Run to Glory and Profits: The Economic Rise of the NFL during the 1950s

5. The Perils and Triumphs of NFL Ownership

101 5 THE PERILS AND TRIUMPHS OF NFL OWNERSHIP Owning an nfl team might seem to be a glamorous experience. A capitalist manufacturing door knobs or cardboard boxes may be the envy of her industry, but outside of trade journals she reaps scant public acclaim. Owning a championship sports team (even if it is not profitable) brings the owner publicity and, starting in the late twentieth century, a Gatorade or champagne dousing. During the postwar years, owning an nfl franchise was fraught with risks. Many franchises faltered, usually due to inadequate demand relative to expenses. In order to boost the bottom line, some owners opted to move to cities which they hoped would bring in better money. If the overall demand for pro football had risen, owners might have decided to create “expansion teams.” Expanding into viable locations carried an important advantage, as it could deny outposts to any rival league that might arise. Economists call filling most or all of the viable locations to forestall the entry of a new league spatial preemption. Although several aafc and nfl teams went bankrupt, nfl owners began to see handsome offers for their teams by the mid-1950s. Franchise Sales While profit figures can be massaged to tell an intended story, franchise sales prices give another indication of past profits and perceived future profitability. As the old caveat goes, “Past performance does not imply future performance,” so a team that was unprofitable might still have seen a jump in its franchise value if a new lucrative television contract came along or if tax laws changed, among other factors. Readers are also cautioned to interpret fabulous rates of appreciation in the context of changes in the general price level (inflation), general market 102 Perils and Triumphs of Ownership rates of return, and the risk both of accrued losses and of bankruptcy. Readers should also understand the magic of compound interest. The “rule of seventy-two” is a good rule of thumb: it states that you can predict how fast an asset will double in price by dividing seventy-two by the market rate of return (interest on a high-quality bond would suffice as a proxy for a rate of return on a relatively safe investment). If the general rate of return is 6 percent per annum, then a typical asset would double in value every twelve (72/6) years; for a rate of return of 9 percent per annum, a typical asset would double in value every eight years (72/9).1 If owners lost money for several seasons, this would, in effect, be similar to increasing the original purchasing price when figuring out the rate of appreciation. Since the nfl had to resuscitate a couple of franchises after the settlement with the aafc, owners could not be certain that their investment in a team would prove profitable. For instance, Ted Collins claimed to have lost $720,000 in the four years he operated a team in Boston.2 Economists James Quirk and Rodney Fort compiled a list of nfl franchise sales (table 17). Quirk and Fort showed that after World War II the nfl had the most stable turnover ratio and that a majority of teams sold had losing records at the time of their sale. On average, nfl teams had the highest rate of appreciation among professional team sports leagues, with annual rates of appreciation hovering around twenty percent. Their data ends with 1990.3 The events of the late 1940s and early 1950s, though, demonstrated that owning an nfl team still entailed some risk. The pioneering nfl owners, while not poverty-stricken, certainly would have made no one’s list of “America’s Wealthiest.” For those owners who had few, if any, assets out of football, the game was a true labor of love. After many of the tank towns dropped out, wealthier owners in New York and some larger cities moved into the nfl. Craig Coenen states that by 1943, millionaires owned nine of the eleven teams. Of the teams that lacked well-heeled owners, the Green Bay Packers were, and continued to be, an anomaly. The team was owned by the community, and when there was a lack of money, townspeople anted up. To forestall the team’s relocation to Milwaukee, the Packers’ board of directors decided to sell nonprofit voting stock.4 The other anomalous team, the Chicago Bears, was run by George Halas. Halas practiced a wary frugality and, as with some of baseball’s...