The National Football League (NFL)

“NFL extracts value at every supply chain node. They structure ownership like an investment fund with a GPLP entity: the principal owner is the general partner, minority partners are limited partners. Then when private equity enters, the NFL invented a way to charge carry on investor ownership. Upon any sale or monetization, a portion of the returns get skimmed off the top and go back to the NFL, then get distributed equally among all 32 team ownership groups.”

Ownership Evolution

Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship

DUR_ENDURING

NFL charges carry on PE ownership stakes

“Burt Bell realizes that the schedule is an incredibly important strategic lever. He arranges it so weaker teams from last year play other weaker teams for the first half of the season, and stronger teams play other stronger teams. That way roughly everybody will have a 50/50 record going into midway point. There will be drama about who will win, even though actual talent might diverge quite a bit. The NFL still does this to this day.”— David Rosenthal

Competitive Balance

Strategy & Decision Making · Operations & Execution · Psychology & Behavior

DUR_ENDURING

Schedule as strategic lever to create artificial parody

“NFL ownership group had so constrained the buyer investor market that buyers actually had leverage. By allowing private equity in, they opened the window much wider. The NFL approved only four large private equity firms who can invest. Those firms can own up to 10% of equity, smallest cap of any major sports league. They are fully silent limited partners with no control. This is supply and demand at work. Forbes now estimates annual revenue multiple went from 6.4x five years ago to 10.7x today.”— David Rosenthal

Private Equity Entry

Economics & Markets · Strategy & Decision Making · Business & Entrepreneurship

DUR_ENDURING

Constrained supply gave buyers leverage until expansion

“The NFL comes up with the idea of having a draft of college players in reverse order of where you ended up in standings the previous season. The worst teams get the first picks. This forms the nucleus of Burt Bell's strategy: league first, team second. On any given Sunday, any team in the league should be able to beat any other team.”— David Rosenthal

Competitive Balance

Strategy & Decision Making · Economics & Markets · Operations & Execution

DUR_ENDURING

Reverse draft order: help weak teams rebuild

“Using private equity entry as a way to redistribute wealth from high-value teams to all 31 owners is pulling yet another lever to achieve competitive parity. The league is using the fact that PE firms want desperately to be in. Only a subset of teams will use the PE option, but it would have created an imbalance if some got liquidity stakes and reset valuations while others didn't.”— Ben Gilbert

Private Equity Entry

Strategy & Decision Making · Economics & Markets · Leadership & Management

DUR_ENDURING

PE entry solves imbalance through redistribution

“Local market home television airing of home games absolutely depressed in-person attendance. The LA Rams did a deal in 1950 where Admiral Television guaranteed revenue for any loss in attendance. Attendance declined 50%. A saying ends up being developed in baseball that they stuck to for a very long time: radio wets the appetite, television satiates it. It's a new revenue stream but it's hurting the golden goose of ticket sales.”— David Rosenthal

Television Era

Economics & Markets · Strategy & Decision Making · Psychology & Behavior

DUR_ENDURING

New distribution cannibalizes old but unlocks bigger market

“In 1905, there are 19 fatalities in intercollegiate football in the US, including Theodore Roosevelt Jr. Teddy Roosevelt calls a summit and says he's going to outlaw the game unless they adopt major changes. In response, they create the NCAA and legalize the forward pass, which becomes the defining characteristic of American football.”

Origins

History & Geopolitics · Strategy & Decision Making · Creativity & Innovation

DUR_ENDURING

Crisis forced innovation that defined the sport

“The thing that the NFL has, they're now unbelievably extractive of the networks. They've historically been very extractive of players but now the players seem to have a pretty good deal. NFL teams are very extractive of communities in the stadium deals. The NFL captures as much value as it possibly can. They are unbelievably good at value capture, like Rockefeller's drawback system where he extracted value at every point in the supply chain.”— Ben Gilbert

Modern Analysis

Strategy & Decision Making · Economics & Markets · Business & Entrepreneurship

DUR_ENDURING

Extract value at every supply chain node like Rockefeller

“The NFL has long had a strict code around team ownership. With one grandfathered exception of the Green Bay Packers, every other team must be controlled by a single principal owner who is a natural person, not a corporation. That person and their family must have a minimum equity stake of 30%, pure equity funded with cash. You are allowed to have debt but the league imposes a ceiling currently at $800 million.”— David Rosenthal

Ownership Evolution

Strategy & Decision Making · Business & Entrepreneurship · Leadership & Management

DUR_CONTEXTUAL

30% principal + 24 silent LPs structure

“They develop a three-part plan to legitimize professional football: One, not sign any current college players. Two, play the game at high ethical and rules-based standard. Three, make Jim Thorpe the president of the league. Jim Thorpe was the GOAT, the greatest athlete that had ever lived. The distance between Jim Thorpe as an athlete and any other athlete in the world at that point was greater than that distance has ever been since.”— David Rosenthal

Origins

Strategy & Decision Making · Leadership & Management · Business & Entrepreneurship

DUR_ENDURING

Legitimacy through standards plus star power

“The NFL owners have made bold long-term bets in choosing to divide their revenues equally in a way that no other sports league has. Like communist capitalism at its finest, the NFL owners chose growing the pie over individual franchise optimization for over a century.”

Introduction

Strategy & Decision Making · Economics & Markets · Leadership & Management

DUR_ENDURING

League first mentality: sacrifice individual gains for collective prosperity

“The NFL ownership structure was actually a key part to the strategy working. It might have been the single biggest driver of this whole architecture. These are real flesh and blood people, not corporations. They have enormous skin in the game. A huge portion of their family's wealth is invested in the clubs. They run them personally, make decisions, are effectively the CEOs. You're able to get all 32 of these people into a room a couple times a year and they can hash out collective capitalism.”— David Rosenthal

Ownership Evolution

Leadership & Management · Strategy & Decision Making · Economics & Markets

DUR_ENDURING

Concentrated ownership enables collective strategy

“Television set sales in 1946 were 7,000 in America. In 1947, 14,000. In 1948, 172,000 and it only grew exponentially from there. By the early 1950s, there are 25 million homes with a television set. Thank God the AAFC forced the NFL to expand and discover the league first mentality, and thank God they beat them by the time TV showed up, because now the NFL is the only game in town right as TVs are showing up.”— David Rosenthal

Television Era

Technology & Engineering · History & Geopolitics · Business & Entrepreneurship

DUR_ENDURING

Perfect timing: won competition right as TV exploded

“Before World War II, there were several black players in the NFL including Fritz Pollard, who was both the star player and head coach of the first NFL champions. But in the mid 1930s, supposedly after George Preston Marshall joined as owner of the Redskins, they adopted the same policy as Major League Baseball and completely kicked blacks out of the league. It wouldn't be until after World War II, and for the Redskins, not until 1961.”— David Rosenthal

Origins

History & Geopolitics · Culture & Society · Leadership & Management

DUR_CONTEXTUAL

Integration reversed for 25 years due to racist owner influence

“Baseball was the number one sport in America, towering above the sporting landscape like a colossus, the unquestioned national pastime, the only game that mattered. Professional football was viewed not just as second rate to the college game, they were dirty. Many people viewed professional football as actually immoral because it was profaning this sacred collegiate ritual with money.”— David Rosenthal

Origins

Culture & Society · History & Geopolitics · Business & Entrepreneurship

DUR_CONTEXTUAL

Pro football seen as immoral corruption of amateur ideal