Finance Uncategorized

All leagues share revenue, but NFL is best at it

The NFL's revenue sharing model for television and broadcasting is so elegantly simple and extremely effective.

Photo Credit: John Bazemore/ Associated Press
Photo Credit: John Bazemore/ Associated Press

As new television deals kick off for the 2014 season, the NFL is rewarding each team with an extra $27 million in shared broadcasting revenue on top of the $131 million each franchise already receives, according to the Sports Business Journal.

The rich keep getting richer, and team owners have the league to thank for its unique approach to revenue sharing – a centrally-planned distribution so simple in theory and so beautiful in practice it is the envy of franchise owners everywhere.

Revenue generated from broadcasting deals with NBC, CBS, Fox, ESPN and DirecTV is shared equally among among the NFL’s 32 teams.

Imagine that: a strange nod to communism by the most capitalistic (read: profitable) league in the land that achieves far superior results than any of its contemporaries.

Photo Credit: Getty Images
Photo Credit: Getty Images

NBA: 50/50 SPLIT

Take basketball, for example.

The NBA’s Collective Bargaining Agreement of 2011 introduced us to the term “basketball related income,” which is largely made up of television and broadcasting rights. The split is pretty simple: 50 percent is set aside for the league and its owners, 50 percent for the players.

After that, the redistribution of income is anything but simple and is based on a carousel of factors such as size of market and a team’s profitability that, like Robin Hood, is meant to send shared revenue downstream to the smaller-market, less profitable teams.

It is believed the NBA is seeking to double the value of its current television contracts with ESPN (Disney) and Turner (TNT) and could net up to $15 billion on a new long-term deal set to start in 2016.

Photo Credit: Bob DeChiara-USA TODAY Sports
Photo Credit: Bob DeChiara-USA TODAY Sports

MLB: 34 PERCENT SHARE

In baseball, each team is required to share 34 percent of its television rights with other teams. For example, if the Houston Astros hypothetically receive $100 million per year from its regional sports network to broadcast games, the team must contribute $34 million to the MLB’s shared fund.

It’s not always as clear cut as a 34 percent split, though, as some teams have other agreements that might complicate this flow of money. In our Houston Astros example, the team has in fact entered into a broadcasting deal with Comcast SportsNet Houston – an regional sports network that is 46.38 percent owned by, you guessed it, the Houston Astros.

And then there are Guggenheim’s Dodgers, who negotiated a dream one-off revenue-sharing agreement with MLB to emerge from bankruptcy court.

34 percent is only a number. Actual shares are wildly different and among MLB teams.

Photo Credit: Chuck Cook-USA TODAY Sports
Photo Credit: Chuck Cook-USA TODAY Sports

NFL: EVEN STEVEN

Then comes the haven of the NFL fellowship, where each owner is given the same slice of broadcasting revenue.

The arrangement gives the league significantly increased bargaining power compared to other leagues, enabling it to strike higher value broadcasting deals. When the NFL comes to negotiate a television deal with a broadcaster, say NBC, the league can offer exclusivity to its 32 teams’ games. Contrast this with the NBA, which can offer only a small slice of a team’s schedule that has likely already negotiated a separate, local deal on its own accord (example: Los Angeles Lakers and Time Warner).

Revenue-sharing equality also increases parity in that small-market teams are given stronger financial footing and can field more competitive rosters. It’s a key reason as to why the Green Bay Packers and Pittsburgh Steelers – cities with populations less than three million – are competitive year after year.

And, most appropriately suited for a Fields of Green piece, it makes the league’s owners wealthier than those of any other sports league. In Forbes’ latest valuation of the world’s top 50 sports franchises, 30 were NFL teams. If the list was extended to the top 52 most valuable sports franchises, the NFL’s two stragglers – the St. Louis Rams and Jacksonville Jaguars – would be No.’s 51 and 52, respectively.

Major sports leagues would have you believe that each team under their care is treated equally, but as the NFL continues to prove with its superbly simple revenue sharing model, one league is more equal than the others.

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