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Is the NFL Dying?
On the first Sunday of September, the Chicago Bears hosted the Green Bay Packers for a game that kicked off the NFL’s 100th anniversary season. Sports fans love remembering classic moments and most people love celebrating milestone anniversaries, so you would think that reaching the century mark would garner wall-to-wall positive news stories for the NFL.
That has not been the case.
While football teams hope for coverage of their on-the-field athletics, many media outlets have focused on the NFL’s off-the-field scandals.
Here’s a quick rundown of some particularly egregious cases from the last few years:
In 2017, former player Aaron Hernandez died in prison, where he was serving a life sentence for first-degree murder.
Each of those disgraces bludgeoned the NFL’s reputation, as did a string of incidents related to domestic violence, substance abuse, and performance-enhancing drugs.
The media’s focus on bad behavior was especially embarrassing for the NFL, because they promised to “clean up their act” in 2014, after videos surfaced of player Ray Rice knocking his then-fiancée unconscious on at least two occasions. The NFL’s complicity in the situation resulted in not only a Senate hearing, but also an in-depth investigation led by…Robert Mueller.
But misconduct wasn’t the only problem for the NFL’s reputation.
Marketing Brain Damage
What’s the biggest marketing problem for the NFL?
I think it’s the emergent body of research suggesting that football can kill its players. High-impact tackles to the body aren’t the primary culprit, but rather the frequency and severity of hits to the head.
Just last week, the NFL settled a lawsuit with their insurance company, related to coverage of a $1 billion settlement with ex-players whose lives were impacted by brain injuries. Shortly before this season began, quarterback Andrew Luck — an MVP candidate with the Indianapolis Colts — shocked the sports world by abruptly retiring in the early prime of his career. Luck’s explanation should terrify the league’s head office:
For the last four years or so I’ve been in this cycle of injury, pain, rehab; injury, pain, rehab. And it’s been unceasing and unrelenting both in-season and offseason. I felt stuck in it. The only way I see out is to no longer play football. It’s taken my joy of this game away. I’ve been stuck in this process. I haven’t been able to live the life I want to live.
For years, the NFL has marketed itself as a modern-day form of gladiator combat. Although football stadiums bear more than a passing resemblance to ancient coliseums, many fans are experiencing a sense of discomfort with the idea of subjecting humans to physical pain as a source of entertainment.
Of course, Rome wasn’t built in a day, and neither was our understanding of how concussions impacted the brain.
In 2005, forensic pathologist Bennet Omalu, along with multiple colleagues, published scholarly articles about their discovery of a disease — chronic traumatic encephalopathy (CTE) — that caused brain degeneration in professional football players. A 2009 article in GQ introduced Omalu’s research about CTE and football to broader audiences. (The 2015 movie Concussion, featuring Will Smith as Dr. Omalu, portrays the true story of the NFL’s attempts to suppress his research).
Back in 2009, author Malcolm Gladwell penned a column in The New Yorker that compared football to dogfighting — activities with no ethical justification, given the damage they inflict upon their participants. In 2012, economists Tyler Cowen and Kevin Grier moved the discussion from morality to money. After contemplating “what the end of football would look like,” Cowen and Grier theorized that football’s demise would result from a combination of widespread liability suits and an unwillingness of insurance companies to provide coverage.
A 2016 article in Sports Illustrated stoked the debate further, asking “What would happen if America's pastime just ... died?” Throughout the last decade, Malcolm Gladwell has continued to criticize the NFL’s inaction on the prevention and treatment of concussions. In podcasts and articles, Gladwell has discussed the future of football with Bill Simmons, sports analyst and CEO of The Ringer. After much debate, Simmons (an avid NFL fan), eventually conceded that, “We have too much information about head injuries. I feel like an accomplice.” Gladwell frames his ideas about football in terms of “second conversations” — the dialogue on the periphery of a sport that interest people who don’t actually follow the sport:
So what’s the second conversation about football? It’s concussions. There’s the game on the field and then there’s a conversation off the field about why nobody wants their kids to play the game on the field. How does a sport survive in the long run when the second conversation contradicts the first?
How has the NFL responded to concerns about concussions? A few days ago, the league announced the “NFL Helmet Challenge” for researchers who can design equipment that might reduce the potential risks of brain trauma. Critics, though, have pointed out that no helmet can eliminate the damage caused by frequent hits to the head. The meaningful improvement in player safety probably requires fundamental alterations to the sport: changes to the rules, a reduction in the number of games, etc. So far, the NFL has mostly resisted calls to tinker with the core elements of their sport and their league.
