The NFL has grown from a backyard sport to owning a day of the week in the United States during the autumn and winter. But it’s how they got to this point that matters the most and it starts with one thing – their perfect economic model.

In the latest edition of Flashscore’s Livesport Daily podcast, our Czech colleagues sat down with sports business reporter Kurt Badenhause to chat about how the NFL has created the perfect economic model.

In a wide-ranging interview, Badenhause broke down the fundamental reasons for the NFL’s success and how it differs from football in Europe.

Salary caps and TV deals key

So how has the NFL become such a thriving economic success? Well, according to Badenhause, a key reason is the $400 million each Franchise receives each year from the league on the back of mega TV contracts.

“From team number one down to team number 32, every single one of them receives a check from the league for more than $400 million last year.

“That is largely because of the TV contracts in the United States because it is a must-see programming. If you look at the 100 most-watched broadcasts on TV in 2023, 93 of them were NFL football games.”

“There are only four non-football programs among the 100 most-watched TV broadcasts in 2023.”

“Smaller markets that aren’t as well-known and don’t have the big local sponsorship deals, the Jacksonville Jaguars, the Cincinnati Bengals, they still get the $400-plus million, which is so very different than how the system is set up in the big European soccer leagues.”

However, there is one crucial reason for the NFL’s financial strength and that is salary caps. Badenhause explains why: “The critical difference between what you see in the NFL and then the top soccer leagues, which are the only thing that can match it at the top level in terms of the revenue standpoint, is on the cost side. 

“Because the salary caps on player costs basically guarantee you profits if you own an NFL team. By our count, each team generated an average of $140 million in operating profit last year. And if you compare that to the Premier League, only four of the 20 teams made any money, and the aggregate loss was something like $700 million. In the NFL, you’re talking about an aggregate profit of about $4 billion. And that’s not revenue, that is profit.”

“You’re not having a new TV cycle come up every three years. These are 10-year deals, guaranteed profits, and you split your revenue with the players 50-50. The NFL is an incredible economic machine.”

Comparing the NFL to European football

These salary caps are what make the NFL’s financial structure more sustainable than the revenue-based model we see in ‘soccer’. Competitions like the Champions League create an imbalance in financial revenue since teams who compete in Europe’s premier competition earn millions more from TV deals than clubs outside of it. 

This imbalance is summed up by Badenhause: “You have teams at the bottom of the table spending to try to avoid relegation, and then the teams at the top of the table are spending to compete with the other top clubs on the continent in the Champions League. So what it creates is everybody spending money that their revenue can’t necessarily support.”

“There is hope by this new group of American owners that’s come in over the last 15 years, to bring more of an American system.”

“And again, long term, for the health of the league, it makes sense, because you don’t want to own a football club to be a path to losing hundreds of millions of dollars, as it has been for Shad Khan at Fulham.”

As is the case in many leagues around Europe, the Premier League has become a competition dominated by one club –  Manchester City. The only teams who have been able to compete have been ones with high revenues which allow for elite sporting and financial models. Badenhause explains how this hierarchy in the Premier League is a problem and how different the situation is in the NFL.

“You’ve created a situation in the Premier League where you have six clubs that can compete for a title. And that’s not great for the other 14 that are playing in the Premier League.

“The way the system has been set up in the NFL, you can spend a little bit more than the salary cap from year to year, but over a five-year or 10-year period, everybody spends the same amount of money, because everybody has enough to spend up to the cap. And so that creates a level of parity.

“If you can pick your players correctly and not botch that part of it, you have the same amount of money to spend no matter what city you’re in. And so it creates a situation where going into every season, there’s a chance your team is going to make the playoffs.

“And you could make a case that over the next two or three years, I can be in the championship game, in the Super Bowl.”

How the NFL’s model came to be

The NFL though hasn’t always been what it is today and perhaps it wouldn’t have become the commercial giant it is without the owners of the New York Giants thinking outside of the box over 60 years ago. “It goes back to the early 1960s with the owner of the New York Giants Mara family”, Badenhause said.

“The Giants were arguably the biggest brand, one of the original NFL teams. They basically decided to collectivize all of the TV rights.

