Background: You’ve been Commissioner for 10 years. In this period, franchise values have gone from $140 million for Jacksonville and Carolina up to $700 million for Houston. NFL revenues increased from $970 million in 1989 to $3.5 billion today. The other two elements were labor peace till 2003 and the TV contract, 8 years and $17.6 billion, signed about two years ago.
Q: For Bloomberg News, this is Curtis Eichelberger, and joining us today is NFL Commissioner Paul Tagliabue. I guess this has been a big week for you. On Tuesday, it was your tenth anniversary in the League. Does it seem like ten years?
A: Sometimes it seems that it’s been about one year, and sometimes it seems like it’s been considerably longer than ten.
Q: It’s certainly been a very profitable period for the League. When you came in in ’89, revenue was about $970 million. It’s up to $3.5 billion today, and could reach $5 billion five years out. Franchise values have jumped from approximately $85 million in Seattle to the recent $700 million expansion fee paid by the Houston group. You’ve got labor peace until 2003, you’ve recently signed an 8-year, $17.6 billion dollar TV contract which is tied into the labor agreement, and teams have increased in number from 28 to 32. Some would say though that it’s gotten so large that you’re limited in future growth. What do you think the two or three biggest areas are going to be where we’re going to see the most significant revenue growth?
A: You’d have to look at technology and media, generally, that would be the first major area. Beyond that, we have fifteen or twenty new or major renovations of stadiums, so I think you’d have to start looking at some of the ancillary revenues. In the last five years, we’ve had very steady growth—not only in our television revenues—but in our stadium based revenues, and I would see that continuing.
Q: I spoke with Jerry Jones, the Dallas Cowboys owner, last week. He talked about some of his plans for the Internet, and he thought that the Internet would be a bigger and bigger piece of NFL revenues moving forward and might even be a piece of the next television contract. Is this something that you see—perhaps more sales coming in across the Internet? Where does the Internet fit into the NFL’s future?
A: It’s what I referred to in terms of technology. I think the Internet is one piece obviously of a digital and media revolution that’s going to take place on the technological battlefields as well as the business battlefields. You see that with AT&T and the Bell Companies and so on. It’s a world-wide change. I think the Internet will become part of our broadcasting contract at some point. Whether it is incremental and how incremental it is, or whether it overlaps and replaces some of the distribution systems, is yet to be seen.
Q: Would the Internet compete with the networks to televise games or would it be that the networks would be putting it on the Internet?
A: That really has to do with the structure of the industry. If you look at where we are today, you have ABC with a simulcast Monday Night Football on the television and the interactive version of Monday Night Football Enhanced TV on the ABC web site. You can see some of the potential for convergence, but you can also see that these could continue to be separate mediums. Whether the Internet and television becomes one depends on a lot of things that the smartest minds in the world don’t yet know.
Q: So many companies now post stock gains just by showing that their losses for the quarter weren’t going to be as great as they were before. It seems as if the people who are making the real money on the Internet are the people who are simply investing early and riding it, because they’re not making money. How can you envision making money off the Internet?
A: I think it comes basically to our entertainment content, our copyrighted content. We’re like the motion picture industry in that sense; we’re like the music industry. Our future depends heavily on the expansion of bandwith and broadband capacity. Right now, for the first time this year, we have NFL Films producing cyberspace highlights of every game which we put up on NFL.com on Sunday night. We have a number of the teams producing full-motion video daily reports, practice reports, where you can dial up a club’s web site, such as the Patriots for example, and see footage of today’s practice, maybe blended with some footage from last Sunday’s game and from their upcoming opponent. So we’re moving into that area but the capacity is not there. Of course our current contracts with the networks state we will stay with them through 2002 or 2005, depending on how we look at some options.
Q: Do you eventually expect to sell the rights to look at those sites? Maybe pay a certain monthly fee to the NFL to actually get into those sites?
A: I don’t know. That comes back again to an AOL-type model versus an open-type model, and it has a lot to do with how successful advertising is on the Internet. We’re going to be experimenting this season with technology that can separate national advertising from local advertising on our web site, depending on where the user is logging in from. If that technology works, and it becomes a business model down the road, that may be analogous to the network affiliate relationship that exists in current broadcast television. But all these things are evolving so rapidly. You could say something today and find out three months from now that it’s been overtaken by someone’s innovation.
Q: And that’s on NFL.com?
A: Yes. It would be a combination of NFL.com and team web sites where we’d be doing those tests.
Q: Right now, if you look at salesd of merchandise, I can order a jersey or a hat through NFL.com. How large a business are you doing right now on the Internet in merchandise sales? I’m trying to show that this isn’t very big right now.
A: It’s not big. If you took catalogs and you took home-shopping networks and if you took the Internet, where probably this year we’re looking at $20 million in gross sales, and the Internet is maybe 33% of that, possibly 50% of that in terms of gross sales. We think there’s a very important area there that is what we call a "displaced fan," a fan who maybe lives in Chicago but grew up in New England as a Patriots fan. He can’t find in Chicago a lot of Drew Bledsoe jerseys, so you go to the Internet and you get it. And this could be holiday shopping with people who are living in one town and shopping for family and friends all over the country. The local retailer, and the retailers with whom we have valued relationships and will continue to have those relationships, can’t supply the product that the customer is looking for, so they can get it from the NFL Shop on NFL.com.
