Thursday, September 4, 2014

Why is the NFL so valuable?

CBS just bid $300 million, and won an auction to broadcast eight thursday night games.  Broadcast networks like CBS use the NFL to attract viewers from different media for one reason,

TV channels see sports as vital to their lineups because 97% of all sports programming is watched live, .... CBS, 21st Century Fox Inc.'s Fox, NBC and Walt Disney Co. DIS +0.19% 's ESPN have committed to pay $5 billion a year to air NFL games through the 2021 season.

18 comments:

  1. We learned in Chapter 18 that the roles in auctions can be reversed. The NFL has successfully created a situation where companies are finding themselves occupying both roles.
    Being the benefactor or future benefactor from one auction clearly dictates how we can behave when the roles are reversed. CBS’s core investment into a 3-hour slot for 8 Thursdays can be equated to new guaranteed-to-work programming.
    The NFL knows that their product will bring guaranteed prime time ratings over a diverse cross section of buyers. Hence, it would be the envy of all networks. The networks in turn, having secured a very desirable time slot, can auction off advertising under the very same premise.

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  2. CBS isn’t the only one “cashing in”.
    TV advertising is one way a company, brand, or group can “win” the Super Bowl marketing game. General Motors marketing partnership with Major League Sports teams to attach the GM name to the MVP award is nothing new. GM has been a strong sponsor for the NFL. Every year, after everybody has stuffed their faces with wings, after hundreds of thousands of adult beverages have been consumed, and after the final second on the game clock has ticked down to zero, the MVP award is given to the most outstanding player of the Super Bowl along with a trophy the MVP receives a car from GM.
    Why is Google in discussion with big automakers to build self-driving cars? Are they preparing their strategy so they are prepared to go to work for the highest bidder? Google’s first self-driving car prototype was assembled by Roush in Detroit. But the company may work with Ford, GM, Toyota and others to bring the technology to market. Automakers find themselves in a rapidly escalating race to integrate high-tech features that will capture the public’s imagination. Several that initially seemed wary of self-driving technology acknowledged at this year’s Consumer Electronics Show that it might in fact represent their industry’s future.
    News from Wednesday’s Reuters report is that Google is already partnering with some of the industry’s largest suppliers to build its self-driving prototypes, with the goal of bringing its technology to market by 2020. Urmson confirmed reports that its first prototype car was assembled by Roush in Detroit. The company is also using components from Continental AG, ZF, and LG Electronics, and its microprocessors are made by Nvidia.
    Reference:
    Oremus, W. (2015, January 14). The Citizen's Guide to the Future. Retrieved from Slate: http://www.slate.com/blogs/future_tense/2015/0
    /14/google_self_driving_cars_may_be_built_by_gm_ford_toyota_or_mercedes.html

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  3. The NFL is so valuable because of the high traffic and wide consumer base compare to any other games. For example, the world’s top 20 soccer squads have a mean value of $968 million. The average worth of Major League Baseball’s 30 teams is $744 million, and average values for the National Basketball Association and National Hockey League, also each with 30 teams, are $509 million and $282 million, respectively. These values pales in comparison to the NFL 32 teams are worth, on average, $1.17 billion (Ozanian).
    A book value of these proportions puts the NFL in a very favorable bargaining position. According to Ozanian from Forbes magazine, the National Football League continues to be the most lucrative sports league in the world. Furthermore, with its strong brand and popularity, the NFL is in an advantageous position to strike a hard bargain regardless of what its rival does, thus getting the biggest share of the gains from its highest network bidders (Froeb. 2014). Investors are confident with any network that has the NFL contract because provides a fertile ground for rewarding advertising and for revenue optimization. The NFL now has the leverage to make threats to CBS even if the NFL doesn’t even plan to use them (Froeb. 2014)

    Leo Palmer ESC Managerial Econ

    Reference:
    Froeb, MCcann, Ward, Shor. (2014) Managerial Economics. A problem Solving Approach.
    Ohio:South-Western Cengage Learning.

    Ozanian, Mike. Forbes magazine:The Most Valuable NFL Teams
    http://www.forbes.com/sites/mikeozanian/2013/08/14/the-most-valuable-nfl-teams/

