Authors: Marcos A. Abreu, Brandon D. Spradley
Corresponding Author:
Marcos Abreu
Doctoral Student
United States Sports Academy
One Academy Drive
Daphne, Alabama 36526
mabreu@students.ussa.edu
251-626-3303
Marcos Abreu is a doctoral student at the United States Sports Academy studying sports management.
The NFL Brand & Stadium Opportunities
ABSTRACT
Besides increasing shared revenue, the NFL’s popularity has helped the league establish a singular brand that continues to benefit its 32 teams by increasing brand equity, which derives from consumer perception of the brand name. The strategy has provided the league’s 32 teams bargaining power over host cities when pursuing public funding for newer stadiums that increase retained local revenue streams. Although hosting cities often provide newer stadiums to ensure teams stay and cities without teams often offer new stadiums to entice teams to relocate, in either case, cities generally justify these decisions and convince taxpayers of their importance with NFL and government analyses that numerous economists consider questionable because the studies generally overlook some basic fiscal realisms.
The purpose of this paper is to discuss how the NFL’s brand equity increases shared revenue that creates new stadiums opportunities for the League’s 32 teams and how those stadiums opportunities impact; locally generated retained revenues; local economies; Super Bowl hosting opportunities and team relocation. The information presented in this paper could help individuals who work in the area of sports management better understand how an organization’s brand equity influences brand control and agreement value during the negotiation of new revenue stream opportunities.
Keywords: NFL Brand, Taxpayer Stadium Subsidies, NFL Revenue, NFL Team Relocation
INTRODUCTION
Over the past few years, the popularity of the National Football League (NFL) has arguably made football America’s sport of choice. As the NFL’s popularity continued to increase brand equity, the league’s protected its singular brand, which was designed to benefit its 32 teams, by maintaining brand value with tight brand controls that included increasing licensing and broadcasting rights fees. The increasing fees allowed the NFL’s national revenue, which is shared equally amongst the 32 teams, to grow at a rapid pace. As a result of the rapid growth, each team was provided bargaining power when pursuing funding for new stadiums that ultimately help to increase the local revenue, which is retained by the league’s 32 teams.
Although newer stadiums are not cheap and the fiscal benefits to the hosting cities are unclear, a city’s willingness to infuse additional taxpayer funds to renovate or construct newer stadiums demonstrates the value an NFL franchise has to a city. The purpose of this paper is to discuss how the NFL’s brand equity increases shared revenue that creates new stadiums opportunities for the League’s 32 teams and how those stadiums opportunities impact; locally generated retained revenues; local economies; Super Bowl hosting opportunities and team relocation. Ultimately, the paper will provide suggestions on how the league could increase local revenue, which is retained by the 32 teams, and decrease future taxpayer stadium subsidies.
REVIEW OF LITERATURE
The NFL Brand
Since 2006, the NFL has entrusted league commissioner, Roger Goodell, with protecting and maintaining the league’s brand. Besides taken aggressive measures to insure the league’s copyrights and trademarks are protected by charging a considerable fee to use the league’s intellectual property, in 2014, the commissioner hired Jaime Weston, vice president of Brand & Creative, and her team to assist in development of a singular brand that would benefit the League’s 32 teams (30). During the development of a singular brand, first, Weston and her team created an identity that supported the development of the league’s brand (30).
An organization’s identity reinforces the corporate brand; partly the effects of comparisons with competitors and what consumers say about the organization, and partly of the organizational self-insight, which is often communicated in the form of claims about organizational values, central ideas, or core beliefs (28). After working extensively with fans, Weston and her team came up with three words that represented the essence of the NFL brand. Weston pointed out that at the end of the day; the NFL delivers a game that’s intense, meaningful and unifying (30). Once the identity behind the brand was developed, Weston focused on a strategy that would build and sustain the league’s brand equity.
According to the conceptual model for building and sustaining brand equity, first, an organization must adopt a brand orientation mindset that goes beyond focusing on customer satisfaction and competitors, to a more thoughtful and dynamic development of brand that infuses emotional and symbolic values (40). Once a brand orientation mindset is adopted, an organization must develop internal branding capabilities that see the brand from the establishment as well as the consumer perspective (40). Ultimately, the model for building and sustaining brand equity suggested that an organization must have a consistent delivery of the brand to enhance the brand’s positive reputation with customers (40).
To help the NFL adopt a brand orientation mindset that infuse emotional and symbolic value into the brand, Weston and her team developed a marketing plan that infused story lines through every campaign that involved the NFL brand (30). To develop internal branding capabilities that see the brand from the organization’s and consumer’s perspective, besides experiencing the game with fans, Weston and her team performed communication audits and fan focus groups that informed the 32 teams on how fans viewed their brand compared to how they viewed themselves (30).
