Green Bay Packers Prove That Public Ownership of Organizations is Economical
In the last two seasons, the Green Bay Packers have been the NFL’s most successful franchise. But what makes them unique goes far beyond the playing field. With a management structure unlike anything else in American professional sports, they have the NFL’s best owners.
The Packers’ stocks do not gain in value, there are no dividends, and ownership can only be transferred to an immediate family member. Most importantly, there’s a 200,000 individual share limit to prevent any one person from becoming the majority owner.
In the basic theory of capitalism, the owner provides the capital (the buildings, machines, infrastructure, etc.) necessary for the workers to create the product. The revenue this product generates in turn compensates the workers for their labor and the owners for their investment.
But ultimately, it’s the fans, as the consumers, whose money funds everything.
Pro sports has the workers (the players) and the product (the games), but the industry has been fundamentally corrupted by its owners over the last generation. Rather than assuming the primary expense of ownership, stadium financing, they have pawned it off on the taxpayers.
The numbers are staggering: Over the last two decades, local municipalities have spent nearly $15 billion constructing or renovating stadiums for the NBA, NFL, and MLB. And despite owners’ claims to the contrary, there’s extensive research indicating that these stadiums do not boost economic growth.
Instead, because the leagues have been allowed to set up artificial caps on the number of franchises that can exist, owners have repeatedly used the threat of relocation to extort municipalities into paying for stadiums.
In 2008, after 41 years in Seattle, the Seattle Supersonics moved to Oklahoma City. The primary reason given was because the city refused to pay for a new stadium after spending $600 million on the Mariners’ Safeco Field and the Seahawks’ Qwest Field.
In contrast, there’s no chance the Packers will ever leave Wisconsin, even though they are located in the NFL’s smallest market. When the Packers needed money to upgrade their stadium earlier this year, they didn’t hold local taxpayers hostage and force the city to choose between keeping their team and cutting public services, they simply sold 185,000 new shares at $250 each.
The city of Charlotte spent $260 million on the Bobcats’ new stadium. The entire franchise is only worth $281 million. The Bobcats are essentially a public trust that Michael Jordan is being allowed to operate for his own personal gain.
In their 2011 lockouts, both the NBA and NFL owners were willing to cancel games, and deny cities the very product they paid billions for, unless the players accepted a share of salaries so low that the owners would be guaranteed annual cost certainty.
In pro sports, like the law, workers generate the majority of the revenue. A law firm is nothing more than a collection of individual partners who control “books of business” of individual clients. Similarly, if the NBA’s 50 best players played in Europe, the league’s TV ratings, and its revenue, would plummet.
Law firm partners typically receive 80% of the income the firm generates. But after the lockouts, the NFL players now receive around 48.5% of the income generated while the NBA players receive around 51%. The owners have guaranteed themselves all the extra profit while shirking the risk.
As a result of this imbalance between public risk and private profit, the entire system of professional sport ownership in America has become little more than an elaborate slush fund for some of the country’s wealthiest individuals.
While European soccer clubs are punished by relegation into a lower league for sustained mediocrity, the pro sports monopolies in the U.S. ensure that even the most poorly-managed franchises are still immensely profitable. Donald Sterling, the notoriously cheap owner of the Los Angeles Clippers, purchased the club for $13 million in 1981. In 30 years under Sterling, the Clippers have had two winning seasons. They are now worth $305 million.
In theory, you can buy an NFL franchise in 2011, make a steady annual profit, and then sell it again a decade later when it might have doubled in value with almost zero risk. This is essentially what leveraged buyout mavens like Tom Hicks were trying to do when they began buying franchises on margins in the 1990’s. Hicks was so brazen, he bought soccer powerhouse Liverpool FC primarily through loans on the value of two smaller American franchises (the Texas Rangers and Dallas Stars).
In contrast, the Packers’ profits are re-invested into the franchise and the city of Green Bay. 60% of their concession sales are guaranteed to local charities. They are owned by their fans, and the organization is run to better serve the interests of those fans and the local community, not a wealthy third-party.
Modern owners are essentially “rent-seekers” who add very little value to the franchises they run. The late George Steinbrenner, who became a recurring character on the TV show Seinfeld, was the most famous. In one episode, George Costanza tells the character of Steinbrenner that “in the past twenty years you have caused the city of New York and myself a good deal of distress as we have watched you take our beloved Yankees and reduce them to a laughingstock all for the glorification of your massive ego.”
The people of New York will end up paying $1.2 billion for the Yankees’ new stadium. At that price, they should be allowed to own their team in the same way that the people of Green Bay do.
The results speak for themselves. Even though the Packers are competing with franchises located in markets ten times their size, their fans do such a good job managing them that they are the favorites to win consecutive Super Bowl titles while still being one of 15 franchises that pay into the NFL’s reserve fund, rather than take money out of it.
Photo Credit: elviskennedy