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  4. The NFL is such a powerful commodity right now, that brand itself is making money hand over fist and are essentially in the drivers seat in all bargaining. The thing that amazes me is it’s almost bullet proof with all the things that have happened this year. Let’s do a quick recap of the negative items the NFL had against it this this:
    1. Ray Rice incident- the league completely mishandles the situation, gets caught essentially in lies of what came about in the handling of the situation
    2. Other Player issues – Adrian Peterson: essentially brought up on charges of child abuse; Greg Hardy: Domestic Violence Charges… just naming a couple, but there are additional ones.
    3. Former Players- Win legal settlement worth$765M over concussions and other physical harm suffered from playing in the league
    4. Deflate Gate- Super bowl Champion New England Patriots has allegations against them in the Conference Championship game for illegally tampering footballs to gain competitive advantage in a game, even though investigations are still pending it appears this will be swept under the rug.
    So, how many companies do you know would have the ability to bargain, [Bargaining can be viewed strategically as a game of chicken where the ability to commit to a position allows a player to capture the lion’s share of gains from trade (Luke, McCann, Shor, & Ward; 2014)] a $5Billion a year of payment from Television Companies, in which it has essentially endangered the welfare of it’s employees, it’s employees are endangering the welfare of others, the top team is under allegations of cheating and it appears there will be no repercussions. Does this sound like a company that should be holding the bargaining chips, with the ability to close out a $5 Billion a year deal?

    Luke, F., McCann, B, Shor, M., & Ward, M. (2014). Managerial Economics; A Problem Solving Approach (3rd ed.). Mason: South-Western Cengage Learning

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  5. This comment has been removed by the author.

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  6. Why is the NFL so valuable? The NFL is so valuable because people love to watch sports especially football. Starting around September timeframe people start getting excited about football season, they love to watch their favorite teams live on television. Some people will pay an obscene amount of money to go to a live game in order to see their team in person. They will also pay an obscene amount of money to buy memorabilia from their favorite team. In terms of the Super bowl; people get super excited about the new commercials that will be aired and what will be the best commercial. Also different labels such as Nike, Time Warner Cable, and Gatorade seek out football players to market their products on their commercials. Furthermore, the networks such as CBS, NBC, and ESPN know that they will produce revenue from broadcasting the games and the commercials, its money in the bank for these networks.

    Reference:

    Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.

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  7. The NFL realizes they have the opportunity to make money off of networks by allowing them to bid as to gets to broadcast the live games. Because football is one of the most watched sport in the USA, they have a lot of bargaining power as to where the games are broadcasted. Not only does the television station benefit from the viewers, they benefit from the companies wishing to advertise while the game is on. So in a sense, the networks are not bidding on the football games to be advertised, they are looking at the big picture and what they are able to benefit from by having the games televised on their station.

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  8. The use of an auction by the NFL for the purposes of designating which network will be allowed to broadcast Thursday night games perfectly illustrates why economists love auctions. As made clear in “Managerial Economics, A Problem Solving Approach,” auctions are efficient and avoid costly negotiations by setting a price. In this case, the NFL’s product (the rights to broadcast) commands a certain amount of demand from potential broadcasters. The broadcasters must set a minimum and maximum that each is willing to spend, based on the value of those rights. Most of the gain for each broadcaster will come from advertising dollars generated during the live broadcast. The balance for the broadcasters is to determine the potential value of profits from those advertising dollars versus the cost of the rights to broadcast. In fact, according to Variety, a 30-second spot broadcast on Walt Disney's ESPN cost an average of $408,000 last NFL season ad prices for non-prime football carry a cost of up to $600, 000 for a 30-second spot in Fox's Sunday-afternoon NFL broadcasts. By looking at those potential profits, the potential broadcasters can best determine the price each is willing to pay without having to go through lengthy, costly negotiation.

    References:
    Froeb, McCann, Ward, Shor: (2014) Managerial Econonics. A Problem Solving Approach, Ohio: South Western Cengage Learning
    http://variety.com/2014/tv/news/ad-buyers-hope-to-use-cbs-thursday-nfl-package-to-tackle-football-prices-1201156984/

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  9. The NFL (as well as any other sporting game) is nearly the only segment on television that cannot be fast-forwarded. Since it’s a live segment for three to four hours on a weekly basis, any network is willing to pay top dollar to have/own that time slot. In turn, the television network can go to their advertisers and throw out a high bid to the companies interested in running commercials during those breaks and they will pay top dollar for that commercial time slot. Why? Because the advertising/television companies know for a fact that during this time, viewers are seated somewhere watching those commercials. In this case, the NFL is doesn’t have to “play a game of chick” or bargain hard (or even be accommodating for that matter). They have a good/service that is in high demand, leaving the television networks to compete against themselves. The NFL barely needs to lift a finger in order to make a large profit, let alone worry about the variable costs that come with back and forth negotiating. Actually through the advertising and broadcasting deals, revenue for the NFL will increase to $250 million over the next four years (Ozanian, M., 2014). This doesn’t even include the additional revenue they will receive from their DirecTV deal.

