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American Football: A History of Innovation
In the United States, spectator sports play a significant role in our culture. Each year,
millions of fans pack stadiums and arenas around the country to cheer on their favorite high
school, collegiate, and professional teams. Billions of dollars are spent on sports merchandise,
including jerseys, shirts and sweaters, hats, memorabilia, and other souvenirs and collectibles. In
some parts of the United States, rooting for a particular team is as sacred as church on Sunday.
The essence of sports, overcoming adversity and fighting as a team, has also been captured and
glorified in popular media, including movies, TV shows, and books.
Today, the professional sports landscape is dominated by the National Football League
(NFL), Major League Baseball (MLB), National Basketball Association (NBA), and National
Hockey League (NHL), as the premier leagues representing their respective sports. Among these
four major spectator sports, football is clearly the most popular within the United States.
Compared to other top leagues, the NFL has the most revenue with approximately $8.5 billion.1
MLB, NBA, and NHL earn $6.3 billion, $3.8 billion, and $2.9 billion, respectively (Exhibit 1).2
In addition, the average valuation for a NFL franchise easily exceeds $1 billion with the highest
franchise valuations approaching $1.8 billion.3 On the other hand, the average valuations are
$491 million, $369 million, and $228 million for MLB, NBA, and NHL, respectively (Exhibit
2).4 Furthermore, football has observed and continues to observe a wealth of transformation and
innovation as a spectator sport. These forces have introduced distinct varieties of football, while
embracing digital media and enhancing the fan experience.
For these reasons, our analysis will focus on football leagues within the United States.
We will discuss the NFL as the context for the innovation and the current ecosystem. Then we
will describe the innovation that has taken place in the NFL. Given this context, we will explore
the launch of other football leagues and their specific strategies, how they create and capture
value, level of resource commitments, market focus, and their distinct innovation. Lastly, we
will explain why some of these ventures have failed while others have succeeded.
The Birth of American Football
With revenues of more than $8.5 billion per year in 2010 and four of the top 10 most
watched television events of all time5, the NFL is a cultural and economic powerhouse. Founded
in the 1920’s, the NFL muddled along through the Great Depression and World War II to
1
http://www.wrhambrecht.com/pdf/2011_Sports_Market_Report_UPDATE.pdf
Ibid
3
Ibid
4
Ibid
5
Nielsen Ratings
2
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eventually capitalize on the emergence of TV as the primary media outlet. Flush with cash from
robust television deals beginning in the 1960’s, the NFL was able to use shrewd marketing and
branding to become the most popular professional sport in the United States. By playing games
on Sunday, Monday nights, and holidays like Thanksgiving, the NFL has been able to position
itself as a dominant weekly ritual in millions of households across the country. With the
establishment of a firm salary cap and by splitting the vast television and licensing revenues
equally among the teams, the NFL has been able to preserve relative parity throughout the league
compared to other major sports.6 This high level of competitiveness has made the NFL
enormously popular throughout the country, as 32 cities can realistically hope to win a Super
Bowl in the long run. With clever planning and strategy funded by enormous television
contracts, the NFL has been able to capitalize on football’s popularity and establish itself as the
preeminent sports league in the U.S.
Modest Beginnings: The Founding the of NFL
In 1920, four Ohio-based football teams met in Canton, Ohio to form the “American
Professional Football Association.” The creation of a professional football league was a bold,
entrepreneurial move in a sport that had traditionally been played by a small group of elite
colleges or loose bands of independent, barnstorming professionals. In a nation where baseball
was the dominant sport, the APFA in no way resembled the cultural and financial juggernaut that
is the NFL today.
The APFA renamed itself the “National Football League” in 1922 and rapidly expanded
to include 22 teams spanning the Midwest and East Coast. At this time revenue was generated
solely through ticket sales and it became rapidly apparent that small markets were not
economically viable. In the late 1920’s the league stabilized at 12 teams, mostly centered in
large East Coast markets. The NFL managed to survive through the Great Depression and WWII,
and was well-positioned to greatly benefit from the economic boom and technological
advancements of the 1950’s.
TV and Football
The concept of the television was introduced to the general public at the 1939 World’s
Fair and that same year the first NFL game was broadcast to a limited audience in the New York
area.7 However, due to WWII and a lack of television infrastructure, the radio continued to be
the dominant form of media through the 1940’s.8 Up to 1941 only 7,000 TV sets had been sold
in the United States, however by 1950 that number had reached over 6 million.9 The
sophistication of television infrastructure grew rapidly and in 1951 the NFL championship game
6
http://bleacherreport.com/articles/11481-why-the-nfl-is-the-most-popular-sport-in-america
http://www.profootballhof.com/history/Decade_by_Decade_1930s.aspx
8
http://transition.fcc.gov/omd/history/tv/1930-1959.html
9
http://www.tvhistory.tv/Annual_TV_Sales_39-59.JPG
7
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was televised nationally for the first time. Although not immediately revolutionary, the ability to
televise games would provide the NFL with the financial resources and national exposure to
become America’s most dominant and popular sports league.
