Players, owners, fans, advertisers suffer in NFL lockout

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By Daniel Roberts, reporter March 4, 2011: 4:45 PM ET

The biggest losers in an NFLlockout? Everyone.

FORTUNE -- Editor's note: Friday afternoon, the NFLPA and owners agreedto extend the Collective Bargaining Agreement for another week; it nowexpires at 5 p.m. EST on Friday, March 11th. This has encouraged someoptimism, though the song remains the same: if no new terms are reached,the NFLPA could decertify and a lockout remains possible. Read on to learnthe ripple effect a lockout would have.

Shining NFL draft prospects like Cam Newton must be feeling a littleneglected right about now. It's the time when buzz would normally be buildingto a fever pitch for new rookies, who have spent the past week strutting theirstuff at the scouting combine in Indianapolis, in preparation for the draft in late

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April. Instead, all of football fandom is focused on the grim reaper of animpending lockout, as owners and players battle it out over contracts, money,and, let's face it: respect.

Today -- the expiration date for theleague's current Collective BargainingAgreement -- was to at last deliver ananswer on the question that is the2011-2012 NFL season. Though talksare ongoing, it's impossible to tellwhen, or whether, a deal might bereached. In other words, we may nothave a resolution until the eleventhhour, late August, right before theseason begins.

A ruling by U.S. District Judge DavidDoty in Minneapolis on Monday almostguaranteed that the wheels ofprogress would keep grinding slowly.Doty handed the players a majorvictory by ruling that the NFL'ssafeguard against a possible lockout -- which ensured $4 billion of TV

money to the owners in the event of a stoppage -- violated the rights of theNFLPA, the players' labor union. "Today's ruling will have no effect on ourefforts to negotiate a new, balanced labor agreement," the NFL insisted in astatement issued after the ruling. Sure.

Next up: a hearing to determine what reparations the NFL will now have tomake to the NFLPA (in other words, where will that $4 billion go?), though theowners will almost certainly appeal. Meanwhile, the players have alreadyvoted to allow the union to decertify itself if labor chief DeMaurice Smithdeems it necessary. That would nix the National Labor Relations Board'sjurisdiction and allow the players to file an injunction preventing the ownersfrom locking them out. Individual players could even sue owners, ensuringmonths of tedious legal wrangling.

All this could mean one thing: no NFL football games. Although a lockout hadonce seemed completely unthinkable, and though Doty's ruling makes it lesslikely (with no security trove to fall back on, the owners may be more inclinedto bargain), a lockout of at least a few games is now very possible. Make nomistake: if this happens, almost everyone loses.

Rookies & endorsement deals

Newton and other hot prospects like A.J. Green and Mark Ingram are prayingfor resolution. "From an endorsement perspective," says Marc Ippolito ofBurns Entertainment & Sports Marketing, "there's more at stake for you ifyou're looking for a deal or being considered. Companies are going to holdback, and won't want to spend money on a player if there's no season." This,Ippolito says, could apply to existing pros (think Michael Vick, who performed

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well enough that everyone expects him to get some new deals), but mightapply most to big-name rookies that would be tasty bait for marketers.

"If you already have a current deal," Ippolito continues, "the marketer isfretting because they put money behind a talent, but with no season theyobviously won't do much of an ad spend." Newton, for one, already sealed upa deal with Under Armour, the young company that did nearly $750 million inU.S. apparel sales in 2010. And Newton doesn't even have a team yet. Theendorsement contract has been estimated at $1 million a year and CNBC'sDarren Rovell has said it may be the largest deal ever given to an incomingrookie. "I can see Under Armour saying he's a big enough name that they cando ads around him regardless of the season," says Ippolito. "But if you're atop pick and expecting the usual offers, there might be a big hold back untilwe see a resolution." In other words, players are going to get nervous soon,and marketers already are.

Networks & advertisers

The last Super Bowl was not just the most watched ever; it was the best-rated television program of all time, according to Nielsen, with 163 millionpeople tuning in. If there's no football, the networks lose you, the viewer. Youtune into something else (like a reality show, or a sports league on anothernetwork) or abandon the tube entirely and head to the opera.

