Goal Line Economics: The Economics of Professional Football
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PAUL SOLMAN: While sports news has been dominated lately by the harsh reality of economics– baseball, with its bankrupt teams, labor strife, and the like– the economically dazzling sport of football is again grabbing the spotlight. To some, football is merely mayhem, with tackles that feel like slamming into a brick wall at full speed, careers barely four years long, some two-thirds of the labor force physically disabled in retirement.
But football is also a multibillion-dollar business, and to your economics correspondent, a pigskin fan, as in “fanatic,” what’s striking is that pro football has arguably become America’s most popular sport by practicing non-free-market economics, and that baseball is now following football’s non-free-market model, in which firms compete furiously, yet share the industry’s revenues, with labor and with each other. In fact, as the new season gets under way, the NFL could be called a wildly “successful planned economy,” though some have described it as a “communist state.”
ROBERT KRAFT: I’d say we’re not communists, we’re socialists, in that we all have the same budget to spend.
PAUL SOLMAN: Owner Robert Kraft of “my” team, the once lowly, now Super Bowl champion New England Patriots, explains that equal competition comes from equal budgets.
ROBERT KRAFT: And then those who manage their budget more efficiently and get the best value should over time do better, because we want everyone to be competing with the same ground rules.
PAUL SOLMAN: In baseball, richer teams like the Yankees have a real advantage, able to buy players poorer teams can’t afford. But in football, every team has the same amount to spend on players, and thus, longtime laggards like the Patriots here can suddenly win it all, thanks to a system which bypasses the free market. It works like this: The National Football League, the NFL, gets most of its money from TV contracts, then shares that money equally with each team, regardless of how many viewers that team brings in. The league imposes a salary cap, so no team can spend more than the maximum– $71 million this year to prevent big spenders from amassing the top talent. Schedules are adjusted every year– tougher for the better teams, easier for those who have dropped the ball. Yet there’s precious metal and glory galore for the ever- changing winners who beat the system within the system.
SPOKESMAN: It’s good for the game, it’s good for the country, it’s good for the NFL, for those who love football, not have someone dominating. So then the company that has the best business practices is the one that’ll do better over time.
PAUL SOLMAN: If the league’s success is due to equality, the Patriots’ surprise supremacy may be even more so. The team came out for the Super Bowl as a group, despite individual introductions, causing Rush Limbaugh to complain, “working together for the greater good is so close to ‘the communist manifesto,’ it’s frightening.” On the other hand, quiet coach Bill Belichick, ultimately responsible for making the product on the field, has been called “brilliant” by others for shaping a team of equals.
PAUL SOLMAN: When people call you brilliant or a genius, what do you think they mean?
BILL BELICHICK: I’m not really sure what they mean. And I’ve been called a lot of other things, too, that would balance that off.
PAUL SOLMAN: But before I take this too far, Belichick, a former economics major at Wesleyan, doesn’t value equality at the expense of competition. In fact, he teaches his players to surmount all obstacles, demolishing everything that stands in their way. Now, when Belichick took over in 2000, the Patriots were in decline, stuck with stars– many no longer in the picture– at whom big money had been thrown in the form of long-term contracts that could make a coach’s hair turn gray.
SCOTT PIOLI: What we wanted to do was put a limit on the spending, put a limit on the borrowing.
PAUL SOLMAN: So top aide Scott Pioli and his boss, coach Belichick, decided not to keep signing the most highly touted players.
SCOTT PIOLI: Because there’s not always a direct correlation between marquee names, marquee salaries, and good football players.
PAUL SOLMAN: And in the NFL, “Good football players” is just what you need lots of, since this is a sport where injuries often sideline many of a team’s two dozen starters. So when high-priced Patriots quarterback Drew Ble suffered a life-threatening hit, a low-priced but high-value backup, Tom Brady, was on the 53-man roster, ready to replace him.
SCOTT PIOLI: Our 45th through the 53rd players on our roster were probably better than many of the other teams’ backup players.
PAUL SOLMAN: So you have to have the money on hand to be able to afford those better backup players that you’ll have on board.
SCOTT PIOLI: Absolutely, absolutely. We have only certain amount of dollars to spend, and we have to build a team. And if we overspend in one area, we’re not going to be able to fill in in certain other areas where it’s going to affect the team.
PAUL SOLMAN: Economics majors like Belichick may remember that this is called “opportunity cost.” If he had paid too much for prime running back Antowain Smith here, given the salary cap, that would have cost him the opportunity of signing other players. So by figuring out how to build a more competitive team within the limits of the salary cap, the Patriots laid the groundwork for success. But a team also has to generate enough income to pay the cap. TV revenue doesn’t cover it all. And there are non-capped expenses, like a great coach, executives, assistants, facilities, transportation. Where does that money come from? Well, there are some revenues you don’t share with the rest of the league: The revenues from your stadium. Cities desperate for football usually build stadiums for teams. The Kraft family, however, has just built the NFL’s first privately financed one itself. The idea is to eventually make more money than rivals, from parking, concessions, and 68,000 seats the Krafts totally control, including cushy Red Club seats at up to $600 per game, luxury suites upwards of $100,000, both of which come with rights to use the stadium for social events.
JONATHAN KRAFT: The idea was to make the clubs and the suites bigger and more spacious than anything that had ever been done, and then give it 365-day-a-year use to the members. And that way you’d be selling a higher value-added product to the end user, but also generating enough revenue to help pay for the building.
PAUL SOLMAN: The Krafts were also economically savvy about sponsors– fewer, more prominent signs for more money per sponsor. So for all the talk of socialism, the owners try to, in economic terms, maximize their return– in football lingo, “kick butt.” And the Krafts pay their coach a hefty $2.5 million to use his noggin to get the most out of what they’ve got to work with– the primary goal in any economic textbook. Case in point: The Patriots’ last drive in the Super Bowl. Patriots’ ball, score tied, seconds left. An interception would be fatal. But Belichick had his bargain quarterback throw short passes. Why? Because the Rams were likely to protect against long passes.
BILL BELICHICK: So there’s no way you can predict what they’re going to do. They just do too many things. But what you can do is play the percentages, follow the odds, and that’s really what it’s about.
PAUL SOLMAN: Plus, Belichick’s many above-average yet affordable team-driven players would do as told, avoid the heroics, and maximize the chances of getting close enough for a field goal that won the game. The team that came out as one rejoiced as one, in a win for competition and cooperation, for team, coach, and the NFL.
PAUL SOLMAN: Why is this league different from all other leagues?
ROBERT KRAFT: Here’s the bottom line of our league, why I think we’re the best sports league in this country, if not the world, is that in the end, we only really compete three hours on Sunday with one other team. The rest of the time, the progressive owners in our league understand we have aligned interests, and we should always be a partnership and put our selfish interests down, so that we can share and do what’s in the league’s long-term interests.
PAUL SOLMAN: As the new season begins, the NFL’s system of parity will only make winning tougher for the Patriots. The Super Bowl triumph meant they picked last in the college draft. Their schedule, easy last season, was made much tougher this year. But maybe that’s why more and more fans follow pro football these days. In some measure, because of its economic model, you truly never know who will win.