Who Loses in an NFL Lockout?Corporate Interests Intrinsically Tied to the League

Call Date: Wednesday, March 9, 2011, 11:00 AM ET

CRG Expert:

Scott V. Steer Consultant, Branding, Strategy, Ad & Promo

Steering IMC

Director, Partnerships & Business Development

The Miller Group

CRG Host:

Michael Cohen

Coleman Research Group

280 Park Avenue, 12th Floor EastNew York, NY 10017

1

Background and History

The Losers:

• Fans

• Advertising

• Employment

• Travel and Hospitality

• Sponsors

• Licensed Products

• Host Cities and States

Potential Winners

2

Billionaires VS Millionaires

3

By the Numbers

• 2010 Revenue $9.3B

• Avg. Player Salary $1.87M

• Rookie Minimum $320K

• Avg. Team Payroll $127M

• Avg. Franchise Value $1.02B

Source: CNBC 4

Labor History

1982 Strike• Began on 9/21/1982 and lasted 57 days until 11/16/1982• No NFL games were played• Essential cause was dispute over the percentage of gross revenues that the

league gave to players• NFLPA wanted the percentage increased to 55 percent

5

1987 Strike and Decertification• Replacement and some NFL regular players crossed picket line• Back to work on 10/15/1987 without a collective bargaining agreement (CBA)• Officially decertified in 1989 and reformed as a union in 1993

Return to Collective Bargaining• The NFLPA and the league have extended their 1993 agreement five times, most

recently in March 2006 when it was extended through the 2011 season.• May 2008 owners decided to opt out of this agreement and play the 2010 season

without a CBA in place.• 2010 season was played without a salary cap (or floor), and there is the looming

possibility of no play at all in 2011 if an agreement cannot be reached.

The Key Issues

1. Revenue Split– Owners wanting an additional $1 billion credit

skimmed off the top before sharing with the players (despite resisting the opening of their books)

2. Extend regular season to 18 games

3. Rookie Wage Scale / Salary Cap

4. Benefits for Current and Former Players

5. Repeal of Bonuses for "Breach Of Contract”

6

Possible Options1. A Deal or Another Extension New Deadline Friday 3/11, 11:59 PM

2. Union Decertification

– The union could decide to pursue the strategy of dissolving as a union for legal purposes

3. Lockout

4. Impasse

– A legal concept, exists after good-faith negotiations fail to reach a conclusion

– The NFL could declare impasse at any time and force the players to:

• Accept its last best offer, strike, or (as they did 20 years ago) decertify

5. Continue to operate under 2010 terms

– Not a great option for players

The clock is ticking…

7Options outlined by Andrew Brandt, President, National Football Post and Lecturer on Sports Business @ The Wharton School

“déjà vu – all over again”

8

2004-05 NHL Lockout

• NHL teams actually saw a growth in value following the lockout because the fixed number guaranteed for player wages out of league revenue fell from about 66 percent to 54 percent 1

– Same may happen if NFL owners get their way and shave a few percentage points of the current 60 percent figure of player payroll to revenue

• NHL attendance did not suffer too much from the lockout 2

– 2004 avg. attendance = 16,719

– 2006 avg. attendance actually grew to 17,025

• The NHL television revenue/ratings got hammered after the lockout

• Since the lockout

– NHL games air on NBC, but only Saturday afternoons

– NBC pays no rights fees, but has a revenue-sharing agreement

• Cable broadcasts now hidden on the Versus Channel. A huge step down from 2004 five-year, $600 million deal with ABC/ESPN.

9Source: 1. Forbes, 2. Attendance figures from ESPN

1994 MLB Strike

• ESPN reported average MLB attendance was down 20% after the strike

• Attendance did not return to pre strike levels until 2000

• ESPN also noted operating revenue dropped 35.8% in 1994 and didn’t reach its former mark until 1997

• For MLB, unlike the NHL, team value and attendance did take hits

• MLB television revenue dropped after the lockout with Fox paying substantially less in 1995 that CBS did in the early 1990s

10

Who Are the potential winners and Loser without

Football???11

$3.6B $8.8B $3.73B $4.27B ???

$20.4 billion

Source: Sports Business Daily

Broadcasters

12

Top 10 NFL Advertisers (2009) Millions

Anheuser-Busch (A-B inBEV) $134

The US Government (including General Motors) $127

Toyota $108

Ford $97

The NFL $97

Miller Coors $88

Sprint Nextel $82

Southwest Airlines $66

Verizon Wireless $64

AT&T $64Source: Media Post 13

Source: CNBC and Kantar Media

Fox ($944 million)

NBC ($817 million)

CBS ($804 million)

ESPN ($144 million)

NFL Ad Revenue Nearly $3 Billion

14

NFL TV Ratings

• Viewership up 13 percent over last year

• Games on CBS, Fox and NBC averaged 20 million viewers

Source: Nielsen

20M Viewers = more than twice what networks get for

their prime-time programming!!