And if a lockout does happen, the networks have big chunks of time to fill withprogramming that, as Bob Dorfman of Baker Street Advertising points out,"will be nowhere near as valuable as football games." Ad time is bought inMay, so what do advertisers do if the season goes away? They'll have to lookelsewhere to spend their money, and it would probably be a far lessappealing venue. It would probably be on other networks, Dorfman explains:"Maybe all the TV networks that don't have football contracts." Imagine seeingthe biggest brands -- GM (GM), Anheuser-Busch InBev (BUD), Visa (V,Fortune 500), Ford (F, Fortune 500), and others you associate with football-- placing their priciest ads during How I Met Your Mother.

NFL teams: players & owners

Owners and players alike, though they're on opposite sides of the table,would suffer in some of the same ways if games get axed. Teams would beunable to hold training camp or any activities of any kind. They couldn't signnew guys. They couldn't make any personnel moves.

In addition, once the CBA expires, players will technically be unbound fromleague rules, so there is some concern that many could start violating NFLconduct standards or find themselves in trouble normally punishable withleague fines or suspensions. Realistically, no one believes players are lootingalcohol cabinets, but Dorfman does point out, "They could start doing ads forcasinos, or for liquor. That may seem unlikely, but some players need themoney."

The owners, led by the likes of New England's Bob Kraft and Dallas's JerryJones, feel they've had to spend too much on stadiums and increased costs.

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It's why they protected themselves with the $4 billion insurance chest thatJudge Doty deemed unethical. The players, meanwhile (represented byNFLPA executive director DeMaurice Smith) have been getting nearly 60% ofoverall NFL revenues, which the owners feel is too high. An 18-game season,which Commissioner Roger Goodell and the owners have been pushing for,makes the revenue pot bigger so that players could go home happy even iftheir percentage share goes down. But two more games also means twomore weeks of risk to their health. In light of rabid press about footballconcussions, it's two more games many players have said they don't want toput their bodies through.

Scott Boras, MLB super agent whose clients have included A-Rod and MattHolliday, is watching the negotiations with years of experience from similarstrikes in baseball. "I think [the owners' $4 billion war chest] turned out to be acostly maneuver that eroded legally," he says. "It was a tactical mistake. Andnow time is operating against the owners, not the players. The players can goback to work in a matter of weeks. The owners have to have the TV contractsand the advertising and all of that in place long before the season begins."

Boras believes the owners could be causing damage to the league that willlast beyond the coming season. "There comes a point in collective bargainingwhere things don't make sense, because what you're risking and what you'regaining is not worth it for the league."

Meanwhile, although many teams are privately financed cash cows -- most ofthem are valued around $1 billion -- quite a few had abysmal ticket sales thepast couple seasons. Teams like the Detroit Lions (who went 0-16 in the 2008season), Tampa Bay Bucs, and Oakland Raiders all had crushingly lowattendance last season, in a league that expects sellouts every week. Theyneed to rebuild, but instead, they face an off-season that could put them indirer straits.

Fans

This means you, red-blooded American football viewers, and don'tunderestimate your own role in this. No season means no fantasy footballleagues -- that's less traffic to sports news web sites, and less moneycirculating via office pools (see: Was my sports bet legal?). It means noSunday night (or Monday night) watching parties, which brings a hit onsupermarkets, corner stores, and any other businesses that sell beer, M&Ms,chips and dip. And it means your workweek becomes a little drearier withoutthe playoffs to look forward to, or team records to brag about at the watercooler.

Moreover, consumers of media will go hungry. Think of your favorite sportscolumnist in the local paper. If she's a pro football beat writer, expect a lot ofstories about furloughed assisstant coaches. ESPN's SportsCenter loses,daily papers with strong sports sections lose, reporters and broadcast punditslose, and readers lose. If things drag on, the appetite for strike news couldgradually be overtaken by apathy towards the whole spectacle, and a longclimb back into the public consciousness when games finally restart.



Boras points to this as a significant hit: "The value of Internet properties wouldbe dramatically affected [by a lockout] because all the content available onInternet and cable that's associated with analysis, if that goes away you havea massive content void. The online and TV content has become part andparcel of the culture." Indeed, as the biggest fans know, watching a game isjust half of the experience. Then there are columns to read the next day,videos to watch, and highlights to email, Facebook share, and tweet about.

