.

Weren't you also the one that said that there was no real world difference between unrealized and realized values? Do you see now why people are arguing that with you? That value is always at risk until you sell especially with large dollar low liquidity assets like NFL franchises.[/QUOTE]

The problem w/ your argument is that it only works when you look at only those two variabled in complete isolation. When you look at the real-world big picture, it becomes apparent that modestly cutting player costs isn't going to significantly affect a franchise's market value. A team's value is a measure of how much a potential buyer would be willing to pay for it. As such, potential profitability matters a lot more than what the current owner is getting from it.

For franchises like the Cowboys, Redskins, Patriots and Texans, making between $420 and $272 million in revenues in a year, the change in salary cap isn't going to end up changing their bottom line all that significantly, and these franchises establish the profit potential of the bottom-dwellers. What will matter to a potential buyer is how much he'll have to invest in order to make over a team like the Lions or Raiders into a money-maker like the Texans or Patriots.

When you're eyeing revenus soon approaching half a billion annually, cutting $18 million a year in labor costs isn't really going to sweeten the pot all that much.

An NFL franchise isn't a risky investment because it's not based on arbitrarily inflated valuation, like the debt-fueled housing market, it's based on the marketing of a quality product that has been time-tested and proven to be in ever-increasing demand. This is why it's still increasing in revenues and profits despite the economic crisis. What's more, as the chart I posted demonstrates, even the supposedly player-friendly 2006 CBA didn't prevent the NFL from seeing an unprecedented boom in profitability.

 

[Ring 6]

That would be a good point, if it were even remotely true. League profits have actually risen 88% since 2006:

Operating Income and profit are not the same thing