    Ozanian, M. (August 20, 2014). “The NFL’s Most Valuable Teams”. Retrieved from: http://www.forbes.com/sites/mikeozanian/2014/08/20/the-nfls-most-valuable-teams/

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  10. The NFL is so valuable because they are the most watched professional sport in the US and understand their customer base. They understand how popular they are and market themselves in a way to capitalize on this advantage. According to a Harris poll conducted by ESPN 35% of fans called the NFL their favorite sport. In 1985 when this poll was first taken it was at 24%. Every year since 1985 football has ranked as the most popular sport. Popularity equates to viewership and an increased base of customers to accommodate. It is no surprise that CBS paid such a high price as the amount of customers they now have access to is much greater than what would have been without the NFL. Having this increased customer base will help with their profits in the long term. Currently the NFL has annual revenue of $10 billion annually with projections of $25 billion by 2027. Such projections show the value in their product and the popularity they have gained.

    Rovell, D. (2014, January 26). Nfl most popular for 30th year in row. website: http://espn.go.com/nfl/story/_/id/10354114/harris-poll-nfl-most-popular-mlb-2nd






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  11. The NFL clearly has the ability to commit to a position which gives them power over rivals in bargaining. In addition to holding contracts with 4 different networks for televisions rights, the NFL independent of that holds a contracts with 3 of those television networks for rights to broadcast the Super Bowl each year. It is easy for the NFL to steer bargaining to their preferred equilibrium by bargaining hard, regardless of what the television networks does. According to Nielsen, the NFL regular season since 2012 was watched by at least 200 million individuals, accounting for 80% of all television households in the United States and 69% of all potential viewers in the United States. The NFL has first-mover advantage and can commit to a bargaining position first and capture greater gains. If you view the NFL’s bargaining position in the non-strategic view, it is clear, decrease the outside option of your opponent to improve your position. Since the NFL has no clear rivals, the outside options of TV networks are limited and they would have to look into non-sports related entertainment in order compete; even then the competition would be difficult to overcome. It is obvious that TV networks cannot improve their bargaining position because they have the most to gain from reaching an agreement.

    http://tvbythenumbers.zap2it.com/2014/02/04/sunday-final-ratings-new-girl-adjusted-up-final-super-bowl-numbers/234164/

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  12. There are so many reasons why the live nature of sports is so valuable to the networks. The obvious reason is the bargaining leverage that the networks have regarding the commercials that aid during the game coverage. Advertisers bargain with the networks on price, desired time slots and overall length of their commercials; the networks have the upper hand. The advertisers have bargaining leverage for cheaper ad times with the competing networks, that are not airing live games during the same time slot; the advertisers have the upper hand. Aside from the gains that can be achieved during live game airings, the networks premiere new or air popular shows immediately after the live game. The live game offers a tremendous lead audience which is mutually attractive to both advertisers and the networks; setting off yet another bargaining process.
    JG

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  13. The NFL has surpassed MLB as the most valuable sport industry in the world. The NFL is now global, having games played in London the last few season, which I am sure is only a stepping stone to one day having a franchise based in the UK. As far as why live sports are so valuable, well other factor come into play. With companies such as Fanduel and Draftkings, who make fantasy sports profitable for its players and the NFL viewers weekly, the live NFL games take on a life of their own. These games boost the economy, from supermarkets to local pizzerias and pubs.

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  14. In the blog, "Why is the NFL so valuable?" CBS has signed a deal with the NFL through the year the year 2021, for the low cost of $500 million a year. Football is all about the money and fame. People love watching football, its away for people to eat, drink, swear, scream, cry for a win or loss. Watching a football game brings millions of people together, through their living rooms. Having the rights to the televise games brings money, exposer, ratings and bargaining power for CBS. Here's an article I found interesting,  "More than 500 million viewers—more than the population of the U.S.—watched football on Fox and CBS last year. (Some people watched more than one game.) ESPN’s total audience was merely around 232 million, based on a smaller average audience and the fewest number of games." that's a lot of exposer. http://www.bloomberg.com/news/articles/2014-08-27/why-espn-pays-four-times-more-for-nfl-games-than-nbc-cbs-and-fox  The NFL has been trying to market teams in other countries.  Of all the major sports leagues in America the NFL does the best job of marketing its product. They have strategic alliances with most ig not all, major network and internet provider as well as their own channel (The NFL Network),  football is everywhere  From August to January.
    "Yet despite multiple scandals, the NFL continues to see increases in both brand value and revenues – from rising ticket sales and prices to increasing TV income to more lucrative merchandising and sponsorship deals.   No other U.S. sport captures the same level of attention or dollars — not baseball, not basketball, not hockey. And while there are corporate brands that may have more international brand awareness than the NFL does, it is unlikely that their consumers – and their sponsors — are filled with such unwavering fervor and forgiveness." https://hbr.org/2015/11/why-is-the-nfls-brand-more-valuable-than-ever
    I mean who doesn't love a good rival game between to amazing teams?