Ultimately, to continuously deliver the brand and enhance the brand’s positive reputation with Fans, Weston developed Campaigns like “Together We Make Football”, a contest which asks fans to submit their meaningful stories of why they love football for a chance to win a trip to the Super Bowl, tapped into America’s love for football (30). Besides featuring the story of 10-year-old Samantha Gordon who became the inspiration and the blueprint for the “Together We Make Football” campaign, the marketing plan included a series of commercials that featured testimonials from Hall of Fame quarterback and four-time Super Bowl champ Joe Montana in addition to former Secretary of State Condoleezza Rice who is a diehard Cleveland Browns fan (15).
Since the development of a singular brand singular in 2014, the three phase strategy has allowed the NFL to consistently increase brand equity. In 2015, to measure the value of something intangible like brand equity, Harvard Business Review looked at the NFL’s annual revenues, factored in the compound annual growth rate to calculate cash flows directly attributable to the brand, discounted future cash flows at a rate of 10% a year, and applied a 3% growth rate (3). Consequently, Harvard Business Review estimated that the value of the brand grew from $12 billion in 2004 to $16 billion in 2008 to $24 billion in 2014 (3).
Shared Revenue
The brand equity that has been established by the NFL is largely due to an increase in national revenue which is shared. The total League revenue, which is subject to revenue sharing, is identified as “Defined Gross Revenue” (“DGR”) in the Collective Bargaining Agreement (CBA) (39). The revenue sharing system is separated into two classifications (39; 51). The first classification compromises the sharing of generated revenue in which under the NFL’s “Master Agreement”, each individual team equally share all the revenue generated from national licensing and sponsorship agreements (39; 51). The “Master Agreement” is an extension of the “NFL Trust,” an agreement between owners with origins dating back to the 1960s (39).
After the owners voted to create the NFL Trust, each team transferred the exclusive right to use its club logo for commercial purposes to the NFL Trust, which allowed the NFL trust to enter into license agreements with NFL Properties to provide NFL Properties the exclusive right to license the trust’s property (33). The motivation behind creating the NFL Trust was the thought that if the teams negotiated licensing deals together they could increase their value than if they attempted to negotiate on their own (33). According to the NFL Sponsorship Report from IEG, sponsorship revenue has increased from $1.07 billion in 2013, $1.15 billion in 2014, and $1.2 billion in 2015 (32).
The only exception to the Master Agreement is Jerry Jones’ Dallas Cowboys, who after the NFL sued filed a motion to dismiss the lawsuit and then filed a $750 Million antitrust lawsuit against the league (33; 39; 51; 52). Once a portion of the NFL’s lawsuit was dismissed, the NFL was forced to settle and the agreement not only allowed Jones’s Texas Stadium Corporation to maintain its contracts with American Express, Pepsi and Nike; it also allowed Jones’ Cowboys to be the only team to retain the right to enter into their own licensing agreements to create merchandise apart from the NFL’s licensing agreements (33; 39; 51; 52).
Unlike the first classification, the second classification of the sharing of generated revenue, which is governed by a combination of provisions from the CBA and the NFL Constitution and Bylaws, compromises of all the revenue that is generated by the actual playing of the game on the field (39; 51). The classification includes ticket sales, in which 40 percent of the revenue is shared equally among the 32 teams, and television agreements, wherein 55 percent of the revenue is shared equally among the 32 teams according to the revenue sharing agreement (8).
Currently, the league’s television agreements generate the biggest percentage of the shared revenue (51). The reason for this is the Sports Broadcasting Act of 1961, which granted professional football leagues legal permission to conduct television-broadcast negotiations, and the Congress enacted Public Law 89‑800 0f 1966, which said that if the two pro-football leagues of that era merged the new entity, which was the NFL, could act as a monopoly regarding television rights (19). Fox, CBS and NBC agreed to collectively pay about $3.1 billion in rights fees every season until 2022 (50). Walt Disney’s ESPN rights package costs the sports channel $1.9 billion a year (50).
DirecTV’s agreement for eight years is worth an average of $1.5 billion a year, up 50 percent from the prior agreement (53). Although CBS and NBC agreed to pay roughly $450 million combined each year to air Thursday night games over the next two years, since the deal did not include digital streaming rights, the league entertained discussions with Amazon, Yahoo, YouTube, and Facebook for streaming partnership (44). Ultimately, the NFL and negotiated a deal worth $10 million with Twitter Inc. to stream ten Thursday night games during the 2016 season (56).
