University of Notre Dame Finance Professor Richard Sheehan, who specializes in the economics of sports, says the NFL is wasting money and time.
“Estimated NFL profits in 2011 were $1 billion,” he says. “The estimated value of the NFL brand is $1.5 billion. The estimated total compensation of NFL referees is $18 million. The difference between the costs of NFL and referee proposals is less than $3.5 million. So, the NFL is willing to risk a substantial part of $1 billion to save a few million? I would like to arrange a poker game with the person who made that decision.”
The author of “Keeping Score: The Economics of Big-Time Sports,” Sheehan says problems with the replacement officials were widely predicted in advance, leading to preseason conventional wisdom that the lockout would be short lived.
“You would have to be incredibly stupid, amazingly fool-hardy or simply and marvelously arrogant to think that you can bet even a small fraction of your brand equity on the proposition that you can save money by locking out the referees and come out ahead in the end,” Sheehan says. “Suppose you figured the worst-case scenario would be some bad calls and bad PR and maybe a $10 million ‘hit’ on your brand equity— less than 1 percent. You are risking $10 million to possibly gain $3.5, and the odds of winning have to be better than three to one to make that a sound wager.”
When assessing who is likely to win in a lockout or strike, Sheehan says one critical determinant of success is bargaining power.
“When the NFL deals with the players, the league typically has much greater bargaining power,” Sheehan explains. “Players’ average tenure in the league is less than four years, and players’ non-football related income is relatively small. Players generally do not have appreciable bargaining power; the owners have tremendous advantages in deeper pockets and a longer time horizon. In player-owner conflicts, you should expect owners to win regularly. With the referees, however, it’s a different story. The NFL has taken a certain pride in its refs being part-time and being very successful in other venues. Those venues and that success give the real referees a bargaining power that players do not have. Their NFL careers need not last only slightly longer than a cup of coffee and their lifetime income need not be primarily football related.
“A part-time job as an NFL referee that pays a starting salary of about $78,000 may sound marvelous, but if a ref feels that he is not being treated fairly, he may well have the ability to walk away without jeopardizing his family’s financial future,” Sheehan continues. “The NFL financially would likely be better off with full-time referees who have no bargaining power. With part-time referees with bargaining power, the NFL’s bet that it could ‘win’ a lockout appears based on incredible hubris or lack of understanding of the relative bargaining powers of the two sides. The cost to the NFL in terms of damage to the NFL brand value appears greater than any possible savings."
While the blown calls altered the outcome on Monday’s game, Sheehan warns the NFL has yet to meet the worst case scenario.
“Given the repeated after-the-play tussles, the potential for a career-altering injury to a marquee player has increased,” he says. “What happens if a Manning a Rodgers or a Brees gets injured after a play is whistled over? No NFL ‘win still stands’ statement will suffice. The NFL should cede to the referees demands, move on as quickly as possible and hope that all is forgiven and forgotten.”
Contact: Richard Sheehan, 574-631-5212 or firstname.lastname@example.org