THE NFL MELTDOWN: A CASE STUDY IN CUSTOMER MISMANAGEMENT

The National Football League is unique as a supplier for its ability to heap scorn and abuse on its customer base while sponging it for all it is worth.

Ordinarily, an organization that is genuine about its commitment to the customer actively promotes and enforces an ethical standard that, above all else, celebrates and rewards employees for satisfying customer needs and for always acting with integrity.

The NFL’s fixation with bottom line profits, however, flouts this ethical standard. As a result, the League is ferocious in its defense of the money-making juggernaut it has created: neither incidents of domestic abuse perpetrated by its players, nor the indecent disrespect visited on the American flag by a recalcitrant bunch can get in its way.

It should come as no surprise, then, that NFL team owners, coaches, and league officials shy away from enforcing the League’s own standard of personal conduct. That policy clearly states that “everyone who is part of the league must refrain from conduct detrimental to the integrity of and public confidence in the NFL.” Unfortunately, the League has decided that enforcement of such a common sense policy might provoke an adverse reaction from its players. The League has therefore reasoned that it is better to take its chances offending a compliant fan base addicted to its gladiatorial sport.

In other industries customers change suppliers two times out of three for reasons having only to do with poor service. Unfortunately, the cartel run by the NFL does not allow its customers to vote with their feet.

A SPORT PROTECTED BY CRONY CAPITALISM

The NFL took in $14 billion in revenues during 2016. This allowed the league to pay each of its players, on average, salaries in the range of $2 million. To be sure, this pales in comparison to what top earning players make. For example, the Detroit Lions’ quarterback Matthew Stafford recently signed a contract worth $135 million over five years. And, Pittsburgh Steeler quarterback Ben Roethlisberger, who apparently couldn’t find his way out of the locker room to stand for the anthem during a recent game, rakes in over $18 million a year. This largesse is born of the loyalty of millions of fans but more importantly by the monopolistic protection afforded the sport.

The NFL enjoys a unique antitrust exemption granted to it by Congress that allows it to fix prices in a way that few other industries enjoy. In practice, this allows NFL teams to pool their resources as they negotiate national media contracts. At the end of the year, all teams participate equally in the distribution of revenues. In 2016, each of thirty two teams took in $244 million from league-negotiated media contracts. That means that media revenues, alone, amounted to $7.8 billion for the year. If you’ve ever wondered why ticket prices have climbed over 50% during the last ten years it is largely due to the League’s monopoly protection. The average NFL ticket now fetches $93 while the most expensive comes in at $122 courtesy of the New England Patriots. The antitrust exemption of the sport simply precludes any competitive pressures be brought to bear that might bend the cost curve downward for the benefit of fans.

Another perquisite afforded the plutocrats of the NFL until recently was its tax-exempt status. This was small potatoes in the scheme of things as it only applied to revenues earned by the League Office and not the individual teams which have always been taxed on their earnings. Still, granting any tax exemption to such a lucrative enterprise for decades grated on many including some members of Congress. The tax exemption was voluntarily relinquished in 2015 for the optics it afforded and to shield the public from learning the pay of the bureaucrats in the NFL Commissioner’s Office the most notable of whom was the  Commissioner himself, Roger Goodell, who took down $35 million in salary and bonuses in 2013.

THE NFL IS FINANCED ON THE BACKS OF TAXPAYERS

Billionaire NFL owners have also found a way to have the IRS tax code finance their megalomania. This has allowed the owners to soak local, state, and federal taxpayers for over $7 billion to build and renovate stadiums over the last twenty years. Tax-exempt municipal bonds, the original purpose of which was to finance public-use projects such as bridges, and roads are being used to finance private-use stadiums. That the Congress permits the indiscriminate use of this loophole in the tax code is indicative of the lawmakers’ complicity in the NFL’s abuse of its fan base.

And, the abuse is stunning: the Dallas Cowboys’ AT&T stadium carried a tab of $1.15 billion which was aided by city sales tax revenues of $315 million. A more egregious example is that of the Atlanta Falcons’ Mercedes-Benz stadium whose total cost of $1.6 billion was facilitated by a sleight-of-hand contract provision that will cost taxpayers a minimum of $700 million. This trend is probably a harbinger of what is to come as team owners race to outdo each other by building glitzier and glitzier stadiums not so much to please their fan base as to line their own pockets.

CORPORATE SPONSORS HAVE THEIR OWN ETHICAL DILEMMAS TO RESOLVE

Corporate sponsors of the NFL spent $1.25 billion  during the 2016 season to market everything from Snickers (Mars) to Insurance (USAA). Clearly, corporate sponsorships are an important source of revenues for the NFL and it remains to be seen if these corporations will abide their own code of conduct. Mars, for example, states in its Principles of Responsibility that it disapproves of “disrespectful behavior of any kind.” Apparently, that does not include taking a knee for the anthem. Especially galling in this context, however, is USAA Insurance which markets exclusively to military personnel and their families. The company must certainly be aware that the first stanza of the Military Code of Conduct reads: “I am an American, fighting in the armed forces which guard my country and our way of life. I am prepared to give my life in their defense.”  When a service member does give up his life, the surviving spouse is entitled to a whopping maximum burial allowance of $2,000 and usually much less.  USAA’s muted response to the disrespect shown our flag and our troops speaks tomes about whether it cares more about the military family or the almighty dollar. I think we all know the answer.

A CALL TO ACTION

The disrespect shown our flag, our anthem, and our troops by those who would rather grandstand their grievances in public rather than play football calls for a response on the part of the Congress, corporate sponsors, and fans who, in the end, pay all the bills. For one, Congress needs to revoke the NFL’s antitrust exemption. Billionaire team owners must learn to operate, as most businesses do, in a truly free market environment for the benefit of their customer base if not their bank accounts. Congress also needs to step in and disallow the use of tax-exempt municipal bonds to finance any private use stadiums or facilities. Third, corporate sponsors who are conflicted about whether market share or respect for the flag carries the day need to be met by a heady response on the part of consumers. Let’s face it, the market is chock-a-block with candy bar and insurance suppliers. Finally, until such time as the flag, the anthem, and our troops get the respect they deserve we are probably better off reading a good book on game day.

 

 

 

 

 

 

 

 

 

 

 

Management Advisor

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