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Porter’s 5 Competitive Forces & The NFL

January 12, 2012

Now the college football season is over, and thinking through the possibility of college athletes being paid. To me this is similar to arguing about a post-legalized-marijuana society. Nevertheless, to really understand the debate, why not look at this pro forma?

This year has seen two major football programs embroiled in scandals. Anyone can determine two of the base human emotions are clearly in the middle of the issues; our friends fear and greed. In these scandal transactions there are the offerers and the acceptors. On both sides, fear and greed, are fast at work.

While this is occurring, universities are trying balance budgets between academics and sports within a budget constrained environment. Funds from ‘any’ source to retain talent and sustain winning records, while not openly welcomed, is welcomed through Compliance in the form of rules and monitors. Hopefully these are enforced by regulators in the form of NCAA officials/investigators etc.

What is an unintended consequence is the Acceptors escape punishment while the fans, surviving coaching staff, reputations and innocent student athletes suffer. Submit for consideration, Pete Carroll discovering a career in Seattle was a better life choice than California. Reggie Bush’s punishment was self-inflicted. He displayed a unique contrition where there are no equals in modern sports today.

So where am I headed with this? Who are those silent partners in all of this who maintain sanitary practices equal to Pontius Pilate while insulating their profits from the 5 Competitive Forces? The owners of the NFL teams. Take out a primer to M E Porter’s Five Competitive Forces. Apply this framework to the NFL and Owners.

1. Threat of entry? Next to zero.
2. Threat of Substitution? Other than a baseball league with it’s own issues. Soccer, track, hockey and basketball? Marginal at the most.
3. Bargaining Power of Buyers? Who are the buyers? Network television and ticket buying fans. The bargaining power of the TV networks is in the form of a four way auction to the highest bidder. No bargaining power here. Fans who finance season tickets to sit in uncomfortable seats, pay prices for food and beverages that under normal scenarios are prosecuted by state’s attorney generals for price gouging. Even when teams are experiencing losing seasons, fans are there.
4. Intensity of Rivalry? Not the rivalry on the field. The rivalry to attract revenues. These teams do not compete for revenues. In fact, they have elaborate revenue sharing agreements to ‘equalize’ the TV Network revenue streams. Otherwise, who would pay P Carroll millions to coach a below average team? They even have elaborate salary constraints, which are easily circumvented.
4. Bargaining Power of Suppliers? Who are the suppliers? In fact, this may be the Achilles Heel where the NFL owners are the most vulnerable in a post-pay-the-college-football players scenario.

Bear with me while I take this into the 4th quarter. The owners of NFL teams have an advantage MLB does not enjoy…a 100% fully paid farm league!! This is an industry-profit ripe for the picking!!

Stakeholders include:
1. College Administrators.
2. NCAA Officials.
3. Fans.
4. Students.
5. Athletes.

NFL team owners in the post-pay-the-athlete scenario would be required to support the ‘farm league’ (read: university football programs) with profits. This would drain profits from the owners. This would in turn impact the 5 Forces framework they work within and force them to decrease the profits from the sub-industry…pro athletes. In turn this decrease the glamour of instant millionaire mindsets. And lest we forget, universities would be able to increase tuitions at a slower pace, and support more athletics. This could level a playing field between the dominant college conferences the military academies and the Ivy League Teams. Lastly and most importantly, any wrong-doing performed in the college would be enforced in the NFL.

If a student athlete accepts more than is allowed and the discovery results in a criminal conviction, that player would not escape suspension, fines, expulsion or claw-backs, by running to the NFL.

So before everyone decides on which side they fall on this debate, let me encourage you to think it all the way through. Too many policy decisions are made without this simple yet important part of the debate.

 

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