As the only publicly owned NFL team, every year the Green Bay Packers release team financial records that display how the shared revenue system is important to the success of teams in smaller market. For the 2014 2015 fiscal year, although the Packers financial records first reported an increase of 226.4 million in shared revenue, after a change in accounting procedures the team received $209.1 million, which was 1/32nd, of the NFL’s fiscal year revenue total of $6.7 billion (9; 42; 69). For the 2015 – 2016 fiscal year, the Packers reported a 6.4 percent increase in revenue with $222.6 million of the NFL shared $7.1 billion (36; 42).
The shared revenue that is generated by League licensing agreements is managed under an organization called “NFL Ventures”. The organization is comprised of the NFL Enterprises (“advertising, publicizing, promoting, marketing and selling broadcasts of NFL games”), NFL Properties (“licensing, sponsorship and marketing”), NFL Productions (“produces NFL-related programming for the NFL and its Member Clubs”), and NFL International (“marketing, publicizing, promoting, licensing, distributing and developing the NFL’s international business”) (14). The revenue generated by the NFL Ventures, which is owned by the 32 teams, is taxed and split between the 32 teams and players under the rules of the most recent 2011 CBA (20).
Retained Revenue
Unlike shared revenue, which is divided equally, retained revenue is kept by the league’s 32 teams and it is identified as “Excluded DGR” in the CBA (38). Besides 60% of stadium receipts for home games, the structure allows teams to retain revenues derived from concessions, parking, local broadcast rights and luxury suite income (39; 51; 52). Furthermore, as a result of a Jones’ antitrust lawsuit settlement in 1995, under the Master Agreement, besides legally owning their own logos during local marketing deals and having the ability to negotiate their own local sponsorship deals, teams can also establish their own retail shops to sell team apparel which generates unshared revenue streams (33; 39; 51; 52).
DISCUSSION
Stadiums Opportunities & Retained Revenues
The retained local revenue structure provides an incentive for the 32 teams to pursue finances to renovate or build new facilities that help maximize locally generated retained revenue. In 2009, the year the Dallas Cowboys’ new stadium opened, their local revenue increased from $280 million to $420 million due to the team’s ability to sell personal seat licenses (22). The Cowboys’ new stadium consist of 15,000 club seats, which they charge fans up to $150,000 a year, and 342 luxury suites that sell between $224,000 and $900,000 a year (7; 22). Besides an increase in revenue from personal seat licenses, the Cowboys’ local revenue growth was also fueled by new sponsorship and marketing opportunities.
In 2007, Ford announced that it was extending its title sponsorship of the Cowboys through 2018 and expanded its presence at the new football stadium with more signage, vehicle and interactive displays and a Built Ford Tough integrated fan experience (64). Ford also expanded its relationship with the Cowboys to include title sponsorship of their pre-season training camp and to pay tribute to Texas football players with the Built Ford Tough Dallas Cowboy High School Football Player of the Week award (64). In 2009, the Cowboys signed a deal with Cisco Connected Sports Technologies to outfit their brand new $1.1 billion stadium with a powerful wireless network and the StadiumVision system (18; 27).
StadiumVision’s 3,000 HD TV’s, which feature game footage and real-time information, have allowed the Cowboys to expand their advertising base by offering new options like target messaging and branding on each screen throughout the stadium (10). Just as important, the system has allowed the team to instantly update pricing and promotional images on the 550 Cisco StadiumVision-powered digital concession menu boards during the game, which has given them additional opportunities to deliver spontaneous targeted promotions (10). Above all the newly constructed stadiums has given the Cowboys franchise the ability to sell stadium naming rights, which contributes enormously to a team’s retained revenue.
In 2013, the Cowboys and AT&T Inc.’s wireless technology signed a deal worth $17 million to $19 million a year over an undefined period to rename the stadium and improve the second-screen viewing experience for fans (29; 31). That same year, the Cowboys announced that they would be leaving the city of Irving for Frisco, and on August of that year construction began on the Star (54). While the city of Frisco and Frisco Independent School District (FISD) contributed $115 million to build the Star, the Dallas Cowboys paid for the remaining expenses associated with the project (54). Ultimately, the Star, which covers 91 acres, was completed in 2016 and the project cost the Cowboys $1.5 billion (47).
Although the Star is the new official headquarters of the Cowboys, since the Star’s multipurpose indoor stadium is publically owned by City of Frisco and the FISD, it will also provide facilities for use by the City of Frisco and FISD (16). The development of the Star has assisted in generating new sponsorship opportunities that continue to increase retained revenue for the Cowboys. In 2015, shortly after the announcement of the Star, Ford Motor Company announced a sponsorship extension and naming rights agreement for the Cowboys Headquarters and Multi-Use Event Center (16).
