NFL Lockout 2011

Jason Runde Reid Shan

Josh Donnewald Jake Benhoff

Strategy and Policy (BUS 4360); Spring 2011

NFL Lockout 2011• The NFL• The Lockout introduction• Developments thus far• The Lockout itself

– Issues– Problems

• Financials• Previous lockouts in other sports

– Impact• What’s at stake?• Strategic decisions• Where from here?

The NFL

• Wide audience in the United States– Why is it so popular?

• Revenues up during recession– Why is this?

• In a business sense, what is a lockout?• The Lockout– 2 opposing sides

• The Team Owners• The Players Association

http://www.youtube.com/watch?v=45gajlIAejM

The NFL

– Highest level of professional American football in the U.S.– Established in 1920 as the American Professional Football Association– Today: 32 teams, 2 conferences

The NFL

• Commissioner: Roger Goodell• Most attended domestic sports league in the world– 67,509 fans per game in 2009-10 – 66,960 fans per game in 2010-11

• TV Partners: – CBS– ESPN– FOX– NBC– NFL Network

NFL Cities

Developments Thus Far

• Collective Bargaining Agreement (CBA) originally expired March 3

• On March 3– 24 hour extension

• March 4– One week extension

• March 12– Lockout formally announced

• Financial concerns– Estimate: situation is costing the NFL, as a whole, $100 million a

week as long as lockout lasts (per ESPN)

Developments Thus Far

• March 12– The Players Union decertifies

• March 12– The Players file anti-trust lawsuit against the NFL– 52 page document

• April 6– U.S. District Judge Susan Richard Nelson urges mediation

between the 2 sides– If this is not done, she vows a ruling will be made in a few weeks

• April 13– The mediation is court-ordered by Judge Nelson

The Lockout Itself

• No conclusion in near future

• Collective Bargaining Agreements usually

last 5-7 years– Why was this?

• Has the success of the league in recent

years essentially caused this work stoppage?

Issues for Both Sides

• Reasons for the lockout:– Length of regular season– Money issues• Rookie salary cap• Minimum salaries• Benefits for retired players• Revenue sharing

http://www.youtube.com/watch?v=tGdG-H39Im8

Length of Regular Season

• The Owners– 18 games– More revenue– TV deals– Regular season game far

better than a preseason game

– More publicity

• The Players– More games, same or

lesser pay– Risk of injury

• More exposure

– Scheduling problems• Stadium conflicts

– NFL record books

Rookie Salary Cap

• The Owners– Rookies “should be

considered rookies”– Rate of rising dollar

value of rookie contracts– Sam Bradford, 2010: 6

years, $78 million, $50 million guaranteed

– Give more to veteran players

• The Players– Feel that this number is

justified– Most likely “the face of

the franchise”– Generated revenue

equals the initial cost– These players bring

stability to the league

Benefits for Retired Players

• The Owners– Current retirement plan

is sufficient– State that they have

contributed, over the last 10 years, $2.7 billion to retirees

• The Players– Want more– Want a better plan,

especially with the high risk of injuries in the NFL

– Studies show that many NFL players suffer life-long health effects after playing in the NFL

Revenue Sharing

• The Owners– Won’t release their

financial information– Want $1 billion more of

the $9 billion yearly revenue

– Why?

• The Players– Increase minimum

salaries– More play, more pay– Better retirement plans– Want financials released– Green Bay Packers

example

NFL Financials

• Financial information– $9 billion yearly revenue

• ESPN television deal alone is estimated at $1.8 billion per year

• $1B taken out from $9B immediately for expense purposes

• Remaining revenue split fairly evenly

NFL Financials

Players requested from owners:• Total operating income• Total operating expenses (player costs, team expenses, sales and

marketing expenses, operations/maintenance expenses, salaries/payments to owners)

• Profit from operations• Other income/expenses• Income before provision for income taxes • Net income• Cash and investment assets • Dividends and other distributions to owners and their families• Financial statement notes

The Green Bay Packers

• Only publicly owned team in the NFL

• 4,750,937 shares, 112,158 stockholders

• Why are their financial statements useful?