“So they were negotiated together, and everybody got a fair slice. And the New York Giants, the Mara family, he basically went to the commissioner and said, this is the way we should do it. Our market now has 20 million people in it. It should get the same as Green Bay, which has, I don’t know what it is, 200,000 people in it. And that’s really what it is.”

“The way the TV rights work in baseball operates on the local level. So if you’re in a big market, you get paid a lot more money than if you’re in a small market. So Dodgers and Yankees, their TV deal, it’s 10 times what some other teams are making right now.

“In the NFL, there’s no local TV money. It’s all done collectively on the national level, which is similar to the soccer leagues, but the difference is that it’s distributed equally across all 32 teams. It’s 100% socialist!”

In short, with the MLB, teams make money off local broadcasts, where there’s no such thing in the NFL.

The NFL is also simply America’s most popular sport and unlike some sports, it is an event which needs to be watched live – highlights don’t do the game justice. Badenhause explains: “The NFL is America’s game and nobody wants to see anybody mess up the Golden Goose that fans like so much.”

“The reason it’s 93 of the 100 most watched programs is because you have to watch it live (…) People tune in. It was once a week and they’ve expanded.”

“They will most certainly carve out another TV slot once they get a full slate of international games. You will have a new TV slot open up, which will be the 9:30 a.m. Sunday morning slot, which will broadcast games predominantly for Europe with one game a week that will be happening once they move that to 16 games a year.”

How the NBA is trying to copy the NFL

The NFL’s financial success and popularity are to the envy of America’s other most popular sports, so much so that the NBA is now attempting to jump on the bandwagon. 

“Nobody has the TV money that the NFL does but the NBA is gravitating towards this model and they’re the best competitors to the NFL. The most recent TV contract that they’ve just signed is almost $80 billion. Over 11 years. And that is morphing into very much an NFL model where every team is going to get this huge check.”

Basically, lower-market teams are starting to garner more revenue because the league is giving them a check and the new collective bargaining agreement prevents teams from simply blowing by the cap and scoffing at the penalty, which is the major problem with the MLB. It’s not quite at the NFL’s level, but it’s growing towards it. 

“You can’t buy a (NBA) team right now for less than $3 billion. $3 billion is like the new get-in, and that was before the new TV deal.”

“As this league (NBA) looks to expand and is looking at expansion fees of at least $5 billion, some owners want $6 billion, there are going to be two of them. And so you’re going to have $10 billion, $12 billion coming in. Everybody’s going to get one-thirtieth of that.

“So that’s a quick $400 million cash payment that doesn’t get shared with the players and goes straight into your pocket. However some owners are pushing back saying, we don’t want to slice up the money because we think there’s more money down the road. So we don’t want to have to share it 32 ways. Let’s keep it at 30 ways.”

So the problem is one of owners not wanting to share a slice of the pie with the teams at the bottom of the pyramid – a real-life economic system and conflicts but within the world of sports.

The Americanisation of football 

Since its creation in 1995, the MLS has broken the traditional football mould of promotion and relegation as a closed-off, one-tier league.

“People push back on the idea of MLS being a closed league and it’s not a ‘real soccer league’ because the idea of promotion and relegation is so inherent in European soccer leagues.

“We’ve had soccer leagues in the United States shut down because just there was zero financial stability and the way MLS is set up, that will be one of the challenges for the MLS, which has aspirations of being one of the top five leagues in the world, but they don’t want to lose $700 million a year like the Premier League is set up.

“In the Premier League, you have a lot of owners where profits and losses are probably secondary to how they’re thinking about ownership. So that will be a challenge because it’ll require better talent coming to MLS to certainly raise the bar and better talent costs more money.

“And whether there’s a revenue structure in place that can support that talent is still very much to be determined.”

The big problem for the MLS is whilst all the world’s best American football players compete in the NFL, football is a far more global sport and the USA is not home to some of the best soccer players in the world. The talent issue is a real one and the players who do are good players aspire to play in Europe. 

Whilst the MLS may have had mixed success so far, Americans are not being put off buying football clubs and some have been hugely successful.

“Americans have had great success in football. Fenway Sports has done a great job with Liverpool and continue, you know, transition this year with a new manager and so and I think they’ve handled the asset very well, both on the field and off the field with what they’ve done.

“The reality is if you win, everybody likes you more. And that’s no different than any other sports league. You can turn the conversation pretty quickly.”