The modern financial era of the professional football began in 1960 when the NFL signed
an exclusive television contract with CBS for $4.65 million per year and the rival American
Football League was founded. The next year the NFL strategically relocated their offices to the
national’s financial capital, New York City, and incorporated NFL Properties to profit from
licensing of the league and its individual teams. The league continued to gain in popularity as
television made the game more accessible to fans around the country and in 1964, the NFL
signed a 2-year, $28.2 million contract with CBS while the AFL signed a 5-year, $36 million
contract with NBC. 10 With this financial backing, the AFL established itself as a legitimate
threat to NFL and an arms race for top college talent begun. 11 The 1960’s were characterized by
fierce competition between the two leagues with no clear winner. In 1966, the “Super Bowl”
was born, as the two leagues agreed to crown only one professional football champion and
eventually merge by 1970. With the combination of the two leagues in 1970, today’s
enormously profitable league structure was created. The newly combined NFL-AFL was able to
successfully arrange a complex ecosystem of co-innovation through which they still dominate
the market as the only major player in the professional football space.
Innovation Ecosystem
As the undisputed purveyor of professional football, the NFL relies upon a complex ecosystem
of co-innovation and adoption.
NFLPA: In order to have the best football product on the market, the NFL relies upon the most
talented players to join the league. Originally this was a challenge, as playing football did not
pay as well as other professional careers. Also, in the 1960’s the AFL began to outbid and
challenge the NFL for top talent. This was a major co-innovation risk, as the NFL would not be
able to prosper if it had a second-tier product. However, the major commercial revenues from
lucrative television contracts have made this a moot point, as the NFL today has sufficient
resources to ensure they offer the highest salaries of any professional football league, if not
sports in general.
Owners: The cooperation of the owners in adopting a centralized, revenue sharing structure was
critical to the NFL’s successful founding. The revenue sharing model and central licensing
structure allows for parity in the league and thus a better end product. The structure also ensures
profitability across all teams so that owners have continued incentives to stay loyal to the league
structure.
10
11
http://www.shmoop.com/nfl-history/timeline.html
http://www.pro-football-reference.com/blog/?p=1623
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Cities and Stadiums: Despite its astronomically profitable nature, the NFL is subsidized by
cities agreeing to build and fund many of the stadiums. The competition for an NFL team is
incredibly high as it is considered highly prestigious for the city and a source of revenue for local
businesses. The NFL has become such a dominant cultural and economic force that cities are
subsidizing its stadium expense in order to join the innovation value chain and reap the perceived
economic and publicity benefits of being associated with the league.
The Media: Without the co-innovation of the media, the NFL would never have been able to
thrive. Before major media sponsorship in the 1960’s, the NFL was an underfunded commodity
that was highly susceptible to substitutes and imitators. Major TV deals allowed the NFL to
corner the market on the best players and then market their product aggressively to fans, ensuring
superiority of their football product and robust customer demand.
Advertisers and Sponsors: A critical link in the ecosystem through which the media is able to
fund the NFL, advertisers and sponsors provide more than 2/3’s of the NFL’s current revenue. If
advertisers and sponsors did not co-adopt with the media and the NFL, the league would “run out
of beer” and the entire ecosystem would collapse.
Fans: As the consumers of the end product, fan demand is the critical lynch-pin in the
innovation ecosystem. Up until the 1960’s, fans were the primary funding source of the league.
In modern day, the advertisers and suppliers are only willing to purchase ad spots on the media
channels because of the robust, sometimes fanatical followership that the NFL commands from
its fans. Without the fan loyalty and whole-hearted adoption of the NFL, the entire ecosystem
would cease to function.
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Commercializing the Innovation
Timing and choice of entry mode
Prior to the formation of the American Professional Football Association in 1920,
professional football existed in a loosely organized state of flux. From 1895 to 1919,
independent teams existed in regional clusters, or barnstormed across the East Coast and
Midwest regions. This ultimately led to three major problems: players continually switching
teams based on the highest offer, dramatically rising salaries, and using college players still
enrolled in school.12 Thus, the hope was that a single, organized league would provide a
structured framework to eliminate the practice of looting other teams’ rosters, distribute talent
more evenly, and thereby reduce costs for each individual team while maintaining a top-level
product on the field.
12
2011 NFL Record & Fact Book,
http://static.nfl.com/static/content/public/image/history/pdfs/History/Chronology_2011.pdf
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External sports leagues also played a role in the formation of an organized professional
football league. Major League Baseball was the dominant professional American sport at the
time, in part because their league structure was founded in the 1870s. Moreover, college football
was generally the only organized form of the sport, which prompted the need for a formal
professional entity.