The Green Bay Packers

From 2010:

Net profit: $5.2 millionOverall revenue: $258 millionPlayer costs: $161 millionOperating expenses: $248 millionProfit from operations: $9.8 millionNational TV revenue: $95.7

millionTotal national revenue: $157 million

Overall, expenses rose 11.8% while revenue only rose 5.5%.

Labor-Cost Structures

• How to reduce labor cost:– Replace labor intensive jobs with technology– Automate certain operations– Develop process mapping systems to train workers– Offer early retirement to older, higher paid workers– Reduce or eliminate benefits– Outsource certain jobs to low-cost areas

Other Unionized Environments

• UPS• Kroger• Southwest Airlines• US Steel• Caterpillar• Railroads: CSX, Norfolk• Boeing• Pepsico• Exxon

• August, 1994• Longest work stoppage of any major sport in

American history• Major League Baseball’s lowest point• World Series cancelled, players’ salaries, careers

ended (in some cases)• League lost an estimated $1 billion, and maybe

more importantly, fans• Still feeling the effects of this today

MLB Lockout of 1994

NHL Lockout of 2004

• First American sport to lose an entire regular season due to lawsuit

• 1,230 games cancelled• Rule changes, team changes, management

changes• Although not as popular, still, millions of

dollars were lost

What’s at Stake for the NFL?

• A Look to the Future– Growing interest in the sport• Quickly becoming ‘America’s Game’

– Competition with the other major sports – Possibility of losing that newfound interest– Money!

Stakeholders

• City/state economies• Businesses in and around NFL cities• City employees in which NFL teams reside• Stadium employees• Bars, establishments all across the nation• Hotels, entertainment spots in NFL cities• Merchandise retailers• Advertisements• Fans!

Other Costs

• Sponsorship deals lost• 2012 Super Bowl– Indianapolis: lost revenue?

• Stadium vacancy expenses– Heinz Field example

Strategic Decisions

• Criteria to Consider– How can the NFL compromise with the NFLPA to

uphold its standards yet please the fans and continue to make money?

– How will the decision, whatever it is, impact the future of the league?

– How does the lockout impact the owners, players, and fans?

• Who has the most to lose?

Where From Here?

• NFLPA no longer exists • Season-long lockout?• Season played with replacement players?• Deal reached, 2011 season saved?

Negotiation

• An everyday action; we do it involuntarily• Can be between any two parties• Very common in the workplace• Successful management and CEOs have great

negotiating skills• Extremely complex tactic, many different ways

to go about it• Crucial to have good negotiating skills,

especially in today’s competitive world

Negotiation Strategies

• Separate the people from the problem

• Keep perceptions from reality

• Recognize and understand emotions

• Communicate!

Negotiation Strategies

• Invent options for mutual gain

• Broaden your options• Focus on interests, not

positions• Use objective criteria

Questions/Concerns

• What, in your opinion, will be the impact on the league if indeed a lockout does occur for an extended period of time? Will it recover? If so, how long will that recovery take?

• If you were an NFL owner, what would you be most concerned with?

• If you were an NFL player, what would be your biggest concern?

• Is money the obvious issue here? Why or why not?• What is the main problem at the heart of this case?

References• http://en.wikipedia.org/wiki/National_Football_League• http://www.mmbolding.com/BSR/CFL_NFL_NFL_History.htm• http://blogs.forbes.com/sportsmoney/2011/01/10/numbers-show-nfls-

economic-realities-for-lockout-unwarranted/• http://www.theepochtimes.com/n2/sports/nfl-lockout-looming-difficult-

issues-to-resolve-come-down-to-money-51582.html• http://detnews.com/article/20110222/SPORTS0101/102220320/

Unresolved-issues-could-throw-NFL-s-2011-season-for-a-loss• http://www.totalpackers.com/2010/07/14/green-bay-packers-increase-

net-profits-to-5-2-million/• http://sports.espn.go.com/mlb/news/story?id=1856626• http://bleacherreport.com/articles/604091-nfl-cba-labor-issues-five-

potential-outcomes-for-the-2011-season#page/2

Thank you!