15

Pay Per View / Satellite Packages

• DIRECT TV ESPN $1B per year for exclusive NFL Sunday Ticket and Red Zone Channels

• Could affect DIRECTV's positive momentum– Double digit gains in Q3 and Q4

2010 to $6.03 billion

– Analysts forecast DirecTV could lose as much as 10% to 20% of its 2.2 million subscribers of its Sunday Ticket package

• In 2008, Dish Network moved the NFL Network from its "America's Top 100" package to the higher premium "America's Top 200" package

• The move cost the network four million subscribers

Source: Multichannel News16

Missed Games Actually Boost Networks' Bottom Lines?

- Maybe -

• Judge blocked broadcasters from having to pay rights fees during any player lockout

• Missing games might actually improve the networks' bottom lines, according to FitchRatings

– lower revenue for any aired replacement content, but with lower production costs too

• Certainly won’t help all the local NFL based programming around the country

17

• 30M + players

• For an estimated $5 billion business

• Demo– Men: 79%, Men 18-34: 31%

– annual HHI is $92,750

– Median Age 30.4 yrs,

• Avg. fantasy football player spends $150/yr– league fees, premium websites, magazines and

other ‘necessities.’Source: Fantasy Sports Trade Association

Source: Business Week and Fantasy Sports Trade Association 18

Top 10 Fantasy Sports Sites:September 2010

Rank SiteUnique Visitors

Monthly Change

YearlyChange

1 fantasysports.yahoo.com 6,115,530 47.77% -14.22%

2 games.espn.go.com 5,461,712 48.91% -0.64%

3 fantasy.nfl.com 2,709,801 60.83% No Data

4 football.cbssports.com 1,940,999 68.89% -26.14%

5 fantasynews.cbssports.com 896,204 25.71% -12.83%

6 rotoworld.com 651,002 16.41% -1.17%

7 streak.espn.go.com 588,362 15.46% -24.93%

8 fftoolbox.com 567,552 -10.88% 17.63%

9 fantasy.foxsports.com 389,254 31.57% -17.56%

10 baseball.cbssports.com 347,416 -11.74% -36.01%

19,667,832

Source: ComScore 19

broadcasters and

content providers

It’s all about Lost Eyeballs• Broadcast advertisers could move their dollars to other

"marquee" programming – College Football– Golf– Prime-time Dramas or Sit-coms

• Is there enough ad inventory to absorb that money?

• Internet advertisers Lots of inventory, but nothing that delivers that quantity of very passionate eyeballs

• Some advertisers might also choose simply not to spend

20

SPONSORSHIP

• Real numbers, but these are contractual obligations

• NFL is riding a wave of tremendous popularity

– Could diminish the premiums they have been receiving for sponsorships going forward

21

Other NFL Sponsors Include:

• Papa John’s ($15M) - also the "Official Pizza" of 10 Teams

• Gatorade ($45M)• Verizon - replaced Sprint ($720M)• IBM• Visa• FedEx• Bank of America• The Home Depot• Canon• P&G (Gillette, Old Spice, Prilosec OTC,

Febreze, Head & Shoulders, Tide, Charmin)

22

The Game

and a Bud

• Bud Light takes over official sponsor in 2011, Est. at $1.2B

• Coors was official sponsor from 2005 -2010 for $500M

• Team sponsorships and pouring rights are done individually - often on a non exclusive basis

• A-B has pouring rights with 28 teamsSource: Denver Business Journal

23

The Cola Wars Extend to the Gridiron

Pepsi IS the Official Sponsor, but…

24

and Across All Sports Venues

Sport Venue Coca-Cola Pepsi Other

Source: Sports Business Daily 25

• Stadium

– parking, security, souvenirs

• On Field

– referees, coaches, trainers,

• Front Office

– staff, marketing, tickets

26

Food Service and Event Staff

27

broadcast production crews

• Generally Freelance/1099 contractors

– 45 person crews, most are within an hour commute to venue

– < 20% travel for networks

• MNF and SNF are traveling circuses for 16 weeks

– 20+ trucks with drivers and engineers

• Local broadcasts - pre and post game shows, etc

28

Travel + Hospitality

or

Entertaining at Home?

Game Stats

Avg. NFL Broadcast Viewers 20 Million

Viewers who watch at a restaurant or bar 23.8%

Source: Arbitron29

Can’t Watch at Home or Tailgate?

Source: Supermarket News

Top 10 Grocery Retailers & Wholesalers

30

On-Premise Sales

• Hooters

• Houlihan's

• Applebee’s

• Buffalo Wild Wings

• Brick House Tavern

If you serve chicken wings and beer, football season is really important to your business!

