Irsay became a central figure in the NFL franchises’ small-market vs. large-market battle at the annual owners’ meetings in Hawaii March 21-23. He told reporters he isn’t sure how long his-or any-team can be competitive in a city the size of Indianapolis if large-market teams have their way with the league’s revenue-sharing formula.
The Indiana General Assembly is in the midst of a fierce debate over funding for a $600 million retractable-roof stadium for the Colts, but that could be a moot point if the chips don’t fall Irsay’s way in the owners’ debate.
“I’ve been in the league 33 years,” Irsay told the Washington Times. “I’m in it to win, [but] I think the problem is, you get to a point of, ‘How long?'”
Irsay, while blunt about his team’s predicament, insisted to reporters in Hawaii he isn’t threatening to pull up stakes and move his team to a larger market.
But the team’s financial situation is getting so bad, he said, he has to pull money from his own pocket to keep up with the escalating salary cap. Small-market owners argue if outdated loopholes in the revenue- sharing policy aren’t closed, the NFL could be headed for Major League Baseball-style competitive disparity. Industry observers said the four-decades-old NFL policy faces its greatest challenge.
The NFL began sharing revenue, starting with its national television package, in 1964. But as player salaries rose over the years, league owners added more aspects of a team’s revenue to the formula to keep smaller-market teams on competitive footing with their large-market brethren. For instance, visiting teams now get 40 percent of ticket revenue.
Many large-market teams, especially those with high debt to service, have fought with the league and one another over what money they can keep and what they must share.
Teams now consider reshaping the revenue-sharing formula almost every year, but the formula’s close ties to the players’ collective bargaining agreement are pushing the debate to the boiling point this year.
The collective bargaining agreement expires in 2008, but NFL Players Association President Gene Upshaw wants a new deal done by 2006. A deal is impossible, league officials said, until owners agree on a revenue-sharing formula.
Twenty-four of the 32 NFL owners must agree to pass either a revenue-sharing revision or a collective bargaining agreement. Industry observers said Jones and other bigmarket owners are organizing a posse of supporters to block any revenue-sharing plan that doesn’t meet their desires.
While locally a new stadium might be billed as a panacea, a wave of new stadiums league-wide has lessened the Colts’ benefit.
“We would like to see revenue sharing increased because, as new stadiums come on line, you have more unshared revenue,” Colts Senior Executive Vice President Pete Ward told IBJ from Hawaii. Even with a new stadium of its own, the Colts franchise needs strong revenue sharing, Ward said.
“In a smaller market, you have to take on more risks with a new stadium,” he added. “You’re still at a disadvantage competitively compared to larger markets.”
Irsay chose some powerful allies at the owners’ meetings, including Arizona Cardinals owner Bill Bidwell and Pittsburgh Steelers owner Dan Rooney. As part of the NFL owners’ Management Council, Irsay isn’t lacking clout himself.
There’s a contingent of large-market owners that says the NFL and its smaller-market teams are merely riding the gravy train instead of adding to it. Owners like Jones, the Washington Redskins’ Daniel Snyder and the Houston Texans’ Bob McNair want more control of franchise income. Owners like Snyder and McNair point out they have much more debt to service than do teams like the Colts.
While Irsay took over the Colts from his father, Robert Irsay, Snyder paid $800 million for the Redskins five years ago and McNair paid a $700 million franchise fee in 1999 to enter the league. While Jones paid a comparatively paltry $140 million for the Cowboys in 1989, he sparked the debate when he began squeezing and keeping every penny he could from America’s Team, often running afoul of the league’s revenue-sharing policy. The league sued him, he countersued, and the sides eventually settled.
For Irsay and others fighting to strengthen revenue sharing, the battle is intensifying. Newer owners like the Baltimore Ravens’ Steve Bisciotti and the Cleveland Browns’ Randy Lerner are aligning with the Jones and Snyder contingent.
“The balance of power could be shifting,” Marc Ganis, president of Chicago-based Sportscorp Ltd., told IBJ. Ganis attended the owners’ meetings as a consultant.
Irsay had a list of statistics to back his case at the meetings. He told reporters he is spending 70 percent of his team’s revenue on players’ salaries.
“But we’ve been tens and tens of millions of dollars over cap, and everyone knows how you can get to that position because the money’s amortized on signing bonuses,” Irsay told the Times.
Teams like the Cowboys and Redskins, with annual revenue nearly double the Colts’, about $100 million more, could much more easily absorb the record $34.5 million signing bonus Irsay paid quarterback Peyton Manning, Ganis said. Manning’s entire contract is worth $98 million.
“The small-market teams are in a situation where they’re really feeling the pressure,” Ganis said.
Irsay and his small-market band also complain that the growing largess generated by big-market teams is pushing the salary cap higher, since the cap is calculated by the league’s average team revenue.
The NFL has been at the forefront of sharing revenue, splitting ticket revenue and dispersing merchandising and sponsorship dollars for years. But recently teams have pushed the envelope on developing ancillary revenue streams. A new stadium would help the Colts raise more in suite sales and increased sponsorship inventory, but according to Ganis, wouldn’t come close to getting them to the level of the league’s highestgrossing teams.
“The revenue-sharing formula makes NFL football possible in Indianapolis,” said Milton Thompson, president of Grand Slam Cos., a locally based sports agency and marketing consultancy. “That’s the only reason the Colts can survive here and one of the primary reasons Major League Baseball won’t work here. It’s paramount that the Colts do what they can to protect that formula.”
The issue is so critical NFL Commissioner Paul Tagliabue created a Special Committee on League Economics. McNair, Houston’s owner, has been named chairman.
Sportscorp’s Ganis said a compromise will be reached, after much more wrangling. He predicted the likes of Irsay will gain greater revenue sharing, but that heavily indebted teams will win an adjustment based on their greater contributions to the pot. He said a new formula likely will be based not merely on revenue, but also on profit.