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  15. The NFL is so valuable because it brings in billions of dollars in revenues. It broadcasts live, attracts millions of viewers every week and is loaded with drama. However, there are other reasons that make the NFL so valuable. For instance, according to Forbes, the Dallas Cowboys in 2013 became the first American professional sports franchise to hit the $3 billion mark. The Cowboys brought in $560 million in operating revenues in 2013, and $246 million of which was profit. According to Forbes’ team valuations, the average NFL franchise is now worth $1.43 billion. Another factor noted by Forbes that should cause these rising values to draw more public attention is the value of the NFL stadiums and the revenues they generate. “Advertising and branding can also serve as signals. By investing significant money into branding and advertising a product, firms signal to consumers that theirs is a high-quality product” (Froeb, et al., 2016, p. 248). The NFL has seen a boom of new stadium construction in the last decade-plus, and new stadium have allowed teams to generate more revenue through seat licenses, naming rights, and other factors. And another factor that has added value to the NFL is its collective bargaining agreement that resulted from the lockout they orchestrated prior to the 2011 season. At the time, owners were seeking a huge cut to the share of the league’s $9 billion in revenues that went to player salaries, and though they didn’t claim a victory as massive as the NBA owners who followed in their footsteps just months later, they were able to extract concessions that made owning an NFL team even more lucrative than it already was. (Adapted from http://thinkprogress. org/forbes). “In a game of chicken, both parties will try to steer the game to their preferred equilibrium by committing to a position. If you can convince your rival that you’re going to bargain hard, regardless of what your rival does, he will do better by accommodating, and you will get a bigger share of the gains from trade. (Froeb, et al., 2016, p. 206).


    Froeb, L.M., McCann, B.T., Shor, M. and Ward, M.R. (2016). Managerial economics: A problem solving approach, 4th ed. Cengage Learning: Boston, MA.

    Waldron, T. (August 2014). Forbes: The average NFL franchise is now worth $1.4 billion. http://thinkprogress.org/forbes-the-average-nfl-franchise-is-now-worth-1-4-billion

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  16. Last year, the NFL brought in over $13 billion in revenue last year. Perhaps that is the reason NFL Commissioner Roger Goodell makes roughly $34 million per year – because the NFL makes more than any other professional sports league. The MLB is the next biggest money maker at $9.5 B, whereas the NBA brings in roughly $4.8 B and the NHL, $3.7 B (Kutz, 2016).

    Goodell's masterful negotiation of lucrative television rights deals as well as the enhancement of several new league income streams, the NFL's total revenues are projected to surpass $13.3 billion this year, up more than 50% from 2010 (Belzer, 2016).

    The largest portion of the NFL revenue is the escalation in television rights fees from the leagues broadcast partners, including ESPN, Fox, and CBS. These projections do not even include the new revenues the league will receive for the sale of its Thursday Night Football television package to CBS and NBC (Belzer, 2016).

    CBS and NBC could not afford to play a game of chicken when it comes to broadcasting Thursday Night Football. They need to bargain hard in order to make sure their bid is high enough to be the winning bid.

    Leslie Moonves, President and CEO of CBS stated “Thursday Night Football has provided extremely valuable programming and a powerful promotional platform to help launch CBS's primetime schedule, contributing to our standing as the perennial Number One and most-watched network. Broadcasting the first half of the Thursday Night Football schedule is a terrific way to jump start the 2016-17 television season (NFL Expands, 2016).

    Steve Burke, CEO of NBC stated “The NFL has the most powerful programming on television, and we are delighted to expand our primetime schedule to 24 regular season games. Thursday Night Football is an important addition to NBC's #1 ranked primetime lineup, and the perfect complement to our award winning Sunday Night Football broadcast. The NFL is a terrific partner, and we could not be more pleased about expanding our relationship" NFL Expands, 2016).

    If by hosting Thursday Night Football, CBS and NBC have the opportunity to become the most watched network, then they better make sure they are the highest bidders.


    Belzer, J. (2016). Thanks to Roger Goodell, NFL Revenues Projected to Surpass $13 Billion in 2016. Forbes. Retrieved from: https://www.forbes.com/sites/jasonbelzer/2016/02/29/thanks-to-roger-goodell-nfl-revenues-projected-to-surpass-13-billion-in-2016/#5f593ffb1cb7

    Froeb, L.M., McCann, B.T., Shor, M., & Ward, M.R. (2016). Managerial Economics, 4th Edition. Boston, MA: Cengage Learning.

    Kutz, S. (2016). NFL took in $13 billion in revenue last season – see how it stacks up against other pro sports leagues. Market Watch. Retrieved from: http://www.marketwatch.com/story/the-nfl-made-13-billion-last-season-see-how-it-stacks-up-against-other-leagues-2016-07-01

    NFL Expands “Thursday Night Football” Package. (2016). NFL News. Retrieved from: http://www.nfl.com/news/story/0ap3000000630862/article/nfl-expands-thursday-night-football-package

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