Lockout Could Jeopardize the Cash Players and Owners Are Fighting Over

All you clever and jaded sports fans out there will probably laugh at this, but I really held onto the hope that the two extensions the NFLPA and the owners agreed to meant we wouldn't see this CBA debacle make it into the courts where it has the potential to be a long, drawn-out process that will ass up the season. Nope, I optimistically thought that the extensions actually meant both sides wanted to avoid a lockout and work stoppage. That optimism seemed reasonable, after all, there are billions of dollars at stake that neither party will get if there is no NFL season in 2011.

But, just like my prediction that Adam Lambert would win American Idol, I was wrong.

Despite all the reasons why they shouldn't mess with a good thing, the players and owners are going to end up fighting things out in court. I have come to realize a couple things about court battles.

  1. Outcomes are not guaranteed.
  2. The lawyers are the real winners.

Essentially, the players and their union could slug it out in the legal system against the NFL owners only to get surprised by the outcome and receive less than they might have gotten if they had continued arbitration and reached a compromise.

For me, the real kicker in all of this is that they are fighting over $9 billion in revenues-money from the fans. NFL football fans are kind of in the position of the wealthy, invalid aunt in a murder mystery. She hears her relatives fighting over the inheritance she will be leaving when she dies as if her decision to leave her money to them is a foregone conclusion.

But it isn't.

If the responses, conversation, and debate regarding this issue are any indication, fans are getting pissed off. You don't have to be a business school graduate, or a captain of industry to recognize the danger in pissing off your customers. Fans, feeling angry and alienated by all the fighting between the players and owners, could decide to take their business elsewhere. For as wonderful as watching professional football is, the NFL aren't the only folks out there peddling football. College, arena, and even Canadian football could help fill the void that a lockout and shortened season could bring. It wouldn't be the same, but fans do have options and both players and owners should remember that.

Join me after the jump for more financial speculation and kvetching.

 

Back in college I suffered through a macro economics class. I don't know if it was the material or the awful professor, but it seemed pointless. Despite the professor's attempts to prove otherwise, economics isn't a pure science. In pure sciences you can isolate factors in a controlled environment to discern what is going on, why it is happening, and you can duplicate the results. But economics can't be studied in a controlled environment with isolated factors so you never really know what is going on or why and you might not be able to duplicate the results.

I took that jaunt down my academic Memory Lane to illustrate a point. The NFL players and the owners are fighting in court for rights to $9 billion in revenues, but they don't currently have $9 billion in revenues-they have the expectation of $9 billion in revenues. And, they expect to have $9 billion in revenues because either that is how much the NFL generated in revenues last year or because that is what their financial models project that they will earn next year. Either way, they are scrapping over rights to cash they do not have, much like the relatives of the rich, invalid aunt in my earlier analogy. But, the very fact that they are fighting alters the financial landscape.

When the NFL players and owners finally kiss and make up and decide how to share their $9 billion in projected revenues, there is no guarantee that they will actually have $9 billion in revenues to share. It goes back to economics and the niggling fact that economic models don't exist in a lab.

In pissing off me, you, and a whole lot of other football fans around the world, the NFL players and owners are jeopardizing the very thing they're fighting over--expected money from fans. Quite honestly, with as annoyed as fans are getting with the players and owners over the prospect of a lockout messing up the 2011 season, $9 billion in revenues seems optimistic.

We're still dealing with a crap economic environment in the United States. Crude oil prices are once again creeping up and so are foreclosures. People are out of work and worried about the future, but despite all of that, we've been willing to spend our cash on the NFL to the tune of $9 billion.

So what are the chances that we'll be inclined to continue spending at that rate after the NFL players and owners drag the game we love through the mud? Ah, now there's the $9 billion question.

Most fans will watch the NFL again when this mess finally clears the courts. We'll even go back to spending our hard-earned money on the NFL. However, the NFL might have more competition for fan attention and money than they had before the lockout, making fans might be more tightfisted.

Think I'm exaggerating? Okay, I probably am, but consider this--who wants to drop $100 on team gear and at least that much for a game ticket, parking, and concessions to watch players who you think are millionaire douche bags playing for teams owned by people who you think are billionaire douche bags? Who wants to share that with their kids? So games stop selling out and can't be shown on television in their local markets--not always, but more often than in the past. Eventually, there isn't as much cost-benefit for businesses to buy ad time during games. Then, it trickles down into merchandising. Since parents aren't taking their kids to games, kids don't buy posters of their favorite players or ask for jerseys for Christmas or wear hats with NFL team logos, they don't save their allowance for genuine NFL footballs and helmets. This is important because children, lacking any personal expenses, represent a significant amount of expendable income being infused into the American economy. And, because fans aren't identifying with players maybe they don't care so much about the latest edition of Madden so, after a good long run, the game is discontinued. Football's king status in sports entertainment wanes.

The point of that speculative supposition is that all those merchandising-related sales bring the NFL licensing revenue, which is highly lucrative because it gives them significant cash in-flow without representing an additional cost to the NFL, thus adding to revenue. Without the sales of licensed merchandise (hats, t-shirts, jerseys, jackets, sports gear, posters, games, etc.), that revenue stream from licensing fees dwindles. What was a $9 billion revenue stream at the start of this legal battle, may shrink significantly if bitter fans don't buy NFL merchandise at the same rate they did before. So, in disillusioning fans with a prolonged legal battle that could shorten the season, the NFL is actually risking devaluing its product.

Ramifications from this lockout have the potential to negatively impact the NFL's revenues for years to come because it erodes fan support for the sport. Who knows how long it could take fan support to recover?

Players and owners are not in the sports entertainment business to get poor, they want to make money. I don't fault them for that at all, it isn't like any of the rest of us are working to get poor either. This is America and we still hold the belief that if you work hard and create a great product you can be successful. And, as far as products go, the NFL has a great one--it is a product that crosses age, gender, and race boundaries to become wildly popular and highly lucrative. But when the flashing dollar signs get in the way of players and owners making a sound financial decision, to the point of potentially eroding the very thing they're fighting over, it seems...well, pointless.

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