Average Price 2009 2010

Lunch Entrée $7.14 $8.07

Dinner Entrée $12.98 $13.88

Domestic – Draft $3.66 $3.58

Import – Draft $4.74 $4.64

Domestic – Bottle $3.69 $3.73

Domestic – Draft $3.66 $3.58

Source: Intellaprice

31

On-Premise Sales: Food Service

32

On-Premise Sales: Beer

Source: 2007 IRI On-Premise Study

33

• Outsells wine 3.5-to-1• Outsells liquor by nearly

1.5-to-1

Source: IRI Syndicated On-Premise Survey – Fall 2007

Top 10 Distributed Brands

34

Hotels + Lodging

Attendance

Avg. Stadium Attendance 67,000 / game

Total Attendance 17 Million

Source: ESPN35

Vegas Sports Books

Rank Company Name Casino sq. ft. Sports book sq. ft.

1 MGM Mirage 1.1 million 59,235

2 Station Casinos 1.1 million 82,796

3 Harrah‘s 634,616 37,169

4 Boyd Gaming 579,588 29,138

5 Las Vegas Sands 243,684 6,430

Source: In Business Las Vegas -Ranked by casino square footage as of June 30, 2009

36

Casinos keep less than 1% of their handle

Source: State Of Nevada Gaming Control Board

37

Licensed Products

38

• Topped $3.2 billion in U.S. & Canada (2007)

– Fans Stop Buying

– Retail sales fall (Modell’s, Amazon, NFL.com)

– Manufacturers stop making

– Min 16 week lead time to get stuff produced overseas

NFL Properties LLC

• Reebok out as NFL uniform supplier (April 2012)

• Citigroup estimate $350 million of Reebok’s $565 million annual US sales comes from the contract with the NFL

39

2012 Starting Line Up

40

• Nike - Uniforms

• New Era will handle on-field headwear

• Under Armour will be sponsor of the NFL Scouting Combine

• Gill will manufacture fan gear, as will VF.

• Outerstuff will continue as the league's youth apparel provider

• '47 Brand will do headwear for fans

• Revenue for NFL-licensed apparel at retail in the United Statestotaled about $1.9 billion in 2009, but had fallen at a mid-teenpercentage rate so far this year, according to SportsOneSource.

Home Electronics: Stores and Installers

• The weeks before the Super Bowl are second only to the holiday shopping season for TV sales.

• Football Playoffs and Super Bowl push custom installs of home entertainment systems up 25%

• Consumers were predicted to purchase nearly 4.8 million televisions up 25 percent in advance of the 2011 game

– Up from 3.6 million last year and 2.7 million in 2009

41Source: IBISWorld

City and State Hosts

• Lost tax revenue from sales tax, road tolls, parking, etc.

42

Game StatsAvg. Cost to take a family of four to an NFL 2

game (2009)$413

Avg. Stadium Attendance 3 ~ 67,000 / game

Source: 1. Arbitron, 2. USA Today 3. ESPN

City and State Hosts

43

Payroll Taxes

Total Team PayrollsAverage Payroll = $127M

$3,401,549,790

Medicare Withholding $86,075,948

States w/ tax avg. 6.5%(CA 10.9 , NY 8.97, NJ 8.97, MN 7.85 are all in the top 10)

Est. State Income Taxes $154,343,080

Est. Federal Income Taxes $761,947,152

Potential Winners

• NCAA – Broadcasts might be short-term winner

– Merchandise, Attendance

• MLB, NBA and NHL – could all be a longer term winners Broadcasting,

Merchandise, Attendance

• Soccer

• Arena Football

• CFL

• Office Productivity

44

Summary

• Teams could end up with permanent/long term revenue issues as they work to restore fan interest after a lockout.

• This won't be true for teams like Green Bay or Pittsburgh, where loyalty is inbred, but for teams like Carolina, Jacksonville, Miami, Minnesota, etc where fan interest is finicky, the impact will go well beyond the work stoppage.

• Throw in the pending lockout of NBA players and fan/consumer sentiment towards professional athletes is an interesting topic.

45

Important Dates

• Friday March 11th

• April 28-30 -- NFL Draft, New York City

• Aug. 6 -- Pro Football Hall of Fame, Class of 2011 Enshrinement, Canton, Ohio

• Mini Camp - Clubs are permitted to hold a rookie minicamp on one of the first two weekends after the NFL Draft and conduct one mandatory minicamp for veteran players.

46

So how does it end?

For more information contact

47

Scott V. Steer Director, Partnerships & Business Development

The Miller Group

Scott@MillerGroupMarketing.com

Consultant, Branding, Strategy, Ad & Promo

Steering IMC

Scott.Steer@SteeringIMC.com