About the Author
Recent posts by Tom Danyluk
"The World's a bubble …" — Sir Francis Bacon
"Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments." — Plato
"Too much of a good thing is bad for you." — Mother
I remember the call I received from an AFC ticket office one summer. This was back in the late 1990s, and an older voice was on the line, a pleasant retiree working the phones for a part-time paycheck. Interested in a season package, Mr. Danyluk? Lots of outstanding seats in the house. You know we're putting up a new stadium, right next to the baseball park, down where all the action is.
"How does this Personal Seat License thing work?" I already knew how the Personal Seat License thing worked, the concept of it, but I wanted to hear the full sales-pitch, just once for the record. How pretty could they make a gouge sound?
"Well, you can really look at it as an investment," the voice said. "You pay a one-time right's fee per seat, then that seat is yours. Nobody else can sit there. All you have to do is buy the season tickets each year.
"And here's the best part — down the road you can sell your PSL to anybody you'd like, at any price you can get. It really is like an investment. You could realistically double or even triple your money over time. Sound like something you'd be interested in?"
I politely said it sounded like a really good scam, and that no investment is guaranteed to appreciate, and to ask a customer to pay for the right to purchase a product is the ultimate in arrogance for any business. What if the team stinks for 20 years? Such a deal! I waited for Page 2 of the sales script. Instead things got quiet. Then, this beam of honesty:
"They'll fire me for saying this … but I agree with you."
Pro football, the business, enters the bubble stage.
There are more than a handful of forecasters out there predicting very bad things for the world economy. Some are on watch for the return of the hard-biting bear in stocks. Others go far deeper. Armageddonists. These analysts are calling for an outright global depression, a massive financial collapse, based on data that says the world's credit bubble has not only popped, it's now violently imploding. The researchers at a firm called Elliott Wave International (EWI) hold this view. The adjective they've chosen is typically reserved for plagues and mambas and hired guns. Their word is "deadly."
Elliott Wave bases its financial predictions on the long-term psychology swings of the masses — from overall pessimism to optimism and back. These swings eventually generate the price movements and trends we see in the world's stock markets. EWI's analysts believe that a long-term wave of optimism officially ended in 2008, marked by that year's punishing stock market crash, and that the world is now plunging into a period of historic pessimism. Financially, this should result in an ocean of bank failures, the bankruptcy of many state and local governments, harsh unemployment and relentless deflation (plunging prices), all capped off with a 96 percent wipeout of the Dow Jones Industrial Average — from its current levels of approximately 10,000 down to … get ready for this … 400. That's Dow 400. And EWI predicts this chaos won't relent until sometime during the year 2016, when all of the world's markets reach a final bottom.
For this exercise it's not necessary to explain how Elliott Wave comes to its conclusions, the methodology it employs. That's a throng of complexities. Let's just assume they are right, that things are going to soon turn deadly out there. Now, the questions. Pro Football Weekly would like to know what all this means to the state of the mighty NFL. We called to ask. A man named Pete Kendall answered.
"The NFL won't be able to avoid the social change that's implied by a sharp decrease in the Dow Jones and the accompanying depression," says Kendall, director of EWI's Center for Cultural Studies, not to be confused with former NFL OG Pete Kendall. "The coming social change will be dramatic, and people's habits and lifestyles will predictably change to accommodate the new social mood.
"Before I continue, there is one caveat for the record. We believe that football is different than the true bull-market sports of baseball and basketball. It's kind of a hybrid-market sport, part bull/part bear. For example, the 1970s was largely a bear-market period, and football has some bear-market attributes — a full-contact sport — which is why we think it did very well in that period. Meanwhile, basketball and baseball didn't do well at all.
Those sports only emerged in the 1980s, when the stock market finally headed higher and the economy recovered.
"However, when we go deeper into history, we can look at another analogous period — the 1930s. Football had a very different experience then. It was a deflationary period, like the one we're entering now. Historians have told us that attendance declined in that period, that revenues and salaries were both down. And we're sure that's how football will be affected this time around."
How will NFL owners be most vulnerable?
"They'll be hit from all angles," Kendall says. "The biggest driver for the owners has been the market value of their franchises, which are going to crash. The operational side of football was probably never going to make them a lot of money, but the value of the franchises kept going up and up and up. (Average value in 2009: $1.04 billion, according to Forbes.) That rise in investment is what lured them to the game. Well, those values will reverse dramatically because franchise viability and long-term valuation will be racked by uncertainty. In a depression, a decline of 50 percent or more in team value is very possible before all this is over."
Kendall believes that the sports mania, football included, has ended. Revenues have begun their retreat. Ticket prices will be shredded. Fewer T-shirts and trinkets sold. And TV networks, once viewed as financial partners by the league during the Pete Rozelle era, no longer will be willing to broadcast NFL games at heavy losses like they do today.
