When Dallas Cowboys owner Jerry Jones announced marketing contracts recently with Pepsi and Nike, he fired the opening shots in a battle that could revolutionize professional football.
And if he signs Deion Sanders, a top free agent who would likely enhance any team’s Super Bowl chances, Jones almost immediately will snare the spoils of his attack. Sanders is expected to announce his intentions on Friday, and Dallas is the current favorite.
The Cowboys reportedly are dangling a whopping $10 million signing bonus before Sanders, illustrating both the amount of new revenue flowing to Jones and a huge loophole in the NFL salary cap. The offer essentially represents another controversial transformation in football finance.
By generating sponsorship dollars that are not shared among all 30 league teams, Jones is injecting some capitalism into an industry that traditionally has been run by socialism. In the end, he insists, everybody will profit if owners make and keep some of their own money.
“Creating an incentive-based marketing system is not going to upset any perceived balance of power,” Jones wrote in a Dallas Morning News column last week, arguing that the NFL needs to adapt. “It’s only going to open untapped outlets of opportunity.”
Several economists and marketing experts agree, noting that Jones is simply trying to strike the right balance between competition and cooperation.
But there are opponents, most notably among league officials and other owners, who are worried about creating so-called “have” and “have-not” teams. They note that the NFL has prospered on a philosophy of shared revenue, and argue that tampering with the system will lead to the kind of disharmony now plaguing baseball.
“I’ve seen this league grow from a Mom and Pop operation to a multi-billion dollar institution through the concept of sharing and taking care of our partners,” said Cleveland Browns owner Art Modell, who’s been helping to build the NFL for more than three decades. “We want to beat hell out of them on Sunday at 1 o’clock, but keep them fiscally sound.”
Said Roger Headrick, president and CEO of the Minnesota Vikings and chairman of the NFL’s licensing arm: “If Jerry keeps doing what he’s doing and others say, `If he can get away with it, we ought to try it,’ then we have Major League Baseball.”
In August, Jones signed a 10-year deal with Pepsi that one source valued at about $20 million. Pepsi becomes the official soft drink of Texas Stadium, and will be served at Cowboys games.
And on Monday, Jones announced a similar seven-year deal with Nike. The shoe giant likewise becomes an official sponsor of Texas Stadium, and will supply apparel to the Cowboys.
The Nike agreement was outlined in a press release titled: “Cowboys owner bucks NFL again.” Here’s why, and the ramifications:
The NFL always has split most of its revenues among every team. Paul Much, a financial valuation expert in Chicago, estimates that the league shares more than 90 percent of its total football revenue, compared with approximately 30 percent in the NBA, 20 percent in baseball and 10 percent in the NHL.
The vast majority of NFL revenue comes from national television rights and gate receipts, which together total some $2 billion a year. Each team gets about $65 million.
A smaller portion of total revenue comes from licensing agreements that are managed by NFL Properties, a division of the NFL which centrally negotiates sponsorship contracts for everything from credit cards to footwear, splitting the revenue among every team. Each franchise currently gets between $3 million and $4 million from NFL Properties annually, Much said.
So overall, revenue from football operations has been about equal for each team. That means owners could outspend each other only by dipping into their own pockets.
But the new Pepsi and Nike revenues are exempt from those partnerships because they technically are in conjunction with Texas Stadium, which Jones also owns. Pepsi and Nike will not be official sponsors of the NFL or of the Cowboys, although money from both deals can flow into the team through Jones.
NFL officials have arranged a hearing on the matter, though it is unclear what discipline Jones could face. A league statement says that the Nike deal in particular represents “apparent violations,” most importantly that the company is not an NFL licensee.
Jones believes that individual teams should be responsible for their own licensing, because they can do better financially. He insists that marketing is a local business, and must be tailored to each team.
“It’s a good deal for everyone, once you get away from the egos and the politics and the splitting of money,” said Nye Lazalle, chairman of the Sports Marketing Group in Dallas. “Within a socialized system, you have to have some measure of capitalism so there’s an incentive to reward those with vision.”
And Cowboys spokesman Rich Dalrymple noted that Jones does not want to change the basic revenue-sharing system for broadcast rights and gate receipts. Philosophically, Dalrymple said, Jones still believes in sharing the bulk of money.
But opponents don’t see it that way. They say that NFL licenses are so valuable precisely because corporate sponsors get all 30 teams in one package, and that Jones has undermined the entire theory of sharing revenue.
“We have to control the promotions because most of our national advertisers are our sponsors on TV,” Modell said. “You can’t have 30 different soft drinks around the country or 30 different running shoes or 30 different credit cards.”
Said Robert Hampe, an executive with the Denver Broncos who even wonders if national television rights are safe: “I think once that door is opened, it leads to a lot of problems. It’s a dangerous precedent. Who’s to say that the next guy doesn’t go a couple steps farther than that?”
The concern, of course, is that the most marketable teams and the teams with lucrative stadium deals will generate more dollars and then sign better players. Even the salary cap would not prevent that.
The cap allows for some creative accounting–because NFL players, fearing injuries in a violent sport, almost always will opt for up-front money. And signing bonuses, such as the one Dallas is offering Sanders, are prorated over the entire length of a contract in cap calculations.
That means clubs with money on hand, such as Dallas, can offer more enticing deals. The player gets his money right away, while the team squeezes his bonus into several different years.
And the money that allows for such deals comes from companies like Pepsi and Nike.
“These amounts required to acquire marquee player talent and maintain the quality of depth necessary for a championship team can now be funded, to a great degree, by sources other than the owner simply coming out of pocket,” said Much, co-author of Inside the Ownership of Professional Sports Teams.
“You want to go for the best talent–you get what you pay for. It’s not a guarantee of winning, but it helps.”
