The XFL won’t make the same mistake it did its first run around and is scheduled to spend the necessary money to hang around. According to Darren Rovell of ESPN, the league expects to spend half of a billion dollars in the first three years of its existence.
That’s some strongly coded business language. Notice, it’s not the league expects to make a profit while spending that amount of money — it surely has to be break even by year three — or they are fine with losing $500 million — no league would be. Instead is just a top line expenditure. Throw in some amortization and other financial and accounting tricks and then the number will surely go higher than $500 million.
The next big deal to watch out for will be television contracts. That is what brings in the most money to the NFL’s coffers. The AAF and XFL have to think the same way. Gate isn’t going to cover all expenses and can be variable depending on the product and environment. Without high gate numbers, concessions, parking, and other ate venue revenue streams start to dwindle as well. The AAF will actually set the market for the XFL. The XFL has to be concerned that rights buyers may get scared away if the AAF’s numbers aren’t great. Each league could also do a deal where they pay for production and everything else and split advertising revenue, but the leagues would like to avoid that.
The XFL may need to spend more. The Alliance of American Football is set to start a year before the XFL and already cornered some pretty good markets. The non-NFL markets the XFL could target are drying up since the AAF set up shop in Orlando, Memphis, Birmingham, San Diego, San Antonio, and Salt Lake City. The XFL could target a few cities such as Portland, St. Louis, Austin, and choose an NFL city like Chicago. Choosing the right locations is a must.
So the $500 million seems like a big number, but it doesn’t mean anything until we see television ratings, interest, and how much revenue they AAF and XFL bring in. For now, it’s just a nice headline.