When the Egos of Capitalists Ruin a Good Thing….
If you’re American you almost certainly know or have heard about the replacement referee debacle in the USA. For those who don’t know – well, this is a good old fashioned money problem. Really, it’s a dispute as old as capitalism. And the capitalists are bitterly holding out so the labor class doesn’t get more than its supposed “fair share”. You see, the regular refs are part of a labor union and they think they deserve higher pay and better benefits. But the NFL’s owners don’t want to be bullied by the labor union because they think the refs are part-time employees who don’t deserve what is essentially amounting to treatment as full-time employees. I get both sides of the argument. Most of these refs have full-time jobs. And the owners don’t feel they deserve full-time treatment. But the refs obviously disagree and feel that their commitment is worthy of full-time treatment.
But that’s not what this is really about. This is really about a bunch of egomaniacs. You see, Roger Goodell, the NFL Commissioner, has become public enemy #1 here. But he’s just a representative of the real bad guys – the owners. It’s ultimately the owners who make the decision as to whether or not the refs get what they want. And these are guys (mostly billionaires) who have done nothing but succeed and win their whole lives. And they don’t like to get pushed around when it comes to sitting at a negotiating table. But they’re being foolish here.
The NFL reportedly made $9.3B in revenues last year. According to various sources that translates into a net profit of about $1.25B (a 13.5% net profit margin). The refs are asking for about a $10MM per year package according to ESPN. That’s about $83,000 per referee per year. Not a bad pay raise. The average American household who earns a little over $50,000 isn’t shedding a tear for the referees. But it’s remarkably foolish to see the owners drawing a line in the sand over what amounts to less than 1% of their annual profits. Unfortunately, they know the position they’re in and they know the power of the NFL. They know people won’t stop watching or loving the NFL. So there’s no sense of urgency to get this labor dispute resolved. And that’s the saddest thing about this whole mess. As a non-profit the NFL is not really designed to be a competition crushing profit driven machine. Even though it is. And by not serving the best interests of their customers (the fans) the owners are confusing their past lives as rampaging capitalists with what the NFL really is – an non-profit entertainment company. And in forgetting this, they’re explicitly neglecting the league’s mission statement which says:
“To present the National Football League and its teams at a level that attracts the broadest audience and makes NFL football the best sports entertainment in the world.”
The product on the field is suboptimal. The owners know it. The refs know it. The players know it. And the fans know it. And in allowing that to happen the product is certainly not “the best sports entertainment in the world.” These owners might be great capitalists in their past lives. But this league is not the place for your ego and your misguided belief that you need to impose that ego over the NFL’s operations in a way that directly conflicts with its stated goals. They’re acting like the kinds of capitalists who give the rest of us a bad name.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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41 Comments
Awesome. Probably the most succinct and well reasoned article on this that I’ve read so far. The owners are just being greedy a-holes.
Since the Players just snagged 47& of that revenue during last years lock out, why arn’t they standing up for thier Union Brothers, In fact they are making millions themselves, how about offer up a cut of thier slice?
They all take care on #1, don’t they?
The first part of that mission statement says “attracts the broadest audience”. To play devil’s advocate, I could say this controversy attracts a bigger audience. This blog is proof of the pub it’s creating.
True, but the goal is to get people to watch the actual product, right? That’s the “attraction” isn’t it? If people aren’t talking about the product and instead focus on some distraction to the product then you’re not really attracting the broadest audience for the right reason. But you’re probably right in the end – any attention is good attention for a behemoth like the NFL. Record ratings coming right up!
Right, that is what I was getting at. The product is inferior, but not substantially (e.g. relative to replacement players). Plus owners know they won’t lose any fans or money and get some buzz, even if it is negative. Owners are weighing the options no doubt, but it seems like heads they win, tails they don’t lose for now.
Not saying I don’t want the real refs back, but the reality to me seems to indicate there is little motivation for the owners to change their position.
Yep. I think you’re right on.
Remember the great scene in NOrth Dallas Forty when John Matuszak blurted out, ‘Everytime we say it’s a sport you say it’s a business and everytime we say it’s a business, you say it’s a sport.’
….
To the owners, it’s always a business. In fact, it’s set up so that even if an owner wanted to run it as a hobby like they do in baseball(overspend for players), the league rules preclude it.
