You Should Have Been There for the Entertainment: DealMakers Breakfast featuring Jonathan Kraft
by “Should Have Been There” guest blogger Larry Blumsack, President, Zoka Institute
How many of you would pay $174 million dollars for a business with no EBTIDA? And would you have done it in 1994? Well, that’s what the Kraft family did when they purchased the Patriots. So what has made them so successful? Those are the questions that Jonathan Kraft, President of The New England Patriots and the President and COO of the Kraft group answered for a record sold out audience of 375 at the season’s kickoff Dealmakers Breakfast on September 25th. As a superb storyteller he answered them with a great deal of humor, insight, and hard facts.
One of the major points he made in his talk entitled The Business of Sports: The Economics of the National Football League is that football is not a sport. He stressed that it is entertainment. It is presently a $7 billion plus entertainment business projected to go to $11-12 billion by 2012. When the Kraft’s’ entered the business in 1994 the League’s annual revenue was $1 ½ billion. Today the 2008 revenue should reach $8 billion.
The strategy of building an entertainment business makes far more sense than building a sports business according to Kraft. The League spends $4 billion a year on television. The result is that of any other “sport” football has the highest annual revenue yet plays the fewest games in the shortest season and sell 99% of its tickets. Unlike any other sport 75% of revenue is shared equally amongst the teams. Only the National Basketball Association comes close with 45% revenue sharing. Also, over the years the salary cap has leveled the playing field. Cap management rules the strength of the teams. Under the cap you can’t throw unlimited funds around to capture the best players to build the strongest team.
Keeping the cap in mind Kraft said that managing a football team is like managing a stock portfolio and that overtime you will lose part of the portfolio. He went on to say that Bill Belichick’s success and the Patriots success comes from Belichick’s brilliance as both a portfolio manager and coach. Belichick would prefer to invest less money under the cap and spread it over one or two young players with lots of potential than pay an outstanding playing outrageous salary demands. In long run, that portfolio strategy has built a sustaining championship team.
Kraft said the future for revenue growth is through the digital world of entertainment.. The first step towards growth is through pay/view interactive viewing. With interactive viewing a home viewer can pick one of the 13 camera views or multi-views if they want. Second growth step will be to make the coaches sessions, coaches talks and players talk content available several days a week on pay/view. Third step to increased revenue is to tap into the 10 million fantasy football players in the U.S. who spend at least 3 hours a week playing fantasy football. The NFL can provide these fanatics both video and real-time statistics at a fee of course.
Entertainment is the name of the game for the NFL with 110 million people watching at least one game a week for seventeen weekends the League’s goal is to capture $10/person for 10% of that audience through the digital world. This represents additional annual revenue of close to $2 billion a year. Now that’s entertainment and you should have been there.