Stadium cities & employees

Forget economic impact to cities that host a Super Bowl (hint: it's enormousand although estimates can vary wildly, this year's game brought at least$100 million to the Dallas area). It's regular home games that bring steadycash flow to the Foxboros, East Rutherfords, and Arlingtons of the footballworld. Eight home games means eight Sundays of fans filling up at nearbygas stations, buying hot dogs from street vendors, and going out to barsafterwards. There's big money spent before and after the game at apparelstores near the stadium, by people who need a jersey or hat.

Then there's the mega business inside the stadium. Food and drink vendorslike Aramark (RMK) thrive not just from running food stands but also bycatering luxury suites. With no season, that all goes away, and worst of all, sodo four months of work for stadium employees. Jobs will be lost. Gil Brandt,who was vice president of player personnel for the Dallas Cowboys for almost30 years, tells Fortune: "I went through two of these before when I was withthe Cowboys, and the people you feel for are the ones we employ at trainingcamp, or the ones with seasonal jobs that work in the refreshment stands.Those are people that don't stand to gain anything from these talks, all theydo is lose."

The NFL generates somewhere around $10 billion in revenue each year. Thisis a league that knows how to squeeze money out of every corner possible, aleague that let the Cowboys charge fans $200 last season to watch the gameon a screen outside the stadium. Most players have pretty big financialcushions, and owners would survive as well (though they have more fiscal andoperational burdens to deal with than players). It's stadium employees and themany small businesses in and around football stadiums who don't have themargins to lean back on.

Merchandisers

An obvious side effect of a lockout would be merchandise sales. Matt Powellof SportsOneSource says, "We could see declines in the 50% range," thoughit will depend on whether games are canceled for a month or for a wholeseason.

"People get really mad at the teams, you know," says Powell. "If they feelmad at the owners for locking the players out, they won't want to supportthem by buying jerseys. It's also important to remember a lot of people buythis merchandise because they're going to a game, or because the team isdoing well."



Meanwhile, apparel sales were already on the decline before this drama.Powell estimates that U.S. NFL merchandise sales last year were $2.1 billion.In the 2009 season, that number was $2.5 billion. "It's gone down steadily, butevery league has taken a bit of a hit due to the recession," says Powell."Apparel is a discretionary purchase. If people are short on cash it's the firstthing to go." Short on cash, or short on actual games to watch, either way itmeans jerseys stay on the rack.

Does anyone win?

The one market that might stand to benefit from a lockout -- though you cantrust that they're hardly rooting for it -- could be college sports.

Dan Fulks, an accounting professor and athletics adviser at TransylvaniaUniversity in Lexington, Kentucky, who conducted economic impact studies forthe BCS, sees a lockout having a real effect on college football players. "Kidswon't be quite as eager to leave school early and enter the draft," he predicts.Still, that hardly makes them total winners in this scenario. Take those whohave already signed up for the draft for this coming season -- where do theygo?

"These kids made a decision based on information they had, and they signedwith agents, and now if there's a lockout they've got nowhere," says Fulks. "Iwonder if the NCAA would give them some kind of relief, assuming theyhaven't already taken money. The fair thing to do would be to let the kids goback to play in college." Unlikely.

Still, with no NFL, viewers could quite plausibly turn to college -- that oldstandby for seeing "the purity of the game" -- for their football fix. During theMLB strike of 1994, fans rediscovered the minor leagues. And not just collegefootball, but even pro sports could benefit. In winter months, in lieu of the NFLplayoffs, the NBA might get the fan runoff. United Football League, anyone?

Boras acknowledges the potential benefit to the MLB. "The whole focus wouldmove to the baseball postseason and to college football," he predicts. "Andadvertising dollars would float over to the MLB as well."

Ippolito agrees about advertisers looking to both pro baseball and collegefootball, and the reason is a lack of uncertainty. "An advertiser makingdecisions might say, 'Hey, we know that season is happening at least.' Therecould be new sponsorship potential for college football as well." Dorfmanjokes that all sorts of dark horse companies, like The Home Depot (HD,Fortune 500), could benefit, too. "Players [not to mention former footballfans] might spend Sundays working on their houses."

But get real -- no one wants a lockout to happen. And it isn't just about themassive amount of money on the table here; people love football. Everyone ishoping the owners and players hold this truth above all others.

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Players, owners, fans, advertisers suffer in NFL lockout