Besides the Ford Center naming rights agreement, the STAR has provided the Cowboys’ opportunities to further increase revenue from sponsorship like endorsement agreements. Panasonic contributed the largest video boards in high school sports to the Ford Center and throughout the facility provided LED displays, as well as an interactive digital display (65). While Nike designed the two locker rooms that will hold the Cowboys as well as the four FISD high school football teams, Riddled provided various slogans and hashtags on the walls of the locker rooms (65). Nike also provided new athletic uniforms for all FISD junior high and high schools (65).
The Cowboys’ also have sponsorship agreements for locations at the Star. These agreement include; the Dr. Pepper Walk of Honor; Pepsi Stage in the Tostitos Championship Plaza, Nike Jogging trails; Gatorade Sports Science Institute; Whataburger Friday Night Stars; Lincoln Motor Company Concept Showroom; Nike Store attached to Cowboys Fit; Texas Lottery area that highlights the funding education; and products for the Cowboys training table provided by Dairy Max (68). Ultimately, the Star will open the restaurant and retail area, which is expected to follow shortly after, the Omni Frisco Hotel in the summer of 2017 (68).
In 2016, according to Forbes, the Cowboys remained the NFL’s most valuable team for the ninth straight year with an estimated worth of $4 billion (4). In addition to the revenue from the lucrative broadcast agreements, the Cowboys’ 25% increase in worth from 2015 was fueled by their ability to control local revenue from merchandise sold apart from the NFL’s licensing agreement (4). In recent years, the Cowboys have utilized their licensing capabilities to enter into team-exclusive partnership agreements with women’s apparel designers, including PINK by Victoria’s Secret and Peace Love World (33).
The increase was also due to their ability to maximize profits from premium seat revenue ($125 million) and sponsorship revenue ($120 million), which are both tops in the NFL (4). In recent years, the ability to generate new local revenue at Lambeau Field helped the Green Bay Packers record the team’s 13th consecutive year of revenue increases (35). For the 2013 – 2014 fiscal year, the Packers local revenue was $136.4 million, which was a 6.4 percent increase, due mostly from the expansion of Lambeau Field’s South End, which added 7,000 seats, boosting ticket and concession sales considerably (57). For the 2014 – 2015 fiscal year, the Packers reported local revenue at 149.3 million (9).
The 9.4% increase was due to the new Packers Pro Shop merchandising store renovations at Lambeau Field (9; 36; 50). For fiscal 2015- 2016, the local revenue generated at Lambeau Field increased to $186.2 million (35). Besides a decrease in expenses, which included one-time costs for the Titletown District demolition and the NFL assessment for debt refinancing in fiscal 2015, the increase in local revenue was due to the renovations of the Lambeau Field atrium, which in recent years has helped the Packers increase fan participation at stadium tours, the Packers Pro Shop and 1919 Kitchen & Tap (35).
Going forward, the Packer local retained revenue will continue to grow. The Packers’ Titletown District investment of $65 million into the land acquisition and infrastructure will soon help to further increase local retained revenue with fan participation at the $120-$130 million 10-acre public plaza that will feature the upscale Lodge Kohler Hotel, Hinterland Brewery restaurant and Bellin Health sports medicine clinic (34; 35; 43). Even though some teams have flourished under the emergence of the unshared local revenue system, especially the ones with newly renovated or constructed stadium, lower-revenue teams without new stadiums continue to struggle.
In the past, since a team’s ability to generate local revenue is tied to the size of the market, owners of lower-revenue teams have expressed that under the League’s current economic model they could not compete with their revenue-rich counterparts who were better equipped to capitalize on the local revenue opportunities created by stadium ownership (39). As a result, these teams requested that the League find a way to better redistribute some of the local revenue that created the economic discrepancy (39). Conversely, the owners of high-revenue teams argued that the inclusion of their local revenue in the total amount of revenue shared by the League will eliminate any incentive for less prosperous teams to market themselves (39).
In recent years, even smaller markets teams that have received city taxpayer funded stadiums have been left in the red due to increases in operation expenses. For the 2013 season, although Forbes valued the Detroit Lions at $900 million, the team substantial debt load from their share of financing Ford Field, which is estimated between $350 million and $375 million, and a payroll, which was ranked the NFL’s highest, caused the team to lose money for the fourth consecutive year (38). Although the Green Bay Packers’ 2014 financial report showed an overall revenue increase of 5.2 percent, their profit from operations declined from $54.3 million to $25.6 million and Net income dropped from $43.1 million to $25.3 million largely due to ongoing stadium construction projects and player contracts (57).