Construction of the supply chain
Players
Not surprisingly, players are the key supply among professional football teams, so the
establishment of salary and movement by-laws provided a much-needed stabilized environment
for teams to compete in. However, with relatively low salaries, many players treated the NFL as
a part-time job, and practice schedules were often set to accommodate regular working hours.
Eventually, the notion of a collegiate draft was coined in 1936 by Bert Bell, co-founder of the
Philadelphia Eagles.13 This led to a more consistent pool of top college players, and a higher
overall talent pool. Moreover, the structure of the draft order (where teams select in the inverse
order of the previous year’s standings) contributed to the overall parity of the league.
However, for decades, the NFL managed despite restrictive player sourcing policies of
their own creation. Segregationist policies meant that very few teams signed African-American
players to professional contracts. Eventually, in the 1960s, teams in the rival AFL took full
advantage, recruiting heavily at predominantly black colleges and signing an average of 17%
more African-American players than their NFL counterparts.14 In an “innovation” of sorts, the
eventual 1966 merger with the AFL helped spur the NFL’s more substantial move toward
integration.
In an effort to cultivate overall player talent, the NFL also embarked in a joint venture in
1991 that led to the formation of the World League of American Football, which eventually
rebranded into NFL Europe. This was created as a developmental league that played in the
spring (the NFL’s off-season) to help develop young coaches and players into top NFL talent.
However, the NFL shut down the league in 2007 (citing losses of $30 million per season15),
leaving it up to the individual teams to develop their own player and coaching talent.
Revenue
Early revenue streams for NFL teams consisted solely of ticket sales and stadium
sponsorships. While these continue to exist today, it was the advent of television allowed the
NFL to tap into a revenue stream that evolved into its lifeblood. On one hand, broadcasting
games nationally allowed the game to enter the homes of a significantly larger set of viewers,
13
Ibid
Charles K. Ross (1999). Outside the Lines: African Americans and the Integration of the National Football League.
New York University Press.
15
http://www.nfl.com/news/story/10240829
14
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and helped to grow interest in the sport. More importantly, it also allowed the league to start
charging rights fees to networks. Beginning with the very first televised game in 1939 between
the Brooklyn Dodgers and Philadelphia Eagles, television rights eventually grew from single
championship games into multimillion, season-wide deals in the 1960s. The advent of Monday
Night Football in 1970 not only created a headline “game of the week,” but also mixed football
and entertainment on a night typically devoted to network sitcoms. Today, CBS, NBC, Fox and
ESPN pay a combined $20 billion dollars for the rights to broadcast select NFL games (Exhibit
3), while the NFL also owns its own cable channel. Moreover, the Super Bowl is the highestwatched television broadcast in the United States, with last year’s broadcast drawing over 111
million viewers, the most in U.S. television history.16
NFL Properties plays a critical role in distributing this TV and licensing revenue among
its member clubs. The NFL strikes central, league-wide deals in all TV, merchandising and
licensing arrangements, with revenue split equally among its 32 teams.
State-of-the-art stadiums are inherently critical to the financial success of NFL teams and
the league as a whole. Modern stadiums now incorporate luxury boxes, which are sold to large
corporations at prices significantly higher than that of game tickets. From an image standpoint,
playing in modern venues benefits the brand image of the league and enhances the fan
experience, which in turn helps ticket sales. Consequently, the NFL has instituted a central
stadium subsidy fund to help teams that are in the process of building new playing venues. The
opulent, $1.15 billion Cowboys Stadium, opened in 2009, received $150 million worth of
subsidies from this fund.17 This is in addition to the subsidies that teams receive from their home
cities, as having an NFL team brings prestige and economic benefits (in the Dallas Cowboys’
case, the city of Arlington funded $350 million through taxpayers).18
Perception of value creation and value capture
As previously mentioned, this can be largely examined on the player sourcing and
revenue fronts. Ultimately, player talent drives the overall quality of the league, which in turn
leads fans to follow the NFL over other brands of football, and sports in general. The NFL Draft
is the primary device by which the NFL ensures its ability to obtain the most valuable players
available. This formalized process allows the league to have their “pick of the litter” among top
college players. Furthermore, the high pay levels (relative to other forms of football and other
sports as a whole) ensure that its players are indeed the best of the best.
However, what sets the NFL apart is its centralized approach to league revenues, as well
as its revenue sharing approach. As mentioned previously, NFL Properties strikes league-wide
television and licensing deals (essentially prohibiting teams from pursuing these avenues on their
16
http://blog.nielsen.com/nielsenwire/media_entertainment/super-bowl-xlv-most-viewed-telecast-in-broadcasthistory
17
http://football.ballparks.com/NFL/DallasCowboys/newindex.htm
18
Ibid
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own), splitting the proceeds evenly among the member clubs. This offers three strategic benefits
to the NFL:



Greater control over distribution, and thus league/team brands as a whole.
