Indy Buisness Journel:Owners' meetings may alter Colts' ability to stay competitive

[TK]

http://www.ibj.com/topstories.asp?A=15070

NFL at critical financial juncture

Owners' meetings may alter Colts' ability to stay competitive

By Anthony Schoettle

IBJ Reporter

NFL owners' meetings next month in Atlanta and Denver could go a long way in determining how viable a National Football League team can be in small markets like Indianapolis.

The meetings also will have a bearing on what the Indianapolis Colts need--or want--in terms of a stadium to financially flourish here. Finally, what happens at the meetings will have a direct effect on what the city is required by its current RCA Dome lease to pay the team in subsidies to keep it here.

The special meetings are being convened to discuss the NFL Trust, which governs virtually all commercial and merchandise business of the league and its teams. League officials hope to build a consensus on extending the trust, which expires in March, around the same time owners will gather for their annual spring meetings.

"Consensus won't come easy," said Colts President Bill Polian. "There's a lot at stake."

The meetings take on special significance because the league's television contract expires after the 2004 season and with the economy hurting since 2000, the NFL could be looking at a cut in its hefty TV rights fees, its primary financial artery. With that in mind, owners--especially newer owners who've paid hundreds of millions for their teams--are looking for ways to significantly boost revenue.

That push, industry sources said, would put pressure on the Colts to keep pace or become a franchise looking for a new, more lucrative stable.

If measures adopted by NFL owners allow teams to generate significantly more revenue, that also would put pressure on city officials who have pledged subsidies, if necessary, to keep the Colts at the league revenue median. The Colts' revenue last season was $137 million, according to Atlanta-based trade publication Public Accounting Report, $13 million behind the league's median and $90 million behind league-leading Washington.

The Colts' original 30-year lease at the RCA Dome ends after the 2013 season, but the team has an opt-out clause following the 2006 season if team revenue, including any payments from the city, falls below the NFL median revenue for two of the three previous years. That means all eyes are on the Colts' revenue starting this year.

"We're aware of the importance of this issue and the [NFL owners] meetings," said Michael O'Connor, chief of staff for Mayor Bart Peterson. "Anything that affects the Colts' revenue we're taking a real close look at. We want to do what we can to maximize the team's ability to generate its own revenue. Long-term, we want to alleviate the need for any [city] subsidy."

This type of "in-depth" work at the December NFL meetings is usually handled in smaller committees, Polian said. But the importance of the NFL Trust means owners and team presidents are involved from the start. Next month's meetings mark only the second time in league history owners have gathered outside their regularly scheduled meetings.

"There's a lot of money involved in the topics that will be discussed at these meetings--licensing, merchandising, retailing and sponsorships," said Marc Ganis, president of Sportscorp Ltd., a Chicago-based sports consulting firm whose clients include NFL teams. "These meetings are a critical part of the process in assuring small-market and large-market interests can co-exist and the on-field competitiveness of the league continues."

There are issues on the table that will almost certainly pit small-market teams like Indianapolis and Nashville against counterparts like Houston and New York.

"Changes discussed at these meetings have the potential to cost [Colts owner] Jim Irsay a lot of money," said Mark Rosentraub, former associate dean at IUPUI and author of "Major League Losers," a book about professional sports business operations.

Some of the debates over the two days of meetings, said Rosentraub, now a dean at Cleveland State University, could be fierce.

"These high-end, big-market owners are not a weak constituency," Rosentraub said. "They represent some of the most important markets to the NFL, and that's a very powerful coalition."

Among key issues to be discussed is the idea of opening up sponsorship categories and more opportunities for in-stadium advertising. Sideline advertising is of particular interest to some teams.

While all teams could benefit from such a move, Ganis said large-market teams with larger TV audiences could bring in considerably more revenue. Under the current revenue-sharing formula, in-stadium advertising stays entirely with the franchise.

Steps like that, Polian said, would only drive up average team revenue, while not increasing the small-market team's relative take. Since the salary cap is based on average team revenue, small-market teams would lose ground.

"You don't want your salary cap going up and your revenue going [comparatively] down," Polian said. "That hinders a small-market team's ability to be competitive."

Some owners believe small-market teams have relied too heavily on the league's revenue-sharing formula. Owners like Dallas Cowboys' Jerry Jones are already pushing the envelope on what their teams can control and keep clear of the league's revenue-sharing till, Rosentraub said.

"There's a thought that, when small-market teams are faced with the need to market better, they'll do so and do well," Ganis said. "Some of the initiatives might push teams like the Indianapolis Colts to ratchet up marketing."

This line of thinking is being pushed by new owners like Houston Texans' Robert McNair and Washington Redskins' Daniel Snyder, who are carrying heavy debt loads, Rosentraub said.

"Jim Irsay isn't going to get much support when it comes to owners like that who have so much more invested in their teams," Rosentraub said.

But Polian takes issue with the idea that small-market teams are overly reliant on revenue sharing.

"There are a lot of complex issues here," Polian said. "When you start opening it up, you have to look at so many things like a coaches' headphones, a team's sports drink and even uniforms. And on some of these things, we're on the side of them being marketed on a league-wide basis."

Even topics that would appear to have widespread support could generate debate. One such example is teams' ability to market beyond the league-imposed 75-mile radius limit.

The Colts have long sought to market regionally to increase their fan base, including near the state's western border and in the Louisville area.

But Rosentraub said if the 75-mile radius rule is lifted, the Colts could lose market share to the Chicago Bears, Cincinnati Bengals, St. Louis Rams and even Tennessee Titans.

"You'd think there would be a big up-side, but pretty quickly the teams begin to bump into competitors for fans on every border," Rosentraub said.

And Polian noted that if teams like the Dallas Cowboys with broader appeal are allowed to market nationally, that could hurt more than just the Colts.

With so many issues on the table and NFL officials encouraging team owners and presidents to voice their opinions, December's meetings could be long and arduous.

"The NFL requires a unanimous vote to renew the Trust," Ganis said, "so that should make these meetings especially intriguing."

[88Comrade2000]

The TV contract expires after the 2005 season, not 2004.

It was an 8 year deal.

98,99,00,01,02- original 5 years plus 3 more years 03,04,05. The nfl had the option of voiding the final 3 years but due to the poor economy didn't do that.