Q: Is it possible to project forward how much you think this could someday be worth?
A: It really comes to a fundamental question, which is what are the margins going to be on the Internet? There are a lot of people, Michael Dell and others, who feel that what the Internet is going to represent in terms of consumer commerce is the most massive shift of buying power from the seller to the buyer that history has seen. If that’s the case, then I think something follows, mainly that you have to continue to provide service in the stores that you have relationships with. You have to provide even better service in your stadiums. You may be differentiating yourself in the bricks and mortar facility and not in cyber space. We saw that today with Amazon’s latest reports where their margins dropped even though their gross sales went up rather dramatically. I think a lot of this speculation about revenues and ultimately profits on the Internet depends upon on how you view margins.
Q: Going back to Jerry last week, he acknowledged that he had enormous growth and revenue because of the national television contract, and so much has happened league wide that has effected these teams. Now he thinks his growth might be slowed because you already have the TV contract in place. You’re not going to have the enormous jumps that you’ve had in the past ten years, and you probably won’t have enormous jumps in the values of franchises. What kind of growth do you perceive for the NFL given that you’ve grown so large? Where is the new innovation going to come from in making the next jump?
A: I don’t necessarily agree with Jerry. I think there could be substantial additional growth with existing media, and with modifications and extensions with existing media. That’s broadcast television, cable television, and satellite television to the extent that you can make cable more interactive as a two-way medium, to the extent people can have access to their own cameras and do their own angles and become their own producer, and to the extent of how high definition becomes a big factor in the market place in terms of quality of what people are seeing. I think there’s substantial growth. It’s already reflected in our five-year contracts as we go out to 2004 from where we are today. We’re projecting about average growth of about $50 million dollars per club in revenue, average. More than half of that is from existing television contracts, and that I think is significant. If you want to look another five years out, from 2004 to 2010, it’s a little speculative. I think the existing forms of television and delivery are going to continue to be very important. People like Paul Allen wouldn’t be investing all they are investing in cable if that weren’t the case.
Q: So we’re still looking at TV as the big revenue driver?
A: TV supplemented by Internet, merged with the Internet, side by side with the Internet. I think the two are going to be complimentary mediums and maybe converging mediums, but I don’t think that existing television is going to be eliminated. When television became a reality for most households in America in the ‘60s, people thought the radio was history. Well, guess what? Mel Karmazin has shown that radio is a more robust medium today than it has ever been and that as we carry radio on broadcast.com it’s going to become even more robust. I think the history of technology in many areas is that it becomes supplemental and not successive.
Q: How much more can you add when the next TV contract comes up?
A: We’ll have to explore over time the windows that we use: the 1 o’clock window, the 4 o’clock window on Sunday afternoon, the 8 o’clock window with ESPN on Sunday night, and Monday night. Are there additional windows that we can use with special telecasts? We’ve talked in the past about the three windows on Sunday afternoon beginning at noon. Noon, three, six and nine, that’s another window. That’s analogous to what a multi-plex does with its motion pictures. If you have ten pictures to show, they all start at different times. If we have ten games to play, maybe four of them would start in four different time slots. I think supplemental programming, and digital programming, programming tailored to the individual coming from a menu that the individual calls up. You saw Fox do some of that in the Super Bowl pre-game show last year. They had John Madden interviewing Vince Lombardi through a digital morphing-type process and people would be able to go back and show their children the greatest game that they ever saw. It might be the Colts-Giants game in ’58, it might be another game featuring Roger Staubach. In my case, with my kids, it might be looking back and seeing how Sonny Jurgenson and Billy Kilmer could play for the Redskins when they were coming on the field with casts and sometimes crutches.
Q: I want to address the loss of Neil Austrian, who resigned this week. But before that, a quick question for our international audience about NFL Europe. This was a league that last year, I was told, lost $10 million dollars. Will this ever be a money maker?
A: It’s really a break-even thing today in the minds of most clubs because the $10 million is something we’ve been sharing with FOX as part of our joint venture. But even if you took that as an NFL number, it’s $300,000 per club and it’s an investment in player development. What we’ve seen this year with Brad Johnson and Kurt Warner and Stoney Case and Jon Kitna, and so many others, not just quarterbacks, but players generally developing in NFL Europe. It really is a good investment in player development. Clubs have already said it’s a break-even because it’s a write-off against their NFL team development operations. I think what we’ve seen in the past couple of years is really good sponsor relationships developing in Europe in the shoe category, in the automobile category, in other categories. People realize—young fans, young people—in Europe that this is a distinct form of American sports entertainment. That’s attractive just as American movies or American music are attractive in Europe. We have a positive feeling about NFL Europe. The team that started last year in Berlin, I think, will grow very significantly as Berlin becomes one of the centers of Europe.