In 2015, although the Packers’ net income for the fiscal year saw a jump of 15% from $25.3 million to $29.2 million and player costs dropped to $159 million, due to the fact that Aaron Rodgers and Clay Matthews contracts were recorded in fiscal 2014, operating expenses were up 13% to $336 million, due largely to depreciation and real-estate costs associated with Titletown and NFL assessments (36). Although growing operational cost could be a financial burden for teams in smaller markets, some owners are willing to sustain the short term financial instability that comes with the investment in a newer stadium for the ability to grow the retained revenue that they believe is crucial to their team’s future success.
Stadiums Opportunities Impact on Local & State Economies
Currently, when a NFL franchise desires to obtain stadium financing to either construct a new stadium or renovate a current stadium, the franchise typically raises funds through a public-private partnership. While public funding is classified as “funds, property transfers, or tax abatements that come at the expense of taxpayers”, Private contribution revenue is money typically generated through invested capital; personal seat licenses (PSLs), facility revenues, secured loans, and the NFL’s G-4 program to name a few (26). Under the League’s CBA, for the personal investment into the building or renovating of stadiums, owners receive a “stadium credit” of 1.5 percent from the projected AR or the AR for that League Year (48).
Although the stadium credit was originally under Resolution G-3, which passed in 1999, the stadium credit is now under the G-4 Resolution (23, 26). According to G-4, which is mentioned under Article 12, Section 4 of the CBA entitled “Stadium Credit”, the NFL will determine the G-4 loan issuances on a case-by-case basis (26; 41). To be approved for the G4 loan, projects should not involve any relocation of or change in an affected club’s ‘home territory (26; 41). For each League-approved project, there shall be a credit of fifty percent of the private cost to construct or renovate the stadium, or seventy-five percent of such cost for stadium construction or renovation in California (41).
Only public-private stadium projects that cost at least $400 million, and with a “private contribution” from the team of at least $200 million, will be eligible for the maximum G-4 loan level of $200 million for constructing a new stadium (26; 41). If a franchise decides to renovate their older stadium, the NFL will provide up to $250 million (26; 41). After the $200 million construction or $250 million renovation limit, the NFL provides its team’s access to banking syndicates that provide much of the gap funding at a lower rate than normal loans (26; 41).
To privately fund the project, teams are allowed to repay the costs through the waived visiting team’s share (VTS) of Personal Seating Licenses (PSLs), which includes luxury boxes and club seats, and “Incremental Gate VTS” revenue, which is defined as the difference between ticket sales in the new stadium and average sales in the last three years of the old one, over a maximum of 15 years using an agreed-upon rate based on the NFL’s long-term borrowing cost to fund or support stadium construction (26; 41). Although teams privately finance some of the construction and renovation costs, with the NFL’s brand increasing in value, owners are now more equipped to pursue public funding.
Stadium subsidy starts with the federal government. Since Section 103(a) of the Internal Revenue Code (IRC) excludes interest earned from local bonds from a taxpayer’s income, local governments can pay lower than market interest rate, which means that selling bonds is less expensive for local governments (23; 70). The purpose of the exemption is to avoid taxing other levels of government and for the federal government to help localities fund projects that benefit a wider population group than just the local residents (23; 70). Initially, Congress allowed local politicians to sell municipal tax-exempt bonds for the purpose of stadium development (23; 70).
Subsequently, in an effort to reduce public funding of the stadiums, Congress decided to reform the structure of public bonds. Section 103 created private activity bonds and Section 141 removed the exemption for sports stadiums to not allow revenue from private property to secure the bonds in the Tax Reform Act of 1986 (23; 70). Under the new Section 141, to earn tax exempt treatment, 10% or more of the proceeds go to a private business and 10% or more of the property is secured by an interest in private property, then the bond is private activity, which will be subjected to a state limit of the greater of $75 per resident or $225 million (23).
Besides lowering the interest on debt to citizens, the exception allowed teams to raise capital to finance stadiums with revenue from naming rights and Personal Seating Licenses (PSLs) without losing the income exemption for the bond holders because of limitation in Section 141 (23; 70). According to figures from the Taxpayers Protection Alliance, in the last two decades, taxpayers across the country have spent nearly $7 billion for construction or renovation on 29 of the NFL’s 31 stadiums (62). In 2009, for the Dallas Cowboys’ AT&T Stadium, taxpayers assumed the cost for over a quarter ($325 million) of its $1.2 billion dollar price tag (21).
The University of Phoenix Stadium in Glendale, Arizona, home of the Cardinals, cost $455 million to construct, with taxpayers paying close to $308 million, or 67 percent, of the stadiums total cost (25). In 2014, the San Francisco 49ers moved to the $1.3 billion Levi’s Stadium in Santa Clara where taxpayers paid $150 to $200 million in subsidies, which exceeded the entire city’s annual budget of $140 million (21). For U.S. Bank Stadium, where the Minnesota Vikings play, although Minneapolis initially required a public referendum to approve funding for the stadium, a “stadium authority” was able to override the referendum and authorized an estimated $498 million of the total $1.06 billion (21).