A steady and equal flow of revenue from the league allows for greater parity among
small- and large-market teams, and thus fosters greater on-field competitiveness.
Distributes financial risk equally among all 32 teams.
Based on the financial records of the Green Bay Packers (the only publicly held team in
the NFL), we see that approximately 60 percent of their total revenue comes from the NFL’s
revenue sharing arrangement (Exhibit 4). In regards to game day revenue, teams are allowed to
realize game day revenues for all home games; however, the home team is only allowed to keep
60% of the gate receipts, with 40% going to the league’s central revenue sharing fund (in
contrast, Major League Baseball operates under an 85-15 split, while the National Basketball
Association and National Hockey League allow the home team to keep 100% of gate receipts).19
That said, home teams retain 100% of all luxury suite sales, as well as corporate sponsorship
signage revenues.
Additionally, a fixed salary cap helps to keep player salaries (a team’s greatest expense)
at reasonable levels, and helps to foster parity among all 32 member clubs. This inherent
competitiveness—the notion that any team can win on any given weekend—is a major selling
point for the NFL, versus other sports where there is much more disparity between the dominant
and weaker teams.
Approaches to market definition and segmentation
In the early years of the NFL, there wasn’t much functional difference in game play
versus the more popular form of college football. Eventually, rule changes and game
innovations (such as the T-formation, utilizing linemen to create a pocket for the quarterback,
and so on) helped the NFL develop into a higher-scoring brand of football. Moreover, with the
draft bringing in a steady stream of top collegiate talent, this also led to the advent of the first
batch of mainstream stars in the 1950s, such as Johnny Unitas, Y.A. Tittle, Ray Nitschke, and
Frank Gifford.20 Additionally, in 1946, the Cleveland Rams moved to Los Angeles, helping to
expand the reach of the league beyond its traditional Eastern and Midwestern roots. 21 As
mentioned earlier, the co-innovation of television allowed the game to be broadcast to a wider
stream of people in a medium that best conveyed the excitement of the sport.
19
http://www.econlib.org/library/Enc/Sports.html
20
http://www.nflfootballhistory.net/begin.htm
http://static.nfl.com/static/content/public/image/history/pdfs/History/Chronology_2011.pdf
21
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Although the NFL fended off several minor challenges from short-lived, alternative
professional football leagues, the establishment of the American Football League in 1960 caused
substantial disruption to the NFL’s market. Not only did the AFL pursue antitrust litigation
against the NFL, but they also competed head-to-head with the NFL’s in its main form of value
capture: top-notch college players. In their first season AFL’s Houston Oilers signed reigning
Heisman Trophy Winner Billy Cannon for $100,000, doubling the $50,000 agreement he had
with the NFL’s Los Angeles Rams.22 The AFL also held their own draft and initiated a bidding
war with the NFL for top collegiate talent. This came to a head in 1965 when the AFL’s New
York Jets signed superstar Alabama quarterback Joe Namath for a then-record $427,000.23
Aside from escalating bidding wars for top college talent, AFL teams also poached veteran
players off NFL rosters with higher salary offers, causing the average salary level to increase
dramatically. Eventually, owners from both sides saw this as potentially destructive to the sport
as a whole, and the groundwork for a merger was established in 1966 (with total integration to
occur by 1970).24
Numerous innovations sprung up as a result of this competition in the professional
football marketplace. The biggest, arguably, was the advent of the Super Bowl, which pitted the
NFL champion against the AFL champion. Given the adversarial nature of the two leagues, and
the perceived superiority of the NFL, early Super Bowls had a significant amount of prestige at
stake (case in point being Super Bowl III, where Namath led the underdog New York Jets to a
16-7 victory over the favored NFL Baltimore Colts, creating a media phenomenon). However,
the merger also caused the NFL to adopt other important innovations to enhance its on-field
product, such as racial integration, revised offensive rules, franchises in untapped markets,
stadium game clocks, and names on backs of jerseys.25
Today, the league continues to leverage TV to make its brand as prominent and pervasive
as possible. By virtue of playing one game a week, the NFL has truly billed every single game
as an event, both for fans attending the game (pre-game tailgating, attending the game itself), and
for fans gathering at their homes for cookouts. Apart from broadcasting every game nationally,
they also bill specific “games of the week” in their Sunday Night Football and Monday Night
Football telecasts. This helps to draw in all football fans, rather than limiting themselves to the
supporters of the participating teams. Given the parity that exists within the league, game
storylines are very compelling, given that the outcomes are so difficult to predict.
