1. Their business exists in a league that is immensely popular.
2. Their business is subsidized by other businesses in the form of shared broadcasting revenues and supplemental revenue sharing, where the top 15 teams are forced to pay into a $220M fund which is distributed to the lower revenue teams (like the Bengals).
3. Large capital expenditures, such as a stadium, are funded by taxpayers.
The Browns are one of a handful of owners (with the Rooney's of Pittsburgh and Ralph Wilson of Buffalo, among others) where their NFL Franchise is their primary source of income. So how will the lockout affect the Bengals? Can they survive a year without football?
The NFL has revealed that owners have been stockpiling cash for two years as a safety measure in case of a work stoppage. Now, whether this is just PR or not, a recent judges ruling may prevent the NFL from collecting the 2011 telelvision broadcasting revenues of $4B. The NFL bargained hard to add this provision into contracts with ESPN, Fox, CBS and NBC, and is only paid to the NFL in case of a work stoppage. Think about that: the NFL compromised to ensure that this provision was added to cover them in case of a lockout.
So will the Bengals be able to wait it out? Forbes' annual NFL Team Valuation put the Bengals at 25th in 2010, but also estimated operating income of $49.4M, which would put the team as the 5th most profitable in the league behind the Cowboys ($143.3M), Redskins ($103.3M), Patriots ($66.3M) and Bucs ($56.1M). The Browns might now win football games, but they can run a business.
So, just based on this fact, it would seem that the Bengals are positioned very well compared to other teams. Yes, the team might lose out on the broadcast fees and ticket revenues, but the Bengals' profitability would lead you to think that they have enough cash to ride this out.
Forbes' valuations are based on estimated revenues and the value of each team's stadium deal. But Forbes does not release its methodology for how it came to estimate teams revenues and costs, so to back up their numbers, I decided to spend some time calculating some financials myself.
The Packers are the only NFL team that reports its financials, so let's look at their numbers to see how the Bengals might fare. They last reported for the Fiscal Year Ending March 31st, 2010, so numbers for the 2009 season. As the below numbers indicate, the Packers reported $258M in revenue and operating income of $9.7M, down more than 50% from 2009.
|Green Bay Packers, Income Statement for league year ending March 31st, 2010|
|Revenue Type||Revenue Source||in $ million|
|Shared||Television and radio||95.8|
|Mixed||Ticket Revenue: Home games||31.1|
|Shared||Ticket Revenue: Road games
|Shared||NFL Properties income||45.8|
|Retained||Other - Local Media, Concessions and parking||13.3|
|Retained||Private box income||12.9|
Let's break down revenues first to see how the Bengals might compare.
Television and Radio (Shared Revenue)
Each team receives the same share from broadcasting rights to Television and Radio from contracts with ESPN, Fox, NBC, CBS and Westwood One, which was $95.8M in 2009. Revenue from non-network providers like DirectTV and from local media deals are not included in this number. Contracts with ESPN, CBS, Fox and ABC are locked in until 2013, and will remain constant at $3.085B (excluding the $4B lockout provision for 2011 discussed above). The Bengals also received the same $95.8M.
Bengals Revenue: $95.8M
Per NFL regulations, non-luxury box revenue is shared with other teams. Specifically, 66% of non-luxury box home ticket sales are retained by the home team. The remaining 34% of the pool is shared with the other 32 teams. Teams retain 100% of revenue from luxury boxes.
In 2009, the Cowboys led the league with an estimated $112 in ticket income with the Raiders in last with an estimated $34M. The Packers earned $47.1M in ticket revenue, below the 2009 NFL League Average of $54.1M.
Now, how does this compare to the Bengals? Lambeau Field seats 73,128 with 167 luxury suites and 6,260 club seats. In 2009, total attendance was 565,666 had an average ticket price of $72.36.
Paul Brown Stadium seats 65,515 with 114 Luxury Boxes and 7,620 club seats with an average ticket price of $72.04 and total attendees in 2010 of 482,917.
And let's also just assume that the Packers are a 25% bigger draw on the road than the Bengals.
So the Packers earned $47.1M in ticket revenue, $31,1 from home games and $16.0 shared from road games.
Putting it all together for the Bengals, looking at tickets sold, average ticket price and the revenue sharing figures, in 2010 they earned $23.0M from home games and $12.0M from road games, for a total of $35M, putting them close to the bottom of the league in ticket revenues.
Bengals Revenue: $35.0M
Marketing/Pro Shop (Retained)
Green Bay earned $43.0M in 2009 from local advertising, pro shop sales and sponsorships. Without any real figures to go on, I'll take ticket sales as a proxy since the people buying tickets are also buying the merchandise and show the general popularity of a team which appeals to local sponsors. In 2010, the Bengals sold 14.6% less tickets than the Packers so lets assume they made 14.6% less in "marketing and pro shop," or $36.7M.
Bengals Revenue: $36.7M
NFL Properties Income (Shared)
Licensing for all 32 teams is handled centrally by the NFL, with annual revenue being shared equally among the 32 teams. This revenue includes the traditional merchandise with the NFL logo like jersey's, hats and coffee mugs, but also contracts with DirectTV and Verizon Wireless.
As Green Bay's income statements show, this revenue segment has seen increases of more than 870% since the 2002 season, rising from $4.7M in 2002 to $45.8M in 2009.
While the NFL just lost a Supreme Court case that challenged the league's exclusive contracts, a lower court still has to rule the NFL's case in light of the Supreme Court ruling so these exclusive contrats still remain.
These funds are share equally among all 32 NFL teams, so the Bengals share can be estimated to be equal to Green Bay. If we took the 2009 figure and an average 5 year growth rate of 23.2%, this figure would be $56.51M for 2010.
Bengals Revenue: $56.5M
Other - Local Media, Concessions and parking
The Packers earned $13.3 in this miscellaneous category that includes local media sponsorships, parking and concessions. Again, using the same 14.6% proxy, we can assume the Bengals made $11.3M.
Bengals Revenue: $11.3M
Private Box Income (Retained)
Income from luxury boxes are 100% retained by each NFL team, and this is a driving factor that pushes many NFL owners to want to build new stadiums (including the Bengals). Green Bay reported income from luxury boxes of $12.9M from 167 boxes. Paul Brown Stadium has 114 boxes. If we assume a similar price for each box (since ticket prices for each are similar), the Bengals would earn about 31% less from private boxes, or $8.1M.
Bengals Revenue: $8.1M
Total Bengals Revenue: 243.4M
Our calculations from 2010 are about $10M more than Forbes esimated for 2009 for the Bengals. However, what these numbers do show is how much revenue from each team is derived from revenue sharing. The 2009 Packers had 59% of their revenue given to them by the NFL league office. Our calculations for the 2010 Bengals show an even higher percentage (62%) generated from revenue sharing. This makes sense as the larger market and more successful teams (Cowboys, Patriots, Redskins) are able to generate more revenue from retained sources such as local merchandise, Personal Seat Licenses, and Luxury Boxes, while smaller market teams, especially teams with older stadiums without luxury boxes (such as the Bills) struggle to keep pace.
The NFL maintains the closest economic parity among all 4 major sports regarding revenue. After the Cowboys, Patriots, Redskins and Giants (who had revenues between $270-$420M), the rest of teams in the league had estimated revenues in 2009 of between $222M and $260M. So the teams that are going to be able to ride out this lockout in hopes of securing an even more lucrative deal with the players are the teams at the very top of the revenue scale and the ones who can control costs and increase operating income.
And as the Bengals are estimated to have the 5th highest operating income and 4th highest profit margin at 21.3%, the Bengals are likely well positioned to ride out this lockout.