The Jaguars - NFL Economics: What's changed since 1995?November 19, 2009 32 comments Print Article
It's one of the most talked about topics at the water cooler - the Jaguars - and their ticket sales woes. Up to this point, the Jaguars have yet to even be close to selling out any of their home games, and most likely will not for the rest of the year. It seems every national media outlet has had at least one writer take a shot at Jacksonville for the lack of ticket sales. Today, Metro Jacksonville continues its seven part series discussing the Jaguars and the Jacksonville Market, and how they compare to other NFL cities.
An Overview of the Series
Part 1 How Jacksonville became an NFL city
Part 2 NFL Economics: Whats changed since 1995?
Part 3 Jaguars on the Field: How do we compare?
Part 4 Jacksonville and College Football
Part 5 Jacksonville vs. Other Small Markets
Part 6 NFL Relocations and the LA Stadium Plan
Part 7 What does the future hold?
A Primer on NFL Economics
To get an understanding of what has changed since 1995, one has to understand the basics of NFL economics. Unlike other professional sports leagues, the NFL operates under a complex revenue-sharing model that dates back to the early 1960s. Then-Commissioner Pete Rozelle pushed for the ownership to adopt a mindset of leaguethink. The idea was that if they did everything as one collective body then split the revenue equally, it would be better for them in the long run. Some owners, especially big market owner Wellington Mara of the New York Giants were for it, other big market owners werent as easy to convince.
Leaguethink received a tremendous boost in 1961, when the owners agreed to drop their individual television deals in favor of one league-wide deal for televising all of the teams away games (home games were not televised in the home markets until congress made them in 1976, which gave us the blackout rule that we know today). The key to the NFLs revenue sharing was that some revenues were shared (the main things that falls into this category are general bowl tickets and television revenue), and some revenues do not (such as club seats and suites, local radio revenue, preseason TV, naming rights on the facility, etc).
Former NFL commissioner Pete Rozelle was responsible for bringing Pro Football up to the level of Baseball in terms of popularity. Two of his many accomplishments: Leaguethink and the AFL-NFL merger (pictured above)
Salary Cap and the Collective Bargaining Agreement
The revenue-sharing model above is what led to the salary cap, which originated in 1993 for the 1994 season. The concern was that player salaries were growing at a dramatic rate (particularly rookies), and the league wanted to reign them in. The salary cap was based on a percentage of what is called Designated Gross Revenue (or DGR). This is the revenue that is shared between the owners. The logic was that the DGR was the bulk of the revenue, as Local Revenue was a very small piece of the pie. In 1994, the salary cap was set at $34.6 million. This meant that player salaries (and bonuses) paid during the 1994 season could not exceed $34.6 million. It also provided for a minimum salary cap, which was between 85 and 90 percent of the cap for that year. Fast forward to 2009, and the salary cap this year is $128 million, or almost 300% higher than 1994. Needless to say, Jaguars revenue has not increased 300% since their inaugural season of 1995. It is estimated that the Jaguars spent about 45% of their revenue on player salaries; that percentage is now at about 70%.
So, why did the salary cap increase so dramatically? The simple answer is because league revenues have increased so dramatically. The NFLs TV deal is worth significantly more than in 1995, and ticket prices have escalated significantly since 1995. However, the key change was in 2006 when the NFL owners passed an extension to the Collective Bargaining Agreement (CBA this is the agreement that the owners have with the NFL Players Association). The key to this extension was that the salary cap percentage would be based on what is known as Total Football Revenue (or TFR). This includes both the Designated Gross (shared) Revenue, AND the Local Revenue.
This is critical, because local revenue is dramatically different between teams like Jacksonville and Buffalo, and teams like Dallas and New England. While the Jacksonville Municipal Stadium naming rights deal was in effect, the team received $620,000 annually from Alltel. On the other hand, the New England Patriots receive about $8 million annually from Gillette. Thinking about the other things that are categorized as local revenue (radio broadcast contracts, club seats, and luxury suites to name a few). While the value of these deals is unknown (all NFL teams are privately owned except for Green Bay, who is owned by the City of Green Bay), it's not a stretch to recognize that Dallas Local Revenue is SIGNIFICANTLY higher than Jacksonvilles. The current NFL salary cap is set at about 60% of average total football revenue, and with the Jaguars far below this average, it puts the team in a financial pinch.
The local revenue disparity has grown significantly since 1995. One of the causes - stadiums with many built-in revenue drivers, such as Cowboys Stadium, home of the Dallas Cowboys.
Why not just lower ticket prices enough to fill the stadium?
This is not sustainable. In order to receive their full share of the league revenue, their ticket revenue must be within 90% of the league average. Needless to say, with 46,000 people in a 67,000 seat stadium, they arent going to get there. Even if they lower the upper deck prices to $10 and sold all of the seats, it wouldnt work because they still wouldnt reach the 90% qualifier.
The Future of Revenue-Sharing and the CBA
The Jaguars arent the only ones who feel that the current revenue-sharing and CBA is unsustainable. In 2008, the owners voted unanimously to opt out early of the CBA. While this has the opportunity to be a good thing for the Jaguars and the other small markets, it will mean a few things that could be bad. For one, there will be no salary cap in 2010 as it stands now, and if no labor deal is reached before 2011, there would most likely be a work stoppage. Also, the landscape of the big market owners has changed. Earlier this year Dallas Cowboys Owner Jerry Jones said in reference to the push to get a new stadium for the Minnesota Vikings, Right now we are subsidizing this market. That will stop. That's going to stop. That's called revenue-sharing. That's on its way out. Now, those comments are in reference to a push to get a new stadium built in Minnesota, however the fact is that the 1960s big market owners who pushed leaguethink are long gone.
If there is any solace to take in this, there are a lot more small markets than big markets. With that said, there is only one way to properly secure the future of the Jaguars in Jacksonville:
Article by Steve Congro