In addition to increased local and state tax revenue, proponents claim that sports facilities; create new jobs; generate new spending that further expands local employment; attract tourists and companies to the host city; as well as capital attributable to the team’s presence that creates a “multiplier effect,” where the new spending creates more income and spending, which in turn results in more jobs (17; 70). In 2009, due to Lambeau Field, the total economic impact attributed to spending by the Green Bay Packers was $141 million, in addition to 760 jobs and $80.6 million in wages (2). The fiscal impact of local and state taxes from training camp and games totaled approximately $8.7 million (2).
In 2009, along with supporting thousands of jobs (3,400), an analysis completed by the Metropolitan Sports Facilities Commission (“MSFC”), which oversees the construction and operations of the Metrodome in downtown Minneapolis, showed that the construction and operation of a new stadium for the Minnesota Vikings franchise would provide $32.2 million per year in tax revenue and over $145 million in direct spending by fans (12). In addition, the analysis showed fiscal impacts that included; $32.2 million in state and local tax revenues; economic benefits attributable to the presence of the reconstructed stadium and intangible benefits to the State of Minnesota attributable to the presence of Vikings (12).
Although there are many advocates that believe that new stadium construction could become an anchor for local economic development, Roger Noll, a senior fellow at the Stanford Institute for Economic Policy Research, declared that stadiums did not generate substantial local economic growth, and the marginal tax revenue is not enough to cover any major financial contribution by the city (45). Since the total consumption benefits cannot be directly measured because of the nonpecuniary component of those benefits, Dennis Coates, associate professor, and Brad R. Humphreys, assistant professor of economics at the University of Maryland in Baltimore County also found no relationship between the professional sports environment and local economies (11).
Besides a lack of economic impact, according to Judith Long, a professor of urban planning at Harvard, “governments pay far more to participate in the development of major league sports facilities than is commonly understood due to the routine omission of public subsidies for land and infrastructure, and the ongoing costs of operations, capital improvements, municipal services and foregone property taxes (1).” After a financial analysis determined that Lucas Oil Stadium would need close to $10 Million of tax payer cash infusion, the city’s Capital Improvement Board, which oversees operations at the stadium, required state legislative approval to increase the City’s hotel fees and car rental taxes (58).
The state also approved a 1 percent food and beverage tax in six counties surrounding the city agreed to that would contribute $5 million (58). In 2008, when it was all said and done, Lucas Oil Stadium cost $719.6 Million with $100.0 Million (14%) in private funding and $619.6 Million (86%) in public funding (13). In 2010, although the original plan that was approved by city council to build Levi’s Stadium included no city or state infused tax dollars, when it was all said and done, twelve percent of the cost of the $1.3 billion stadium was provided by the city (1).
Furthermore, after an audit was completed it was discovered that taxpayer dollars are being used to cover police and firefighter staffing at the stadium at a cost to the city’s general fund, which is in direct violation of voter-approved Measure J that was developed to shield against spending the public’s money on stadium construction or operations (24). Ultimately, besides the lack of economic impact and the ongoing costs of operations, the biggest problem is that the government-subsidized facility predictions about costs and benefits never take into account the possibility that after several years in the subsidized stadium, teams will ask for a new stadium before the old stadium is payed off.
Although the New York Giants and Jets built their $1.6 Billion dollar stadium with private funds, besides paying for about $400 million in road improvements and a new rail link from Secaucus (5), New Jersey taxpayers are still paying about $110 million in debt for the old Giants Stadium even though it was demolished to make way for New Meadowlands Stadium (6). For Heinz Field, where the Pittsburgh Steelers play, Pennsylvania taxpayers contributed about $260 million to help build the stadium and to retire debt from the Steelers’ previous stadium (19). Ultimately, the willingness to infuse additional tax payer funds to newly renovated or constructed stadiums demonstrates the value host cities place on an NFL franchise.
Although host cities may place a high value on an NFL franchise, in the interest of protecting taxpayers, research suggested that Congress should amend the Internal Revenue Code to require that professional sports teams repay local governments for the costs of building stadiums and repay the federal government for its subsidization of the stadiums through tax exempt municipal bonds (23). If a determination is made that a new stadium is in the best interests of the citizens, research suggested that city policymakers should use taxes, such as ticket surcharges and municipal parking ramps, and ensure that the part of the projects that receive publicly financed include infrastructure improvements that benefit the general public (17).