In particular, the NFL has also utilized the internet to help popularize the game of
Fantasy Football. Fans “draft” a roster of players and face off head-to-head with other friends in
a self-created “league”, accumulating points on favorable offensive and defensive statistics. This
contributes to the NFL’s centralized, league-focused brand strategy since team loyalties are
22
http://sportsillustrated.cnn.com/football/news/2001/01/22/afl_history_1/
Ibid
24
http://sportsillustrated.cnn.com/football/news/2001/01/22/afl_history_2/
25
Ibid
23
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effectively eliminated in this activity. Since Fantasy Football is player-focused, this prompts
fans to watch multiple games each week from a variety of teams, rather than only their
hometown team. Thus, Sundays are reserved entirely for NFL football, not just the Steelers
game, for example.
Level of resource commitments
This can be examined at the league and team level. From a league perspective, the NFL
bears the responsibility of creating a structure by which its member teams can operate, while also
generating central, league-based TV and licensing revenue. Thus, its primary resource
commitments are operational expenses (such as the commissioner, administration, game officials,
and such). They are also responsible for the costs of neutral-site games such as the Super Bowl
and Pro Bowl. Additionally, much of the revenue they generate from league-wide initiatives
goes back to its member teams through revenue sharing.
Teams generally bear the responsibility of the bulk of operating expenses. As a general
rule, seasonal expenses revolve around player salaries and operating costs, while stadiums can
vary (depending on whether the team leases the facility from the city or build their own). Again,
utilizing the financial statements of the Green Bay Packers, we see that player salaries comprise
65% of annual expenses, with the remaining line items split between game expenses, team
expenses, sales and marketing expenses, and general and administrative costs (Exhibit 4).
Exit strategies and the reversibility of commitments
Given the relative ease of turning a profit in the NFL, the high value of each team
(Exhibit 5), and the general prestige of ownership, most team owners view their holdings as a
long-term investment. That said, there have historically been two primary means of exiting the
NFL: selling the team to an alternate ownership group, and moving franchises to different cities.
The first option typically isn’t particularly difficult; while the resource commitment is high, the
low turnover of NFL owners makes those purchase opportunities very rare and desirable. The
latter involves the exit of an existing market in favor of relocating to a more favorable locale.
This process requires approval from the league and from the other owners, so as not to encroach
on another owner’s market, or to needlessly alienate a devoted group of fans.
Expectations for market growth
The NFL expanded to its current portfolio of 32 teams in 2002 with the addition of the
Houston Texans. Since then, most discussion has revolved around the absence of an NFL team
in Los Angeles.26 While it is unclear if a new franchise will be created or an existing team will
be relocated, L.A. seems to be the prime candidate for now.
That said, given the potential of market saturation within our borders, the NFL has
consistently taken steps to spread this uniquely American sport into international markets. For
26
http://sportsbiznews.blogspot.com/2006/11/national-football-league-expansion-in.html
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example, rather than operating a developmental league domestically, the league instead NFL
Europe to help spread the sport across continents. Although the operating losses forced the
shutdown of that league, the NFL is still trying to tap into international markets via the
International Series. This is a single, regular-season game that is scheduled in an international
venue; in 2005, the game was held in Mexico City. Since then, it has been held at Wembley
Stadium in London. Furthermore, NFL Commissioner Roger Goodell has been quoted as having
interest in holding the Super Bowl in London, though it hasn’t gained much traction as of late.27
Lastly, the NFL has taken a particularly innovative step in creating a venture capital firm
to help support technologies that could become a part of its value chain in the future.28 This is
the first action of its kind by any major professional sports league; given the vast resources at the
NFL’s disposal, as well as the wide network of relationships it has with its sponsors and media
partners, this could be of great assistance to early-stage start-ups. Furthermore, it is an
interesting play by the NFL to not only expand, but take ownership of its own innovation
ecosystem.
Key Innovation Milestones






27
28
Formation of NFL (1920)
o In response to established sports leagues (MLB)
College draft (1936)
o Established a stable supply of top players
o Helped to define NFL as the clear step up from college football
Rules changes
o Early rules changes (1920-1940) – attempted to differentiate gameplay from main
competitor and make the game more exciting for fans
o Post-AFL merger (1970) – incorporating AFL rules and innovations
Formation of NFL Properties (1963)
NFL Europe (1991)
Embracing other innovative technologies
o TV
 National broadcast contracts (1960)
 Monday Night Football, et al (1970-onward)
 NFL Network (2003)
o Internet
 NFL.com (brought in-house in 2006)
 Fantasy Football (first online versions in 1997)
http://sports.espn.go.com/espn/wire?section=nfl&id=3065083
http://www.cnbc.com/id/44977001/Reaction_NFL_Starts_Venture_Capital_Firm
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Examination of new entrants
World Football League (WFL)
Overview
The World Football League (WFL) was a professional American football league that
existed in 1974 and part of 1975. It was led by Gary L. Davidson, who previously established the
American Basketball Association and World Hockey Association—both upstart leagues that
successfully challenged their respective sports’ more prominent incumbents. The WFL had five
initial investors (“Founding Fathers”), who were all successful leaders and owners of
professional sports franchises in football, hockey, and basketball.