I like Rush’s political take on it @ B.I.:
”
And I got to thinking about it, what’s everybody mad about? The referees are incompetent. Well, as I said yesterday, doesn’t Obama say give everybody a fair shot? Doesn’t Obama say we must be tolerant? Doesn’t Obama, and the left in general, don’t they promote the advancement of the incompetent based on the fact that they’re incompetent?”
Pretty funny actually.
Maybe they could go to a new system, and have the fans vote online to judge the plays.
Rush shouldn’t make fun of the advancement of the incompetent. How else did he end up where he is?
Uh…er…this is not really about money, or retirement plans.
It is about the performance of the refs and the owners desire to have more refs with some alternatives to replace the poor performers (ones who have a record of making bad calls).
I thought pay for performance was a good thing?
Is that a bad thing? If so then we are all finished.
CR, what does non-profit mean in practice – that they dont pay taxes on the revenues? on top of using taxpayer-funded stadiums and exemptions from anti-trust laws. These are the rugged entrepreneurs that you keep telling us about
not to mention, thought im not sure if the lockout changed this, owners can right off their players as depreciating assets which allows all kind of tax benefits. Something i was always felt was just kind of creepy
Id like to see more teams be publicly owned like the green bay packers
Hey Cullen, you forgot to mention the absolutely worthless lockout that the NHL is going through (even when it was the owners throwing around insane contracts the very day before they locked out the players!).
Atleast David Stern & NBA must be just rubbing their hands in joy where two of their biggest competitors are busy shooting themselves in the head multiple times…
Pretty sure it’s not a non-profit.
NFL is a 501(c) 6 non-profit association. It is comprised of its 32 teams, the privately owned, for-profit franchises, excluding the non-profit corporation Green Bay Packers Football Club. Their corporate ownership was grandfathered in.
The franchises, through their association in the NFL participate in group TV and licensing negotiations and revenue sharing so small market teams can be competitive. They also create barriers to entry through franchise fees to be awarded a team and only when they want one. Last franchise fee was $700 million paid by Houston in 1999. And for that fee, you get to hold the taxpayers of your market hostage in order to get a sweetheart of a deal for a palacial state of the art stadium. Because if they don’t pony up the dough, you’re moving the team to LA.
Very different from pro sports in Europe where teams face relegation to lesser leagues for poor performance and an improving minor league team can be promoted to the first division. In the US, you get the first round draft pick. I always found it funny that American pro sports leagues were run more like socialist organizations and European pro sports are more of a free market.
Joe, You’ll love this.
http://www.youtube.com/watch?v=bNbMPz5CPY8&feature=player_embedded
Funny but true. What was it you said earlier, capitalism makes socialism acceptable.
This is an interesting blog when you want to mix your economics with sports… http://thesportseconomist.com/
At least NFL fans still have a season. NHL fans can’t say the same.
Cullen, how in the world does the NFL get away with being a “non-profit”? I had no idea it was a non-profit.
I’m all for everyone minimizing their taxes, but it seems to me that the tax code is seriously effed up when for-profit companies like G.E. and “non-profit” companies like the NFL don’t pay anything. That’s mind boggling IMO. They’re the beneficiary of “all the gov’t provides” as much as any other tax-paying company or individual.
Great post.
Because the NFL is just the commissioner’s office funded by the owners of the clubs. All NFL revenue flows through to these clubs. Almost all of them are LLC’s so ultimately tax is paid through the owner on his personal return.
Aha, I get it now, makes sense. Thanks.
Stop with the class warfare!! /sarcasm
We have shaky present global issues in Iran and in the East Chinese Sea, riots in Spain, and a deteriorating trust in the last twelve months of the OECD being able to to do anything for long term growth and stability.
So keep an eye on this NFL circus, let everyone blow off a little steam, and then we can all get through the election without issue or change?
Sounds like something I saw in a crappy movie about ancient Rome…
Cullen, as bad as the replacements are, the regular refs were worse than everyone is remembering now, due to the favorable comparison with the replacements. If they regulars want to be paid like full time employees, then should actually become full time employees and do training and film work year round to improve their craft like officials in other professional leagues do. I would have no problem with them getting a big raise if they agreed to that, but they are just being a bunch of whiners wanting to get paid even more for their part time hobby.
It is a common argument to use profits to justify wage rises. But is this argument really justified? Do profits not come from productivity? Higher profits from higher productivity? And who is responsible for more productivity (not only in NFL, NHL)? The refs (gov.), the players, the managers (laborer), owners (entrepreneur)…? Why do people watch NFL? Because they want to see the refs, they players, the game, the owner…? Do the refs work more this season? Is the pressure bigger? Is it an inflation adjustment for wages?