Q: But you don’t expect anytime soon this financially being something that teams look to as revenue building?
A: We don’t expect this to be a significant source of new net income, if you put it that way. We do think it’s a powerful vehicle for responding to interest in our game in Europe and growing the game at the youth level. This year for the first time our NFL Europe youth effort led us to have a German player attending the University of Tennessee on a football scholarship. He’s a defensive end named Constantin Ritzmann, who’s at Tennessee because he started with an NFL Europe youth development program in Germany several years ago. So as players like that come through the system, you can expect to see that there will be players in the NFL from Europe just as there are in the NBA and in the NHL.
Q: I have spoken in the past year with New Orleans Saints owner Tom Benson about when you came in and what’s happened in the past ten years. Tom said that one of your greatest strengths was the fact that you knew what they were, such as negotiating and your legal background. And the things that you didn’t have great strengths in—you hadn’t, for example, run a company for 30 years—you went out and hired people who were good at it and it solidified the group and made the office stronger. Neil Austrian was the president of the League, and he resigned this week. That must be a loss. How are you going to restructure the front office to work around Neil not being here? Are you going to take over those duties?
A: Let’s start with the first piece about how we’re going to develop the office after Neil departs. I think the short answer is that he’s done an outstanding job and he’s left a great legacy, which is an organization which we’ve put together over the past decade. What Neil and I spent a lot of time on reflects the three areas of business he’s been in. One was advertising and marketing, second was media, and the third was finance. Right now, in each of those areas, we have really good, strong executives. We’re going to work with those executives, give them broadened responsibilities and enhance their experience going forward. I’m not going to replace Neil. I’m not going to have a President/Chief Operating Officer, but we will be building on the platform that he left.
The second part of the question, am I going to take over and do everything? The answer is no. The League has become so big that I think the key thing in trying to manage it, trying to keep some sense of order in all of the energy and chaos that’s out there, is to pick the right people to bring in the skills. That’s going to become increasingly important as we begin moving into these rapidly developing areas of technology. We’re going to have to take the best talent that we have internally on the Internet, supplement it with other people, probably outsource some of our needs as many companies do. We’ll also work with people like Dan Snyder and Bob Kraft, who are actively engaged in Internet businesses in other areas, and bring the talent in. That’s a big part of my job: to be in effect the head coach who’s selecting the players in the draft and trying to find a few free agents who can help the team as well.
Q: Is it safe to say that one of the big things that Neil did, rather than just coming up with all these talents, he really tried to build up a program that in effect is now irreplaceable?
A: I knew Neil Austrian since the late 80s, before I became Commissioner. When I came in, it was a much smaller organization, it was a simpler business and there was a legendary Commissioner who had been at the job for 29 years and towered over everything else. What Neil and I tried to do beginning in 1990 or 1991 was to build in the middle and the upper tiers of the organization, spread responsibilities out, but also keep a strong focus on football. That’s why we have somebody like George Young here, somebody like Peter Hadhazy, who was the general manager of NFL teams before he worked here, and Gene Washington and others. Keep a strong focus on football but supplement it with the talents that you need to compete successfully in the media. I think part of Neil’s legacy is going to be the talent base to do that going forward.
Q: Speaking with you last year you mentioned that this would be your last contract at the NFL, and you would investigate new opportunities after 2005. I think you mentioned lobserting.
A: Well, lobstering could either be trying to catch them or eating them. We’ve relocated here in New York and we both like it a lot, and we’re kind of viewing this as an open-ended thing.
Q: So there’s no definite ending in 2005.
A: No definite ending anywhere.
Q: Is there a possibility you could vote on the Arena Leauge by exercising your option next October or sooner?
A: I think we’ll probably discuss it pretty thoroughly at our next annual meeting in March and see where we are and try to develop a time line from there.
Q: Estate planning: How big of an issue is it for the league?
A: I think the answer is some combination of good planning, diversification of ownership among the family during one’s lifetime, insurance programs, things like that. It’s manageable. Sometimes it takes a lot of energy and thought, but I think what Jim Irsay has done in succeeding to his father’s position as the owner of the Colts is a good example that teams can be successful.
Q: Is this something that you’ve given focus to or something that you let the clubs handle with their owners?
A: We’ve discussed at the league whether we should make additional changes in our ownership structures. We have made some changes that have helped to facilitate estate planning in terms of reducing the required equity ownership of the principal owner to 30%. Other pieces can be owned by family members as limited partners and we’ve adopted some trust forms of ownership. We’ve done things at the league level, and the consensus among the owners is that we have a good structure and what remains to be done is their task at the individual and the family level.
Q: Pat Bowlen had said at one point you’d have to go to minority corporate ownership, but not because of the price of the teams, but rather because of estate purposes.
A: I don’t know enough about what advantages that would give you in terms of estate planning. I don’t know if it’s realistic to think that a corporation is going to take a minority position in an NFL franchise just to make some cash and not have a say about what’s going on in the game.