Timing and choice of entry mode
The WFL played from July until November, competing directly with the National
Football League (NFL). The league initially discussed the possibility of expanding to Asia and
Europe, but it was never realized.
Construction of the supply chain
The ecosystem that Davidson constructed initially around the WFL was not complete. In
regards to player sourcing, the league was able to sign many NFL players, thanks to the
relatively low salaries in the NFL at the time. The average salaries in the NFL were the lowest
among the major professional sport leagues, leading the player association to go on strike in
1974 for increased salaries. It was a great chance for the WFL to recruit NFL players leveraging
the unsure job security condition and the higher salaries that the WFL offered. In fact, Davidson
launched the WFL in 1974, a year earlier than he originally planned, to exploit that opportunity.
As a result, the WFL was able to secure NFL-quality players, adding credibility to the league. By
early June 1974, the WFL claimed they had some 60 NFL players under contract. 29 However,
Davidson did not have a strong TV network to support the league. The WFL signed a contract
with only TVS Television Network, a syndicator of American sports programming.
Perception of value creation and value capture
The aim of the WFL was to create a truly global football league with teams in Canada
and Mexico as well as the United States. There were also plans to expand into Europe and Asia.
The league played a 20-game regular season, which was much longer than the NFL’s 14-game
season at that time.
29
http://en.wikipedia.org/wiki/World_Football_League
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Approaches to market definition and segmentation
The WFL targeted football fans in general, including NFL fans. Several WFL franchises
were located in cities with an existing NFL team. Other franchises were formed in mid-market
cities.
Level of resource commitments
Initially the WFL seemed to start the season successfully with great attendance and
decent ratings on TV. However, the situation began to worsen in just a month. The attendance
numbers announced by franchises were found to be exaggerated, in addition to the excessive
number of heavily discounted and even free tickets, leading to the loss of credibility in the
market.
The signs of financial instability began to show up, as well. The league officials
performed poor due diligence on franchises, and franchises were not able to pay the franchise
fees. Many franchises were not able to pay for its laundry or transportation service, not to
mention salaries for its players. The franchise owners were not committed for long-term success
of the league, but were interested in a quick payback from their investments. Some teams could
not practice because their uniforms were impounded for not paying the laundry fees, while other
teams were living on McDonald’s meal vouchers.30 The financial difficulty and incapability to
pay salaries resulted in the nullification of player contracts, losing even more credibility in the
market.
Exit strategies and the reversibility of commitments
By the end of the first season, the TV rating was so low that it was impossible to sell
advertising. In the end, the league lost the TV network coverage, resulting in even lower
credibility. The WFL started the second season in 1975 with a lot of changes franchise members,
but it failed to gain attention without TV network and star players. In October 1975, 6 of 10
general managers of the WFL voted to shut down the league in its second season prematurely.31
Summary of insights
The WFL failed to construct a sound ecosystem from the beginning without committed
franchise owners and strong national TV networks. In addition to that, the league’s financial
inability to support the franchises and players in the short-term started a vicious cycle of
deteriorating the ecosystem and worsening financial hardship.
30
31
Ibid
http://www.worldfootballleague.org/
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Ecosystem Map – World Football League
WFL
Sponsors
Franchises
TV Networks
City / Stadium
Audience
College
Football
NFL
United States Football League
Overview
The United States Football League (USFL) was a professional American football league
that was created by New Orleans businessman David Dixon. Because the NFL did play in the
spring and summer months, Dixon thought there would be a market opportunity for another
football league in that season. Dixon first conceived the idea in 1965, but it was 1983 when the
actual league was officially launched. Although the USFL was came to an end in 1986 after
playing only three seasons, the USFL was a serious football league that featured great players
and coaches and is still remembered by many football fans.
Timing and choice of entry mode
After coming up with the idea of a spring-summer football league in 1965, Dixon tried to
understand what past competitors such as the AFL and WFL did right and wrong. Although both
the AFL and WFL competed with NFL directly, the AFL merged with the NFL, while the WFL
failed to gain sufficient market share and was forced to shut down. The popularity of
professional football was growing fast in early 1980’s, and Dixon decided to launch his
concept.32
32
http://www.usfl.info/
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Perception of value creation and value capture
Instead of competing head-to-head with NFL, which has an established brand power,
Dixon wanted to meet the insatiable market need for more football during the NFL off-season.
Dixon was involved in the foundation of NFL's New Orleans Saints, as well as in the
construction of the Louisiana Superdome, and his previous track records in professional football
brought some credibility to his concept, facilitating the process.
Approaches to market definition and segmentation
Dixon designed the league based on his studies of the AFL and WFL. Dixon thought that
TV exposure would be critical to the success of the league and strategically positioned teams in
cities that TV networks would be interested in, such as New York, Los Angeles, Chicago,
Detroit, Philadelphia, the Bay Area in California, Florida, etc. As a result, the USFL was able to
sign a contract with ABS and ESPN from the beginning of the league. The USFL had a mix of
cities with those with NFL teams and no professional football teams. By doing so, the USFL
aimed to attract existing NFL fans and create new demand for professional football in cities
where there had been no football team. Because the USFL played in spring-summer season, it
could play in cities where NFL teams already existed, without directly competing with NFL.
