SB Nation Small Market Roundtable - Revenue Sharing

by Brian Galliford on Jun 27, 2007 6:28 AM EDT in SB Nation Comment 3 comments

The late Lamar Hunt

Note: this is a continuation of the SB Nation Small Market Roundtable. To view previous installments, please view Big Cat Country, Pride of Detroit, Stampede Blue, Music City Miracles and the Daily Norseman for other excellent topics and fantastic writing.

Revenue Sharing: The Past
Revenue Sharing is not close to being a new development to the game of football. It only takes a brief glimpse at the history of professional football to realize the importance of monetary equality in this sport. The late Lamar Hunt, the long-time owner of the Kansas City Chiefs, was a driving force behind Revenue Sharing - which is why the AFL (of which Hunt was also a driving force) was the most successful professional football league in challenging the rule of the NFL.

It was due to the AFL's revolutionary idea of sharing the money earned from TV contracts amongst all league teams that changed the future of football, and ultimately forced the AFL-NFL merger that created the great professional football league we all enjoy today.

Dock Ellis, an incredibly intelligent person, faithful reader and frequent diarist here at Buffalo Rumblings, chimes in on Hunt's legacy both with the sport as well as with Revenue Sharing:

Lamar Hunt (whose contributions to the development of both professional soccer in America and the professional tennis tour leave almost as great a legacy as his contributions to football) was a sportsman first - and, at a very close second, a brilliant businessman. He clearly foresaw the economic implications of a "moral" approach to business - that is, thinking out in terms of decades and generations, rather than fiscal quarters and years. One of the most fundamentally important aspects to both his character and his business approach was his loyalty. He helped to make sure that the Foolish Club perished as a group - or not at all. And he was vindicated in that approach.

According to Steve Silverman, in a piece written for Pro Football Weekly in 1994: "...Hunt was the glue that kept [the AFL] together. He basically bankrolled the operation and was instrumental in the AFL's original TV contract, a five-year pact with ABC. That TV contract was miniscule compared to the stratospheric deal signed by the NFL [in 1993], but it gave the NFL football establishment cause for concern. The ABC deal was one that was based on advertising sales and eventually paid each team $112,000 during the 1960 season. At the time, the NFL let each team negotiate its own TV deal, and, in some cases, the AFL teams received more money than their established counterparts. Green Bay and Philadelphia, for example, had particularly poor deals, and the NFL took note of the AFL deal and soon changed its way of doing business."

A later quote from Hunt revealed his focus, and helps us understand the true economic stability of his approach: "I wanted to play good, competitive football, and I wanted the Chiefs to win. The key was making sure that we improved every year, because that represented progress. But I was just as happy to see the Jets sign a top draft choice or the Bills do the same, because as each team got better, it made the whole league stronger. It wouldn't have made sense if we made ourselves into a super team, and our partners were languishing. We all had to make progress in order to strengthen ourselves." Hunt also identified the turning point for the AFL as the Jan.29, 1964 deal with the previously hostile NBC, giving $36 million for television rights to the league, saying, "The contract gave us some security. It gave each team about $800,000 per season, and it allowed us to plan for the future. We could compete with the NFL on a more equal footing."

That deal would represent the future financial viability of all sports, including professional football. In this age of high-scale partnership between owners, the NFL is not only financially extremely powerful, but it possesses a stability that allows its growth to be sustainable, not cancerous. That, right there, is a fundamental legacy that Lamar Hunt has left us.

Stadiums such as Dallas' new field are widening the rich/poor gap in the NFL

Revenue Sharing: The Present
Up until recent months, the NFL's Revenue Sharing plan was a hotly debated topic. Smaller-market teams (spearheaded, of course, by Bills owner Ralph Wilson) had become increasingly worried about a growing disparity between the league's highest-revenue teams and themselves. The cause: mostly new stadiums. Teams with new stadiums are able to install more luxury boxes and club seating, which resulted in more local revenues (which are not shared amongst all 32 franchises). While the already-shared money (stemming from the league's TV deals) remains relatively constant - and grows annually at a relatively fixed rate - local revenues are skyrocketing. This is causing numerous problems, the biggest of which is the salary cap.