Stadiums Opportunities & Team Relocation
Although Missouri and St. Louis offered $400 million in state and city money for a new stadium, since officials argued that the team was an economic engine for the region, January 2016, Rams’ owner, Stan Kroenke, announced that he would spend $1.9 billion of his own fortune to build a new stadium in Inglewood, southwest of downtown Los Angeles (46). After NFL owners rejected the San Diego Chargers’ plan to build a shared stadium in the Los Angeles area with the Oakland Raiders, to replace 50-year-old Qualcomm Stadium, the Chargers submitted a stadium proposal and received the required 66,447 valid signatures to place the stadium funding issue on the November 2016 ballot (66).
During the November 2016 ballot, voters will decide whether to increase a hotel room tax to 16.5% from its effective current rate of 12.5% to help fund a new $1.8 billion downtown stadium and convention center project (55). To further fund the new stadium project, the Chargers agreed to provide $350 million and they would also receive a $300 million loan from the NFL (66). If the San Diego Chargers are voted down, the team has a tentative deal in place with the Rams to share their new $2.6 billion stadium complex in the L.A. suburb of Inglewood, scheduled to open in 2019 (55).
Despite many questioning if the Las Vegas market, which was ranked fifth-smallest TV market in the NFL, according to Nielsen, could sustain a professional football team and a one-year lease in Oakland’s Coliseum for the 2016 season, since they have made no progress with Oakland officials, owner Mark Davis has mentioned that he is prepared to move his team to Las Vegas if a suitable funding plan was approved (55; 60). The biggest problem with relocation is that some teams that leave the host city before the city is done paying the cost of their stadium, which will likely need to be demolished, leaving behind an enormous debt.
Despite the team’s move to California, at the beginning of 2015, St. Louis city and state taxpayers still owed $129 million of the $280 million in public funds used to finance Edward Jones Dome (46; 61; 67). Until the bonds are paid off in 2021, the city will contribute about $6 million per year toward the stadium’s bond payments, while St. Louis County will pay another $6 million and the state of Missouri covers another $12 million (61; 67). Since, previously, the Rams paid $500,000 per year to use the facility, the loss of the Rams could increase costs in the short-term (61; 67).
Stadiums Opportunities & Super Bowl Hosting Opportunities
Although the benefits of individual sport facilities on local economies are unclear, the NFL and government officials try to increase taxpayer support with the reality that a city with a newer stadium has the opportunity to host the Super Bowl. Not only is the Super Bowl one of the highest rated broadcasted sporting events, but the publicity a city receives hosting one could attract millions of football fans to the hosting area. In 2015, although Super Bowl 49 was played in Glendale, ASU data reported that downtown events in both Phoenix and Scottsdale brought in more than 1.5 million visitors from around the country (37).
According to Seidman Research Institute and the School of Business at Arizona State University, the millions of Super Bowl 49 visitors produced a gross economic impact of $719.4 million for the entire state (37). While the increase in publicity a city receives from hosting a Super Bowl could have a positive gross economic impact, the taxpayer funds needed to host one could be a source of controversy. In 2016, although Super Bowl 50 was played in Levi’s Stadium in in Santa Clara, San Francisco’s city taxpayers paid nearly $5 million to host an expected one million people during Super Bowl 50 events (59; 63).
Besides paying for the transformation of the front of the iconic Ferry Building, into San Francisco’s Super Bowl City, taxpayer funds also covered primary expenses for the city’s police ($1.5 million) and fire ($600,000) departments (59; 63). Although the Super Bowl Host Committee agreed to reimburse Santa Clara for an estimated $3.6 million in hosting costs, at least in part because of a local ordinance that prohibits certain city funds from being used on stadium-related events, as part of the Super Bowl bid, San Francisco’s emergency management and fire departments were the only departments that budgeted for the additional expenses, while other departments were asked to identify surpluses with no reimbursement agreed upon (49; 59; 63).
While Super Bowl Host Committee officials projected that San Francisco will generate “a couple hundred million to $800 million” in economic output and a PricewaterhouseCoopers study projected that the Bay Area would see “at least $220 million in direct revenue”, Andrew Zimbalist, an economics professor at Smith College, mentioned that the studies were based on a false methodology and unrealistic assumptions (49). Victor Matheson, an economist at College of the Holy Cross in Worcester, Mass., mentioned that the reason for this is that the NFL provides a host city the figures of the economic impact from a game, after making estimates about how many visitors will come, how long they are likely to stay and how much they’ll spend (59).