"I think the commissioner [Roger Goodell] made a big mistake when he came forward and stated he wants to increase revenue by $24 billion," Kendall says. "What he should have done was wait at least another year and then say, 'I'd like to triple revenues from here,' because he'd be working from a much lower base. We can easily say that the key financial metrics of the league are going to be rolled back to the levels of around the year 2000.
"That's a conservative estimate.
"The salary cap last year was $128 million; we see it falling to $62 million, a decline of 51 percent. Ticket prices? Directly correlated to attendance, which will fall. My figures show the average NFL ticket price in 2009 was $75; we see prices falling back to an average at $45, a drop of 40 percent.
"Theoretically, however, if you really follow the Elliott Wave principles, these values could crash even lower, back to where they were in the early 1990s, when the football dollars really began to take off."
Stadium naming rights and seat licenses have a tomb prepared for them.
"The concept of naming rights is also deeply associated with social euphoria," Kendall says. "What happens is that companies extend themselves financially. It's part of the mania process, to be associated with something popular like the NFL. In the 2000s, there were a tremendous number of the sponsoring companies that went bankrupt. That should continue to happen.
"The PSLs? They're like financial derivatives in a way. They deeply reflect the culture and the bull-market period in which financial excess was so common. The analogy that we sometimes use is 'consuming the seed corn.' In many areas of the economy we did that."
"Well, in the financial sector we used up the goodwill and capital that had been generated over 20 years of bull market. Instead of being out for the customer, as Goldman Sachs was in the 1980s, they were out for themselves by the end of the 2000s. That's 'consuming the seed corn.' Then they had to be bailed out; that used up the goodwill.
"Pro football's expression of that was bidding the television networks against each other, even though they knew the networks would be bleeding on the deals (currently $11.5 billion through 2011). The other was the PSL. In fact, people in future generations will look back and think how strange it was for people even being willing to pay for the right to buy seats."
Kendall believes there will be other upheavals within the game — non-financial ones. He believes an 18-game regular season is a certainty (revenue grab). And that pro football actually will evolve into a more violent game than it is today, something the owners will have a careful hand in dictating.
"Not initially, but I can see changes coming to make the game rougher and more dangerous," Kendall says. "The league is going to look around and see which sports are doing better, and it's not going to be baseball or basketball. It's going to be this weird mixed-martial-arts business, more brutal sports. So we expect the NFL to look for ways to toughen up the game. That will be a departure from the rules currently designed to protect the quarterback, to keep him from getting beaten up as badly. Those rules were the result of a bull market and the desire for a more wide-open offensive game. They'll move away from that.
"Where does that vision come from? From historians, really. Look back at the early 1930s, when the league underwent many rule changes in an effort to 'liven up the game,' to increase interest and attendance. In 1933, they changed the rules to allow passing from anywhere behind the line of scrimmage. That opened up the game just in time for a new bull market. When this bear market is over, it will happen again in the offensive direction. They'll think of ways to make it suit the mood. You'll see this weird rush to new stuff they haven't even thought of yet."
But these on-field changes won't prevent a handful of franchises from going bankrupt. Kendall thinks that the clubs under the most financial duress will look to move to other cities, but this time the escape routes will be closed. No thank you, the mayors will say, we're broke, too. Eventually, 2-4 teams will cease to exist.
However, Kendall says the league is not naïve about what's going on around it. He points to a quote from NFL VP of corporate communications Brian McCarthy back in 2008, who said, "No business is immune to current economic conditions, including the NFL. Revenues are under pressure because we have partners and sponsors that are responding to a weak economy and higher costs. Like our partners, we are proactively and pre-emptively looking at our expenses."
"That's a big statement," Kendall says. "Just look at their posturing for 2011, the league getting out of its labor contract in preparing for a potential lockout. That's a hard line. The owners seem to be responding to the unfolding economic forces in a proactive fashion, more so than Major League Baseball, which doesn't seem to understand what it is up against.
"Pro football will have a hard time happening in 2011. The owners are probably thinking, 'Man, it's getting hard to make ends meet, and I don't have the options to sell the team like I thought I had.' When the economy gets worse instead of better, they'll be all quite aware that the struggle of '08 was just a test run. They'll likely decide it makes more sense to sit out a year than to play in what promises to be a brutal economic environment."
Not much to add here. Except let's hope Pete Kendall's got it all wrong. Let's hope it's just a typical up-down cycle out there, and they've exaggerated the force of the waves, and the old sea wall still holds up. If not, then it gets real simple.
Tom Danyluk is an award-winning freelance writer based in Chicago. His story "Nothing artistic about Raiders' Week Nine debacle" was named Best Column in the Professional Football Writers Association's annual writing contest for 2009.
For authoritative coverage and analysis of NFL news, free agency and fantasy football, visit ProFootballWeekly.com.