But the “second conversation” about football gets louder every day. On a personal note: I enjoyed playing football in high school, but I cannot imagine my wife and I encouraging — let alone allowing — our children to pursue the sport. We won’t be the only family; consider the results from the Sports and Fitness Industry Association’s 2019 report:
...tackle football participation was down 1.3 percent overall with a 5.8 percent drop in core participation (26+ times a year). In the key playing age group of 6 to 17, core participation was down 3.0 percent and is now off 1.9 percent on average over the last five years. [Emphasis mine]
Let those numbers sink in. Among kids, football participation has dropped 2% a year for FIVE STRAIGHT YEARS. If that trend continues for even a few more years, you can reasonably expect an erosion of football’s place in American schools and communities.
The decline of interest in youth football has mirrored trends in professional football. Last season’s attendance numbers were the lowest since 2010. Last year’s Super Bowl between the Patriots and Rams was the least-watched championship game since 2009.
Can we really imagine — never mind witness anytime soon — an America without the NFL?
Sometimes, institutions flame out rapidly (see: Theranos).
In many cases, though, the decline is slow and steady.
Could the NFL be next?
Show me the Money
Let’s move away from theories about the future and focus on realities of the present.
Despite all of the reputational hits over the last few years, the NFL is still a financial juggernaut.
Around 2010, television viewership of NFL games plateaued; in the second half of the decade, they slid downward. Innumerable thinkpieces attempted to provide an explanation: defensive-minded strategies that reduced excitement, boycotts over anthem protests, etc. Last season, TV ratings rebounded, with modest levels of growth. The upward momentum carried into this season; after the first weekend of games, the year-over-year ratings soared by a staggering 9%.
Here’s the real kicker…
Even when the NFL’s TV ratings remained static, league revenue continued to grow. Statista tracks NFL revenue by year; check out the trajectory throughout this millennium (all figures in BILLIONS):
For the 16-year period included in the above chart, NFL year-over-year revenues grew by an average of 7% a year. During the 2011 to 2017 span when viewership froze and/or declined, revenues actually INCREASED by 7.5% a year. Information for 2018 is not available on Statista, but a USA Today article provided an estimate of $16 million. If that figure holds true, it represents an annual increase of 17%! Not bad for a sport on its so-called death bed.
NFL is King
Impressive: NFL revenue continues to grow at incredible rates.
More impressive: the NFL earned high-percentage increases on a VERY large financial base.
When we compare the NFL to its rivals, we can see that it is — pardon the pun — in a league of its own. Using 2016 data, the NFL generated 30% more annual revenue than second-place MLB (baseball), and more than double the revenue of the third-place Premier League (English “soccer”).
Padding Owners’ Pockets
Revenue is nice and all, but profit is what really matters.
Unfortunately for our analysis, assessing the accurate financial picture for sports teams is tricky. Professional leagues and teams are (mostly) privately owned. Plus, manipulation of revenue and costs is rampant for (at least) two reasons:
Many leagues have revenue sharing agreements where the more profitable teams (based on stated net profit) pool money for redistribution among the less profitable teams. In theory, these agreements help level the playing field between franchises in large markets and those in small markets (offsetting inherent differences in regional economic conditions, etc.). In reality, though, these systems can provide an incentive to understate revenue and overstate costs. Rumors abound that teams use accounting manipulations to their benefit (like placing concession revenue into separate holding companies).
Three of North America’s “Big Four” professional sports leagues (NHL, NBA, NFL, but not MLB) set their salary cap figures based on a specific percentage of league revenue from the previous season. By understating revenue, team owners can, essentially, limit the salary increases that players could earn in the following seasons. (Players’ associations in several sports have remained suspicious enough of owners that they negotiated the right to audit the annual financial records).
Keeping in mind all of these caveats about financial accuracy, Forbes releases annual reports about the major North American sports leagues. For 2018–19, the numbers speak for themselves:
On average, each owner of an NFL team collected SIGNIFICANTLY more profit than owners of teams in the other three leagues.
Any guesses on the most profitable sports franchise in North America?
It’s the NFL’s Dallas Cowboys, who netted a cool $420 million last year. For comparison’s sake, if you remove the NHL’s three most profitable teams (New York Rangers, Toronto Maple Leafs, and Montreal Canadiens) from the equation, the Dallas Cowboys earned more money than the other 28 hockey franchises COMBINED.
Even if some of the financial books are “adjusted” to favor team interests, there’s no question that NFL franchises are far, far more profitable than other North American teams.
So…how does the “dying” NFL make so much more money than other sports leagues?