Level of resource commitments
Learning from the AFL, which was well financed with owners that invested in franchises
for its long-term successes, Dixon gathered owners with ample capital who are willing to endure
the short-term loss for the long-term gain. The USFL initially set a salary-cap for players to
ensure the sound financial state of the league. The USFL gained further credibility from football
fans by recruiting well-known players to its league, including players with NFL track records,
such as Stan White, Greg Landry, John Banaszak and Raymond Chester, and top college football
players, such as Herschel Walker, Doug Flutie, Craig James, Anthony Carter and Kelvin
Bryant.33
Exit strategies and the reversibility of commitments
Although it seemed all the pieces to the puzzle were put together, the USFL began to
suffer from instability from the first year. Although franchises and the league invested heavily to
promote the league, some franchise owners opted out not being able to endure the loss from
increasing expenditure and flat revenue. Although it was an attempt to add credibility to the
league by signing top talents, the recruitment of Herschel Walker, the 1982 Heisman Trophy
winner, triggered the collapse of the salary-cap system, leading franchises to competitively
increase its expenditure above the level Dixon set in anticipation of the slow growth of the
33
Ibid
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league.34 In addition to that, even though franchises recruited some of the best talents, most
franchises failed to capture as many customers as they planned, which led to poor attendance and
flat revenue. In some cities the USFL could not compete with other spring-summer professional
sports leagues, such as Major League Baseball, while in some cities the summer heat kept fans
from attending the games. The financial trouble led to frequent changes in the franchise
ownerships and accordingly relocation of franchises, damaging the fan base, attendance, and
credibility of the league further. The USFL increased the league’s size by 50% by 1984 as it
needed some fresh capital, resulting in lower game quality and further loss of its credibility in the
market.35
In 1984, new franchise owners, such as Donald Trump, wanted to move the USFL season
fall season beginning in 1986, hoping to force a merger between the NFL and the USFL, which
will enable them to recoup their investment. The movement, however, caused the closing of
multiple franchises that did not take on board the idea, leading to further instability in the league
and further loss of its credibility. Furthermore, the USFL was faced with the NFL’s predatory
strategies. The NFL signed exclusive contracts with the TV networks, and prevented the USFL
from using some football stadiums. Although the USFL won the anti-trust lawsuit against the
NFL, the USFL was awarded only $3 because the jury thought that the problems the USFL was
having were due to its own mismanagement rather than the NFL’s monopolization.36 The USFL,
which already was in about $160 million in debt, almost immediately announced the suspension
of its operation for the 1986 season.37 The league never came to play again.
Summary of insights
Although the USFL initially configured its ecosystem successfully with TV network
contracts, credible managements, and supply of talented players, it failed to back up the
franchises from the short-term loss with enough capital. In other words, the league failed to
provide enough incentive to ‘attend the party,’ causing the invitees to ‘leave the party.’ In
addition, the USFL’s decision to move to fall season took its unique value proposition out, also
forcing the NFL to use predatory strategies to eliminate the USFL.
34
http://bleacherreport.com/articles/333031-dont-call-it-a-comeback-usfls-return-could-cause-trouble-for-the-nfl
http://www.usfl.info/
36
https://sites.google.com/site/remembertheusfl/history
37
http://www.oursportscentral.com/usfl/history.php
35
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Ecosystem Map – United States Football League
USFL
Sponsors
Franchises
TV Networks
City / Stadium
Audience
College
Football
NFL
Arena Football League
Overview
The Arena Football League (AFL) is the highest level of professional indoor American
football in the United States. It is currently the second longest running professional football
league in the United States, after the National Football League. It was founded in 1987 by Jim
Foster. It is played indoors on a smaller field than American football, resulting in a faster-paced
and higher-scoring game. It also contains elements that do not exist in outdoor football, such as
padded walls surrounding the field of play, as well as large “rebound nets” on either side of the
goalposts that playable balls can ricochet from.
Timing and choice of entry mode
Jim Foster, a promotions manager with the National Football League, conceived the idea
of indoor football while watching an indoor soccer match at Madison Square Garden in 1981.
After solidifying the rules and business plan, supplemented with sketches by a professional artist,
Foster presented his idea to various television networks. He reached an agreement with NBC for
a "test game".38
38
"A good idea...on paper". The Florida Times-Union. May 12, 2001. Retrieved 2009-08-06.
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Plans for arena football were put on hold in 1982 as the United States Football League
was launched. Foster left the NFL to accept a position in the USFL. In 1983, he began
organizing the test game in his spare time around his job with the Blitz. By 1985, the USFL had
ceased football operations and on April 26, 1986, his concept was realized when finally staged
the test game.
