NFL Lockout 2011 Jason Runde Reid Shan Josh Donnewald Jake Benhoff Strategy and Policy (BUS 4360); Spring 2011

NFL Lockout 2011 The NFL The Lockout introduction Developments thus far The Lockout itself – Issues – Problems Financials Previous lockouts in other sports – Impact What’s at stake? Strategic decisions Where from here?

The NFL Wide audience in the United States – Why is it so popular? Revenues up during recession – Why is this? In a business sense, what is a lockout? The Lockout – 2 opposing sides The Team Owners The Players Association

The NFL – Highest level of professional American football in the U.S. – Established in 1920 as the American Professional Football Association – Today: 32 teams, 2 conferences

The NFL Commissioner: Roger Goodell Most attended domestic sports league in the world – 67,509 fans per game in – 66,960 fans per game in TV Partners: – CBS – ESPN – FOX – NBC – NFL Network

NFL Cities

Developments Thus Far Collective Bargaining Agreement (CBA) originally expired March 3 On March 3 – 24 hour extension March 4 – One week extension March 12 – Lockout formally announced Financial concerns – Estimate: situation is costing the NFL, as a whole, $100 million a week as long as lockout lasts (per ESPN)

Developments Thus Far March 12 – The Players Union decertifies March 12 – The Players file anti-trust lawsuit against the NFL – 52 page document April 6 – U.S. District Judge Susan Richard Nelson urges mediation between the 2 sides – If this is not done, she vows a ruling will be made in a few weeks April 13 – The mediation is court-ordered by Judge Nelson

The Lockout Itself No conclusion in near future Collective Bargaining Agreements usually last 5-7 years – Why was this? Has the success of the league in recent years essentially caused this work stoppage?

Issues for Both Sides Reasons for the lockout: – Length of regular season – Money issues Rookie salary cap Minimum salaries Benefits for retired players Revenue sharing

Length of Regular Season The Owners – 18 games – More revenue – TV deals – Regular season game far better than a preseason game – More publicity The Players – More games, same or lesser pay – Risk of injury More exposure – Scheduling problems Stadium conflicts – NFL record books

Rookie Salary Cap The Owners – Rookies “should be considered rookies” – Rate of rising dollar value of rookie contracts – Sam Bradford, 2010: 6 years, $78 million, $50 million guaranteed – Give more to veteran players The Players – Feel that this number is justified – Most likely “the face of the franchise” – Generated revenue equals the initial cost – These players bring stability to the league

Benefits for Retired Players The Owners – Current retirement plan is sufficient – State that they have contributed, over the last 10 years, $2.7 billion to retirees The Players – Want more – Want a better plan, especially with the high risk of injuries in the NFL – Studies show that many NFL players suffer life- long health effects after playing in the NFL

Revenue Sharing The Owners – Won’t release their financial information – Want $1 billion more of the $9 billion yearly revenue – Why? The Players – Increase minimum salaries – More play, more pay – Better retirement plans – Want financials released – Green Bay Packers example

NFL Financials Financial information – $9 billion yearly revenue ESPN television deal alone is estimated at $1.8 billion per year $1B taken out from $9B immediately for expense purposes Remaining revenue split fairly evenly

NFL Financials Players requested from owners: Total operating income Total operating expenses (player costs, team expenses, sales and marketing expenses, operations/maintenance expenses, salaries/payments to owners) Profit from operations Other income/expenses Income before provision for income taxes Net income Cash and investment assets Dividends and other distributions to owners and their families Financial statement notes

The Green Bay Packers Only publicly owned team in the NFL 4,750,937 shares, 112,158 stockholders Why are their financial statements useful?

The Green Bay Packers From 2010: Net profit: $5.2 million Overall revenue: $258 million Player costs: $161 million Operating expenses:$248 million Profit from operations: $9.8 million National TV revenue:$95.7 million Total national revenue: $157 million Overall, expenses rose 11.8% while revenue only rose 5.5%.

Labor-Cost Structures How to reduce labor cost: – Replace labor intensive jobs with technology – Automate certain operations – Develop process mapping systems to train workers – Offer early retirement to older, higher paid workers – Reduce or eliminate benefits – Outsource certain jobs to low-cost areas

Other Unionized Environments UPS Kroger Southwest Airlines US Steel Caterpillar Railroads: CSX, Norfolk Boeing Pepsico Exxon

August, 1994 Longest work stoppage of any major sport in American history Major League Baseball’s lowest point World Series cancelled, players’ salaries, careers ended (in some cases) League lost an estimated $1 billion, and maybe more importantly, fans Still feeling the effects of this today MLB Lockout of 1994

NHL Lockout of 2004 First American sport to lose an entire regular season due to lawsuit 1,230 games cancelled Rule changes, team changes, management changes Although not as popular, still, millions of dollars were lost

What’s at Stake for the NFL? A Look to the Future – Growing interest in the sport Quickly becoming ‘America’s Game’ – Competition with the other major sports – Possibility of losing that newfound interest – Money!

Stakeholders City/state economies Businesses in and around NFL cities City employees in which NFL teams reside Stadium employees Bars, establishments all across the nation Hotels, entertainment spots in NFL cities Merchandise retailers Advertisements Fans!

Other Costs Sponsorship deals lost 2012 Super Bowl – Indianapolis: lost revenue? Stadium vacancy expenses – Heinz Field example

Strategic Decisions Criteria to Consider – How can the NFL compromise with the NFLPA to uphold its standards yet please the fans and continue to make money? – How will the decision, whatever it is, impact the future of the league? – How does the lockout impact the owners, players, and fans? Who has the most to lose?

Where From Here? NFLPA no longer exists Season-long lockout? Season played with replacement players? Deal reached, 2011 season saved?

Negotiation An everyday action; we do it involuntarily Can be between any two parties Very common in the workplace Successful management and CEOs have great negotiating skills Extremely complex tactic, many different ways to go about it Crucial to have good negotiating skills, especially in today’s competitive world

Negotiation Strategies Separate the people from the problem Keep perceptions from reality Recognize and understand emotions Communicate!

Negotiation Strategies Invent options for mutual gain Broaden your options Focus on interests, not positions Use objective criteria

Questions/Concerns What, in your opinion, will be the impact on the league if indeed a lockout does occur for an extended period of time? Will it recover? If so, how long will that recovery take? If you were an NFL owner, what would you be most concerned with? If you were an NFL player, what would be your biggest concern? Is money the obvious issue here? Why or why not? What is the main problem at the heart of this case?

References nfls-economic-realities-for-lockout-unwarranted/ difficult-issues-to-resolve-come-down-to-money html resolved-issues-could-throw-NFL-s-2011-season-for-a-loss increase-net-profits-to-5-2-million/ five-potential-outcomes-for-the-2011-season#page/2

Thank you!