And what can marketers learn from the NFL and apply to their own companies?
Why is the NFL so successful at generating profits?
The answer is obviously complicated, but I would argue that one concept is the most important — scarcity.
Take a look at how many regular season games are played, per team, for the Big Four professional leagues:
Just like the regular season, the NFL’s playoff structure (which uses a single-elimination format) includes fewer games than other leagues (which use best-of-5 or -7 game series). Each season, there are only 11 NFL playoff games (total games, not per team). Depending on how quickly teams win each series, MLB playoffs could feature as few as 26 games and as many as 43. The NBA and NHL use identical formats, with a minimum of 60 games and a maximum of 105 games.
Thus, not only does the NFL earn vastly more revenue than the other leagues, but it does so with far fewer games. As such, each NFL game makes an order of magnitude more money than games in the other leagues.
Why are NFL games so successful at driving revenue?
First of all, for teams with championship aspirations, each game significantly impacts their overall ranking and playoff positioning (with only 16 games each season, a single loss could shift a team’s outlook). With such high stakes on the line, fans are compelled to watch the games every week. (In contrast, teams in other leagues usually coast through various stretches of their seasons, as do their fans.)
Moreover, consider the leverage that the NFL’s scarcity provides when selling advertising opportunities. Because there is less content to sell, the NFL can charge a higher price for available ad space. As I explained last month in “Why CACs are Going Up,” when Facebook user growth slowed down, their revenue did not — the company just sold the same number of ads for higher prices. With any given amount of demand, increasing the level of scarcity will raise the price paid per unit. Facebook might use a formal auction and the NFL might use traditional negotiations, but the end results are the same.
I doubt the NFL designed its operating model around economic concepts of scarcity. More likely, the number of games was a function of the sport’s punishing nature. No one could expect football players to subject themselves to anything like an 82-game season that basketball and hockey players fight through, let alone the 162 games played by baseball teams.
Over time, though, I believe the NFL developed an appreciation for the power of its scarcity. In the last year, television has been increasing its ad load (Nielsen estimated that stations ran 11.2 minutes of ads per hour in 2018, versus 10.9 the year before). The NFL, on the other hand, is CUTTING their ad breaks. In 2017, the league reduced the number of their ad breaks from five to four, challenging broadcasters to find a way to sell ads within the show instead.
In the big picture, a cynic might suggest that the NFL isn’t a sports league, but rather a delivery service for advertising — just think of the buzz around Super Bowl commercials. Without question, the NFL is keen to protect the profitability of its programming. While other leagues pursue possibilities for digital streaming, the NFL is sticking with TV. As Brian Rolapp, the league’s chief business and media officer, explained:
Our entire model is based on reaching as many people for as long as we can. Traditionally, the best way to do that has been broadcast TV… I don’t think there’s a fear [in the league office] about declining TV viewership, but there’s a healthy paranoia.
Digital streaming is inevitable, but the league has been very careful about opening the floodgates. Publicly, the NFL has justified their hesitant position by voicing skepticism about tech companies’ ability to handle tens of millions of simultaneous viewers. Behind closed doors, though, I suspect that there’s another reason for the delay to embrace digital. Surely the NFL wants to develop a streaming environment that matches (or exceeds) the advantages they possess with broadcast television.
In other words, the NFL wants to protect the scarcity of its advertising opportunities.
Without scarcity, you are left bluffing your way through a negotiation.
With scarcity, you can compel buyers to increase the price of their bids.
Google discovered the value of scarcity with their AdWords product. When Google launched AdWords, then-CEO Eric Schmidt was terrified about the effectiveness of an auction in which companies submit a bid without knowledge of competing offers. As he explained to Reed Hoffman on the Masters of Scale podcast:
I was absolutely convinced that this would bankrupt the company. And I was so convinced, that I ordered a cash-restriction period, where the only thing that you could do was spend money on Friday mornings, at 10:00. You had to come to my office and you had to convince me that you needed to buy those pencils, or those computers, or whatever.
Of course, AdWords did succeed, turning Google into one of the most important (and most profitable) companies of all time.
Schmidt overlooked just how powerful the concept of scarcity could be in the advertising game. In Google’s case, it wasn’t scarcity in searches, because there were far more searches than there were advertisers. The scarce commodity was position — the placement at the top of the search results.
In 2012, London hosted the Olympic Games. For the first time in Olympic history, all events were available for online viewing, free of charge. People from around the globe watched the livestreams to cheer on athletes and teams. Can you guess which sport received the highest number of visits?
