August 22, 2014

Revisiting Something to consider about Mike Brown

Sometimes I like to read through the archives. Today I stumbled across this gem written by Mr. Showbiz in 2008, while there may be some changes to figures and the Super Bowl champs, it really is still a relevant article don’t you think?

 

Something To Consider

Friday, October 31, 2008

Here is a breakdown of NFL team expenses written by Stanford University Economics Professor Roger Noll:

Player costs (amortized signing bonuses, performance bonuses, salaries, benefits): about 61 percent of revenue.

Team costs (coaches, day-of-game, travel, uniforms, training): about 5 percent.

Stadium costs (operation, depreciation/rent): Extremely varied because of different arrangements with cities. Some teams pay almost nothing. Some pay for maintenance only. Others pay rent. And others own their facility. So this expense can range from a few percent for an otherwise free publicly owned stadium to 15 percent for a self-financed stadium.

General and administrative (sales, front office, legal): This area has two components: what it really takes to run a team and what is actually paid. Typically, successful teams pay high salaries to owners who also hold managerial titles. The first number is mostly independent of team success and revenues, and ranges from $10 million to $15 million. The second can be defined differently by each team, bringing the total to about 12 to 15 percent of revenue. Also, league costs — including officiating — are taken off the top from broadcast and licensing income. The NFL front office takes 2 to 3 percent of total revenue for operations, but this figure can be much larger if the league is engaged in a major lawsuit.

Interest: Depends on the team’s owner: whether to use the team as collateral on debt — either for the team, such as a stadium or training facility, or for another business venture. So this number varies between 0 and 5 percent, depending on the team’s capital structure.

Taxes: Mainly property, sales and income. Most, but not all, stadiums are exempt from property tax. And most, but not all, teams are either partnerships or limited liability corporations that are taxed as if they are partnerships, which means no income tax. Sales taxes typically are high, especially in publicly-financed stadiums, but, of course, this applies only to in-stadium revenues. Thus, taxes vary from 2 to 5 percent.

Profits: Adding the minimum amounts and maximum amounts in each expense category produces a wide range of profits. Each year, a few teams manage to lose money. At the top, profits can fall around $50 million (20 to 25 percent). Average for the NFL is 12 to 15 percent, but probably only about a third of the teams are in this range. The version of profit that is most commonly cited is “operating profit,” which is the profit before depreciation and amortization, interest and taxes, and excludes non-football activity. This number is now around 20 percent.

Now consider the case of Mike Brown and the Bengals. The Bengals have player and team costs, because those are required by league rules. So let’s move on.

Stadium costs = $0 for the Bengals, and in fact the Bengals make money when the stadium is used for other purposes. The Bengals stadium is actually a source of income for the team.

General and admin = Consider this line from the article, “Typically, successful teams pay high salaries to owners who also hold managerial titles.” The Bengals are definitely NOT successful, but the Brown family holds every major titled position in the organization. Therefore this is not a great expense for the “team” since the positions are held by the owners. The Brown family probably claims this as an expense, but they are just paying themselves a salary from the team while also collecting team profits above their salary. A nice little double dip.

Interest should be very little since the Bengals do not have any side business or stadium expenses. There is no reason for them to be leveraging the team.

Taxes, again are very small for the Bengals due to the stadium and county agreements.
Profits, that is all of the money the Bengals bring in above expenses (Counting the salaries the Browns pay themselves as an expense), average 12% to 15% per team. So the Brown family and the Bengals franchise have no trouble when it comes to money.

Now just think about this, according to Forbes magazine, the total money brought in by the Super Bowl Champion New York Giants last season was $214million. The 7-9 Bengals brought in $205million. So much for the Bengals not being competitive due to market size. The Super Bowl Champ in the NFL’s largest market brought in only 4% more money last season. Only in the NFL does it pay well to suck.

Bottom Line: Do not expect any changes from the Brown family anytime soon. They may be trying their best to win, but they have failed miserably at their jobs. But due to NFL profit sharing, there are no consequences to being the worst people in the entire world at your given profession. Just feel good that you do not have to live with the burden that they have, knowing you are the worst in the world at what you do.