SUMMARY
The revenue sharing system is separated into two classifications. While the NFL’s “Master Agreement”, which is an extension of the NFL Trust, allows the league’s 32 teams to equally benefit from all the revenue generated from national licensing and sponsorship agreements, the CBA and the League’s Constitution and Bylaws allows them the ability to equally share the revenue that is generated from ticket sales and television agreements. The broadcasting agreements continue to be the biggest contributors to the league’ shared revenue system and the influx of money that is generated from those agreements continues to increase the value of the NFL brand.
The added value to the NFL’s brand has provided the league and its 32 teams bargaining power when pursuing public subsidies for renovated or newly constructed stadiums. Newer stadiums have become crucial to a team’s ability to increase value when negotiating local revenue opportunities that under the revenue sharing agreement are retained by each of the league’s 32 teams. Although the NFL teams pay for some of the costs related to building a new stadium with private contributions, for the most part, the league relies on cities and states politician to infuse public funding from tax exempted bonds to finance part if not the majority of new stadium projects.
While advocates believe public financing for newer stadiums could anchor local economic development, opponents declare that the growth does not generate substantial local economic growth, and the marginal tax revenue is not enough to cover any major financial contribution by the host city. Opponents also point out that the government-subsidized facility predictions about costs and benefits never take into account the possibility that the team will simply ask for a new stadium before the city is done paying the cost of their stadium, which will likely need to be demolished, leaving behind an enormous debt.
Although a newer stadium is not cheap, the chance that the city may benefit from hosting the Super Bowl increases, since the last several super bowls have been hosted by cities with newer stadiums. The reality is that this could be the only way city officials and NFL teams could continue to justify the use of public funds to renovate or build expensive new stadiums. But for some NFL teams receiving the support from taxpayers has been difficult. With no taxpayer support for government-subsidized facility, teams like the St. Louis Rams, San Diego Charges and Oakland Raiders have decided to relocate to other cities.
The relocation trend could continue unless teams, who need newer stadiums to create retained revenue, receive subsidized support from the cities they represent. The reality is that under the League’s current revenue sharing model, if the national shared revenue does not continue to see significant increases, lower-revenue teams will continue to struggle to create and capitalize on the local revenue opportunities that are created by new stadium ownership. Furthermore, with continuous increases to player cost, since a team’s potential marketability is directly tied to the size of its local market, the additional financial burden that comes with the investment of a newer stadium will put smaller market teams in the red.
CONCLUSION
While the current CBA allows owners to deduct a 1.5% stadium credit, which is provided from the player’s share of the League’s total revenue, the fund does not offset the construction expenses associated with newer stadium. To better fund the approved renovation or new construction projects, during the 2020 CBA negotiations, the League and its owners must agree to increase the stadium assistance to 3%. Although the additional 1.5% should come from the owner’s share of the League’s total revenue, once the original 1.5% stadium credit is subtracted from the player’s share of the League’s total revenue, each party would ultimately receive 48.5% of the League’s total revenue (AR).
To address the economic viability concerns of those lower-revenue teams, similar to Jerry Jones, owner of the Dallas Cowboys, the NFL should allow its owners to use the League’s brand equity to generate revenue from merchandise sold apart from the NFL’s licensing agreements, which would be retained. This will allow the owners, whose teams play in older stadiums, the opportunity to generate retained revenue outside of the opportunities a stadium offers. The increase in revenue will produce the necessary funds to privately finance a bigger portion or the entire stadium project without public subsidies.
Furthermore, since the size of the market place impacts a team’s ability to generate local revenue opportunities, the additional retained revenue could also help lower-revenue teams address some economic viability concerns by offsetting the growing operational expenses that are associated with increasing player cost and the investment of a new or renovated stadium. Ultimately, once the renovation or construction of a stadium is completed, similar to the Dallas Cowboys and Green Bay Packers, teams will need to invest in land acquisitions that surround the stadiums to develop multipurpose facilities that will further increase retained revenue opportunities outside of the opportunities a stadium offers.
Although the increase in stadium credit and retained revenue will allow the owners to claim most if not all of the financial responsibilities of future stadium projects, they will still need to pursue taxpayer funds to finance the development of future projects. Whether city policymakers continue to publicly finance the construction of newer stadiums or decide to fund multipurpose facilities, in the best interests of the taxpayers, besides host cities and states benefiting from usage, publicly funded projects should include infrastructure improvements that benefit the general public and use taxes associated with the project to pay off municipal bonds as well as additional operational expenses, as suggested by research.
APPLICATION TO SPORT
The information presented in this paper could help individuals who work in the area of sports management better understand how an organization’s brand equity influences brand control and agreement value during the negotiation of new revenue stream opportunities.
Acknowledgement
Marcos Abreu would like to acknowledge co-author Brandon D. Spradley, Director of Sports Management at the United States Sports Academy for all his support.
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