One should put first things into perspective before discrediting the owners (of NFL-Teams or companies) always as greedy, bad and evil capitalists. Are really only the “evil” owners greedy?
I do not know if the refs deserve a wage rise but just to bring up 200 year old clichés and throw in some emotional statements won’t help to discuss the economics of wages as a general matter. But of course the emotional statements are much more palpable then rational facts.
This should be interesting labor dispute, ultimately your wages are determined not by how valuable you are, but how replaceable you are.
Are you watching next week? I am. Owners still are getting ratings/ and selling product.
But unless officiating quality improves (which it will presumably as they gain experience as the weeks go on ) – the tide could turn.
The owners are trying to weather the storm as long as they can. By mid-season they will be in a stronger position if the games look more normal.
But last night didn’t help.
This is just a labor dispute, and the refs may have overplayed their hand. Unlike the players , who ARE THE LEAGUE and got their contract easy peazy.
As a former football fan, all I can say is perhaps this fiasco will inspire some people to stop watching and get back to work.
Agree, I quit watching baseball when Roberto Alomar spit in that umpires face and was NOT banned for life. Regardless all the Politically Correct B.S. hatchet barring, he should have been banned. look what they are doing to MR. Hustle……
Being a Seattle-ite and Seahawks fan, I’m luvin’ this labor dispute. Chalked up a nice victory with a fabulous performance by a rookie quarterback. Russel Wilson has great potential. Loved last nights game. Not a pretty victory but it is a win. That’s all that matters, right?
Yeah, the sad thing is though, no one’s talking about Russell Wilson today. And they should be. Instead, they’re talking about the distraction. The NFL has a great product in guys who work their butts off to do pretty amazing things for our entertainment. And instead of them getting the attention they work for we’re focusing on a bunch of refs.
Yeah, the sad thing is though, no one’s talking about Russell Wilson today. And they should be. Instead, they’re talking about the distraction. The NFL has a great product in guys who work their butts off to do pretty amazing things for our entertainment. And instead of them getting the attention they work for we’re focusing on a bunch of refs.
i hear you about RW. The owners need to appreciate more the hard work and risks that guys like him are taking. How about that seahawks defensive line? Lot’s of POTENTIAL greatness shown on the field yesterday. Of course, they shouldn’t have won, but they were the younger and hungrier team on the field yesterday. Living in Seattle I don’t get to relish very many great moments for the local sports teams these days. THe non-pro refs maybe can be more influenced by hunger and potential (and of course the 12th man never hurts at home…)
What I find amusing about all this is how little I care about it. Owners, players, refs, the whole lot of them. Even my beloved hockey. A pox on all their houses. I’ll not waste one second of emotional energy on any of this.
Boo those mean, greedy capitalist pig owners!
http://blogs.wsj.com/deals/2012/09/26/touchdown-calling-ref-in-seattle-by-weekend-bofa-banker-by-day/
Cuz I’m sure it’s only the sub refs that have jobs like the above and not the full-time ones.
I forgot in liberal-land that the non-owners of capital are entitled to 1) jobs and 2) as much wages/salaries as they want and that the owners of capital are obligated to grant those wishes!
So, given that the link above likely highlights the rule and not the exception that these refs have good paying side jobs, who’s the greedy big ruining football now?
that’s how conservative-land paints liberals. the truth is that liberals believe in the right to organize and bargain collectively. sure, unions/labor have their share of greed and idiots, but there are idiots and greed on both sides – and those are the ones who are held up to “prove” that the other side is the bad one. there are actually union-owner relationships that work – they just aren’t interesting news.
I grew up working in my grandfather and father’s unionized factory from the time I was 14 until I graduated from college and saw how great those relationships are…
That real-life experience “proves” much more than the fantasy-land you suggest hypothetically exists…
Like nearly all of liberalism, great concept, but unworkable in real life.
Unions were needed at the turn of the 20th century when workers have no rights. They’re needed in modern day EMs such as China.
In developed markets, they serve no purpose anymore.
Yes, your real-life experience of a bad union/owner relationship really invalidates a comment about good union/owner relationships.
You say liberal concepts are unworkable in real life, but then say unions are needed to establish workers’ rights.
I’m not really against your union point, but that was a disjointed comment.
I would just like to quickly point out that it’s not like the NFL’s officiating was all that great in the first place. As the Seahawks have pointed out…they lost a Super Bowl over crappy officiating.
Amen.