Not gymnastics, the perennial Olympic favorite. Not swimming, either. The sport that received the most online visits was…archery. I’m guessing you’re surprised by this answer. Apologies to Robin Hood and Katniss Everdeen, but archery isn’t exactly the most “popular” sport.
Why would archery receive more clicks than any other sport?
One simple reason: the website listed the events in alphabetical order. And “Archery” appeared at the top of the listings.
When people search online, they regularly select whatever item appears on top. By definition, only ONE thing can appear on top. Google sells the “top thing on a list” scarcity.
In previous Marketing BS newsletters, I’ve written about Groupon here and here. When Groupon first launched, their emails only included ONE deal per city, per day. Merchants competed with each other for the opportunity to be featured as that single deal. Local businesses were willing to discount their product by 50% AND ALSO give Groupon a 50% margin. That’s an effective 75% discount on their normal retail price. While many “experts” questioned the logic of working with Groupon, companies believed that appearing on Groupon would dramatically raise their profile.
Groupon’s model emphasized scarcity. In each morning’s email, there was only one deal. As such, the featured company received all the eyeballs — and there were A LOT of eyeballs. In those early days, Groupon’s open rates were off the charts; once again, the reason was scarcity. Because there was one single deal per day, Groupon could not only negotiate fantastic margins for themselves, but they could also secure fantastic deals for consumers. Groupon could push merchants to provide an exceptional discount. In fact, offering a ‘deal of a lifetime’ was (at the time) a condition for appearing on Groupon: the deal had to be greater than any discount your business had ever provided in the past.
Many cities had long lists of merchants waiting to be featured on Groupon. The competitive atmosphere bolstered the quality of the deals — if merchants wanted to “skip the queue,” they needed to offer a better deal than all the companies waiting in front of them. Eventually, copycat services sprung up to meet the pent-up demand among merchants. Furthermore, many consumers expressed interest in more than one deal per day; people were quickly signing up for LivingSocial and Tippr and GivetoGet in droves.
Demand for daily deals seemed insatiable.
But demand WAS satiated, even though people were unable to recognize it at the time. And Groupon stumbled when they forgot about the power of scarcity. They started offering two deals per day, then three, then dozens. This morning (for the first time in years), I opened an email from Groupon. I wasn’t surprised to see mediocre discounts for more than twenty products or services, including low-quality shoes, polyester bedsheets, Six Sigma Certification, airport parking, and — wait for it — refrigerator filters.
Of course, Groupon was not the first company to undergo this type of transition. Back in the days before the internet, 1-800-HOTELS operated a unique business model. They would reach out to hotels and offer them the opportunity to be sold through the 1-800-HOTELS call center. There were two key conditions: (1) the hotel had to discount their rooms by 50%, and (2) they needed to give 1-800-HOTELS 50% margin. In other words, 1-800-HOTELS was Groupon before there was Groupon. Just as most merchants balked at providing Groupon with an effective 75% discount, most hotels refused to work with 1-800-HOTELS. But the company didn’t need MOST of the hotels. They operated on scarcity. They only needed to secure the participation of a handful of hotels in any given city. (For context, downtown Seattle has over 70 hotels with 60 or more rooms). 1-800-HOTELS ran television advertisements boasting that you could call them and book a hotel at 50% off. Their strategy worked.
Over time, 1-800-HOTELS shifted its strategy by bringing in more and more hotels at smaller and smaller discounts. By the time IAC bought the company and rolled it into The Expedia Group (under the new name of Hotels.com), their discounts had significantly diminished. The company had, however, managed to build out their inventory to include almost all the hotels in major cities.
1-800-HOTELS and Hotels.com demonstrated two very different ways to achieve success. When you operate a marketplace company, you can realize significant value by maximizing your inventory. But if you can’t get all the merchants, capturing a tiny percentage of the merchants at 50%-off (and 50% margins) is the next best thing.
For over a century, the luxury industry has understood the value of scarcity. Diamonds are not inherently valuable; intentional strategies to maintain their rarity has artificially inflated their worth. The NFL — along with companies like Groupon, 1-800-HOTELS, and Google — has generated impressive levels of revenue by not only creating a sense of scarcity, but also maintaining that scarcity when they scaled for the mass market. Look for ways to leverage scarcity in your business; once you have it, be very careful letting it go. 1-800-HOTELS made the transition. Groupon did not.
Keep it Simple,
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Edward Nevraumont is a Senior Advisor with Warburg Pincus. The former CMO of General Assembly and A Place for Mom, Edward previously worked at Expedia and McKinsey & Company. For more information, including details about his latest book, check out Marketing BS.