The NFL salary cap is based off of total league revenue - that is, revenue that is shared (again, mostly from TV deals) and local revenue. All of this money equates to a given year's salary cap, which explains why the cap has been rising dramatically since the inception of the new CBA. In 2005, the cap was $85.5 million. This year, it's $109 million. By 2008, it will likely be around $140 million. The huge increases are due to, again, the incredible amounts of local revenue being brought in by larger-market teams.

So what are local revenues used for, besides to drive up the salary cap? Well, teams can spend up to the salary cap on player salaries, but bonus money comes out of the owners' pockets. Obviously, the more local revenue a team has, the more money those teams can throw around to high-profile free agents. Where do you think the league's best players are going to sign - a team with millions of dollars to blow in a big city, or a budget-conscious team like the Bills who reside in a wintry, blue-collar city? It's naive to think that lower-revenue teams will be able to keep up in the player marketplace without more money being shared.

The problems are not devastating at the moment, but the future implications are. The rich teams are going to get richer, and by comparison the poor teams will be getting poorer. Without some sort of local revenue sharing plan, smaller-market teams may be forced to relocate to bigger cities with better stadiums, richer people to buy luxury seats and more attractive facilities to free agents. The growing disparity will drive out what makes football football. Blue-collar, lesser-revenue cities like Buffalo - who rely on the Bills both as a boost to the Western New York economy as well as one of the main entertainment attractions - won't have a team to cheer for. Isn't sports about the "little guy" competing with the big boys? Isn't football about kicking teeth in no matter how big your franchise's city is? Without revenue sharing, only the elite cities of the US will be able to enjoy this pastime.

Luckily, that's not currently an issue - in the early parts of 2007, an agreement was reached that would shift $430 million of local revenues to small-market franchises. That shift will occur over the next three years, or through the end of the 2009 season. So for now, there is a relative peace as far as revenue sharing goes. But it may turn out to just be a calm between two storms.

Revenue Sharing: The Future
This is where we're at: the NFL is on, essentially, a three-year trial with this Revenue Sharing format. It will maintain a competitive balance between all 32 NFL teams at least through the 2009 season; it is painfully apparent, however, that after the current trial ends, there will be yet another period of unrest and debate amongst owners. My opinion may be partially biased due to my support of one of the smallest of the small market teams, but it's hard to argue these facts: the NFL thrives on competitive balance, and that balance will no longer exist without radical changes to the Revenue Sharing format. Revenue Sharing, from the looks of it, is the one thing that will keep Lamar Hunt's vision of franchise equality alive.

Let's open this thing up to discussion. What's your stance on Revenue Sharing? What pros/cons do you see with the expansion of local revenues and thus the salary cap? How would you solve this potential problem? It's time to sound off - Bills fans and bloggers alike!

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Comments

This is a great post

and no doubt will be a major issue when the CBA needs to be redone. I support revenue sharing and financial parity, as I believe those separate the NFL from its less successful counterparts. That said, I'd like to examine something you said:

As you point out later, we're still talking about the future. Poor low revenue, blue collar Buffalo could still afford to pay Washington Redskins Derrick Dockery more than virtually anyone else on their roster. His 49M deal is larger than anyone on the roster not named Clinton Portis, and the 18.5M guaranteed is comparable to anyone on the team. If small markets are struggling to compete for players with big markets, this particular case shows a funny way of showing it.

But, again, I support revenue sharing. To a limit.

Hogs Haven

by Skin Patrol on Jun 27, 2007 9:49 AM EDT reply actions 0 recs

Re: Dockery

Glad you liked the post, Skin Patrol.

As for Dockery - Buffalo could only afford that contract based on the shared local revenue plan that was put into place (actually a week or two after the signing). If that changes in the future, and local revenues aren't shared (or are shared to a lesser extent), Dockery isn't a Bill at all - in fact, he probably doesn't even bother to visit team headquarters on his FA rounds.

As you alluded to, this is about the future, not necessarily the present. Money is still damn close to equal now. But that is going to change, and there needs to be a way to keep the competitive balance, or things will tank.

The local revenue effect will be gradual, at least for the next few years. If after '09 there isn't a new CBA and revenue sharing program, that's when the disparity will really take off. At least that's what I gather.

Create a free account to join in the discussion, Bills fans!

by Brian Galliford on Jun 27, 2007 10:01 AM EDT up reply actions 0 recs