My answer to my quiz question

[Pyrite Gal]

A few days back in the midst of the CBA aggreement, talk emerged on TSW about Tom Golisano buying the Bills. I lik many others would love to see this because it likely means the Bills new owner would keep them in WNY. However, I did ask this quiz question:

 

A Golisano purchase would almost certainly strengthen the hand of the NFLPA, I'm curious whether folks can explain succinctly why this is the case. Those who can explain this can do so if they understand the economics so please do so.

 

I got a few answers before this one fell into the old post reaches, but here is my cut:

 

A. The team owners and the NFLPA have a partnership in running this league which has been growing and developing since the CBA was created.

 

(For those who do not believe this please see the Paul Tagilabue interview on NFL Network where he states this truth).

 

 

B. Using the measure of % received of gross assets, it is fair to argue that the players are actually the MAJORITY PARTNER in this set-up as the CBA brought them a a majority of the gross receipts when it was developed.

 

(This measure has been cemented in the new CBA where by aggreement of boh parties the players receive 59.5% of total gross assets.

 

C. A alternative method of measuring majority partnership would be in pointing out that the team owners own really control aspects of the game such as stadiums, medical and rehab facilities, camps, etc while players at most influence rather than control these decisions. However, from an economic standpoint, these aspects are for the most part liabilities rather than pure assets (stadium ownership for example)

 

D. Even someone worth an estimated $1,4 billion like Golisano must take out substantial loans to buy the team and in particular to build an own a new stadium which is the cash cow that has brought huge wealth to folks like Robert Kraft.

 

(Golisano being worth over a billion does not mean he has all that cash under his mattress or even in some bank account. Much of it is invested in long-term assets which throw off profits he uses to buy other invesments. Just as you would not take cash out of your pocket or account and buy a new house one room at a time, the intelligent and only way to buy a franchise is to take out a series of massive loans which you slowly and profitably pay off with part of the profits earned by the investment).

 

What this all adds up to is that the exchange from Ralph Wilson to Tom Golisano means moving from an owner who has paid for the Bills lock, stock and barrel (with his original $10,000 investment) whose team (and thus him) only owe money for small loans as he has wished over time) to an even richer guy who will owe massive chunks of dollars to the bank.

 

The NFL makes such massive amounts of money (mostly from the billions paid by the networks in the TV contract) that he can easily pay off the monthly payments for this debt with the profits from franchise ownership.

 

However, understanding this financial aspect is the key to understanding why the NFLPA has won more than a majority share of the gross assets received by the NFL. The team owners hold all the liabilities associated with owning a franchise. In particular as a majority of the owners are entrepreneurs who bought their franchises since the last work stoppage and old owners who have leveraged their franchises like a homeowner who uses home equoty loans as though they were an ATM/ The team owners are dependent upon the steady cash stream of income provided by the networks and other sources.

 

The NFLPA members on the other hand, while dependent upon their contracts, actually are in a powerful position that if they were locked out as the players were in the mid-80s they still have their bodies and can do other things, It would take a lot for individual players to turn their athletic bodies into cash from still being able to sell autographs, get paid to play in the CFL or Arena football, appear at restaurants, play other sports in a few cases or even start a new league.

 

However, while the team owners would still owe monthly payments to banks, the players would have liabilities to the extent they invested their 250K annual minimum payments wisely or like Travis Henry they blew their wad.

 

If it came down to a work stoppage, the NFL team owners would have heartless banks and their lawyers banging on their doors. Players would have to listen to Mom, Dad and their wives, but particularly given all the wealth that players have accumulated recently, a work stoppage likely would have been a killer for most NFL owners, even the rich ones like a Golisano.

 

IMHO, this is why the current dispute over the CBA ended like it did. Hene Upsha and the NFLPA had such a huge advantage in the negotiation the fight was not over whether they would be majority partners or not, the fight was over whether they would get over 60% if the take.

 

Once Upshaw "gave-in" and settled for a mere 59.5% the actual last day of the dispure was not over the amount the players would get for it, but over how the NFL team owners were going to divide up paying for it.

 

When one of the old guard team owners goes to that great stadium in the sky and a new new owner (even one as wealthy as Golisano) takes over and if he is smart and by necessity has to go to the banks and capital holders to make the cashflow of this effort fully profitable for him, the NFLPA will have yet another team owner in place where he will painfully but yet profitably vote to accept a deal with the NFLPA where they receive the vast majority of the gross receipts of the business.

 

Sorry for the length, its really a pretty cool economic thing and impossible to say it all in a few sentences and be accurate and do it justice/

[socalfan]

Well it wasn't a "pretty cool economic thing" and you could have said it all in two sentences and justice would have been served.

[Pyrite Gal]

Well it wasn't a "pretty cool economic thing" and you could have said it all in two sentences and justice would have been served.

626435[/snapback]

 

The economic things which seem cool (interesting to me are):

 

1. Though perceived as capitalist, the team owners and the NFL as a whole are profiting hand over fist from what Forbes magazine called a "socialist" system.

 

2. I can see being mad at the NFL because really the owners and players have created a partnership to get money from you and me. However, between aggressoce ticket selling has eliminated most blackouts and modern internet technolgogy that makes it fun to follow games on the radion and the TSW chat room, one can actually opt out of these payments and still enjoy the game.

 

3. The players are money-grubbing idiots, but i do take pleasure in seeing these money grubbers beat even bigger money grubber owners.

 

What's not to love about that?

[Kiwi Bills fan]

Thanks for that.

You gave me a rare glimpse inside the world of economics.

(coming from an Engineer.)

[The Dean]

Well it wasn't a "pretty cool economic thing" and you could have said it all in two sentences and justice would have been served.

626435[/snapback]

 

 

Well...give it a shot. Sum that up, accurately, and so the ins and outs would be understood by those who read it.

 

Go ahead, smart guy...