- ADC Partners
Capitalist Country, Socialist Sport
While the past few seasons have presented the NFL with challenges (health concerns, protests, disciplinary cases of owners/players), the league remains at the pinnacle of American sports. Part of this comes from the sport’s unique ability to intertwine itself with American culture and patriotic themes.
The irony is that the NFL, a league that so very clearly reflects the culture from which it sprang, owes a great measure of its success to an economic system that many regard as the antithesis of what is considered to be American. Specifically, rather than relying on a typically American-style free market economic system, the success of the NFL is due to its adherence to socialist economic theory, where revenue is evenly shared to support the larger health and well-being of the league.
Socialism is “an economic theory of organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.” This is a near perfect encapsulation of the NFL business model.
The NFL places an imperative on competitive balance, which is achieved by sharing revenue evenly among its franchises. The result of this structure is that small-market teams like the Green Bay Packers (70th-largest media market) are provided financial resources that allow them to compete with teams like the New York Giants (1st) or Los Angeles Rams (2nd).
Because the Packers are publicly owned, the scale of NFL revenue sharing is revealed in the team’s required annual filings. In 2016, the NFL distributed equal shares of its $7.8 billion in earnings to 32 teams ($244 million per team). This accounted for 56 percent of the Packers’ overall revenue. In doing so, the NFL ensures that Green Bay remains a viable and competitive franchise by giving it resources to entice players and sponsors to its team.
The NFL also ensures “competitive balance” with instruments such as a salary cap and the draft. The latter is noteworthy because it rewards NFL teams that perform poorly on the field by giving them priority in selecting new players coming into the league. In other words, the NFL’s labor pool is highly regulated and distributed in terms of the greatest need.
Sports organizations in Europe offer a fascinating (and ironic) counterpoint to the American model. With high taxation and wealth redistribution in the form of broad access to social services, European economies are more socially liberal than an American libertarian model that favors low tax and weaker services. European football (soccer), on the other hand, features a highly decentralized model built around competitive economic practices that would make even the most aggressive free marketers blush.
The English Premier League is characterized by the global brands of Arsenal, Chelsea and Manchester United dominating revenue acquisition and pitch play. Wealthier teams have access to the best players, and therefore cement their positions in the top leagues. Underperforming teams are at constant risk of being relegated, the system that forces poorly performing teams out of top-tier leagues and into lower-tier, less financially productive leagues.
Player drafts offer another juxtaposition. In the past, American sports teams have not competed to their fullest (tanking) to obtain better draft positions that would allow them to build squads that can secure long-term winning (e.g. the NBA’s Philadelphia 76ers and their infamous “Process”). By contrast, deliberate poor play designed to secure better draft picks would fail spectacularly in European soccer by resulting in a team’s relegation to lower tiers (and the associated limited economic opportunities.)
Comparing the NFL draft and the European soccer transfer window provides another contrast. The “libertarian” European sports economic model is laid bare with soccer stars getting astronomic transfer fees and salaries like the reported four-year deal worth at least $340 million that Cristiano Ronaldo got last year from Juventus. For a global sports brand like Real Madrid, buying the best players and paying huge transfer fees has characterized its strategy for years. A lack of mechanisms designed to control labor costs (e.g. NFL-style salary caps) means top clubs can spend their resources freely to maintain their market positions without consequence.
European soccer clubs also have enormous financial incentives for winning. This is closely tied to qualifying for participation in UEFA Champions League and UEFA Europa League. These tournaments provide top-performing clubs access to high-profile matches and commensurate revenue from broadcasting rights and sponsorship. For that reason, the clubs that perform well and qualify for these European competitions see further inflation of their revenue streams. By contrast, all revenue from the NFL’s Super Bowl is distributed among all 32 franchises.
The immense popularity and financial success of football, both European and American versions, is undeniable. What makes their success all the more interesting, though, is how the organization of these leagues seems to stand in stark cultural opposition to the economies of the regions they represent. The free-market American economy gave rise to the NFL, a sport that found success by implementing socialist principles of revenue sharing, equal access to resources, and institutional support of weaker members. European soccer, defined by unrestrained competition for resources and economically punitive systems like relegation, appears far more libertarian than European economies would ever support.