The test game was played in Rockford, Illinois at the Rockford MetroCentre. Sponsors
were secured, and players and coaches from local colleges were recruited to volunteer to play for
the teams, the Chicago Politicians and Rockford Metros, with the guarantee of a tryout should
the league take off. Interest was high enough following the initial test game that Foster decided
to put on a second "showcase" game. The second game was held on February 26, 1987 at the
Rosemont Horizon in Chicago with a budget of $20,000, up from $4,000 in the original test
game. Foster also invited ESPN to send a film crew to the game; a highlights package aired on
SportsCenter.
On September 30, 1987, Foster filed an application with the United States Patent and
Trademark Office to patent his invented sport. The patent application covered the rules of the
game, specifically detailing the goalposts and rebound netting and their impact on gameplay.
Foster's application was granted on March 27, 1990. During the term of the patent, 20 years from
the date of filing the application, any other league that formed to play indoor football would be
forced to use rules and equipment that did not fall under Foster's patent; no indoor football
league would be able to use the goalposts and rebound netting found in Foster's arena football.
The patent expired on September 30, 2007, allowing indoor football leagues the chance to use
some of arena football's innovations.39
Construction of the supply chain
Players and coaches from college football were the dominant supply of talent to the
league. Because there was an abundant supply of talented college football players who were
unable to sign NFL contracts, the AFL faced little stress in terms of volume. However, this also
meant that the AFL was left with 2nd tier talent, as their teams could not match the high salaries
found in the NFL. Unlike previous competitors to the NFL, the AFL never entered into a
bidding war for prime talent, instead focusing on taking “diamonds in the rough” and adapting
them to the Arena game.
To help improve their overall player quality, from 1999-2009, the AFL operated a
developmental league called AF2. Not only did this allow the league to establish teams in
smaller markets, but it provided a “minor league” to the AFL, giving players a chance to adapt to
the unique style of play. Given that Arena Football does not exist in the collegiate and amateur
ranks, there is typically a steep learning curve for all ranks of players. By giving them a chance
to hone their skills in a lower division, it would help improve the overall quality of play in the
AFL.
39
Foster, James, "Football game system and method of play", issued March 27, 1990
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AFL teams were established in major markets across the United States, particularly in
areas where major NBA and NHL arenas were present. The AFL sold licenses to investor
groups in these major markets, setting up private ownership of teams (as opposed to a leagueowned model). In the inaugural 1987 season, teams were based in Chicago, Denver, Pittsburgh,
and Washington, D.C. Similar to the strategies pursued in other football leagues, the main
sources of revenue were in TV and licensing, ticket sales, and corporate sponsorships.
Perception of value creation and value capture
Because of a unique set of rules and a smaller field of play that is significantly different
than the NFL, AFL games are faster-paced and higher-scoring than their NFL counterparts. The
padded walls surrounding the field can result in thunderous, hockey-esque hits, while the
rebound netting around the goalposts can lead to quick turnovers and sudden return attempts;
neither of these elements exist in the NFL.
Moreover, the AFL bills itself as a much more fan-friendly experience than the NFL.
Teams hold autograph sessions after the game, run a variety of in-game promotions, and allow
fans to keep balls that leave the field of play and enter the stands. None of these things are
available in the NFL fan experience. Coupled with the lower average price point of a game
ticket, the AFL is better positioned to market itself as a fan- and family-friendly event.
Approaches to market definition and segmentation
The AFL offered two unique propositions for the football fan market. They offered an
exciting, new brand of football; it was fundamentally similar to the NFL, but incorporated a
variety of elements from arena-based sports to create an entirely new experience. Moreover, by
playing in the spring and summer months (March-August), it wouldn’t compete head-to-head
with the NFL.
Moreover, from a competitive standpoint, this positioned the AFL as a complementary
league to the NFL. Unlike the American Football League, WFL and USFL, Arena Football
wasn’t looking to replace the NFL; rather, it was providing an alternative form of entertainment
that traced its origins to outdoor football. Consequently, the competitive response from the NFL
was much less threatening; in fact, the NFL partnered with the AFL on several occasions.
Average attendance for AFL games were around 10,000-11,000 per game in the 1990s,
though during the recession connected to the dot-com bubble and the September 11, 2001 attacks
average attendance dropped below 10,000 for several years. Since the start of the 2004 season,
average attendance has been above 12,000, with 12,392 in 2007.40 Eleven of the seventeen teams
in operation in 2007 had average attendance figures over 13,000. In 2008, the overall attendance
average increased to 12,957, with eight teams exceeding 13,000 per game. In 2010, the overall
attendance average decreased to 8,135, with only one team (Tampa Bay) exceeding 13,000 per
game.
40
ArenaFan Online: http://www.arenafan.com/statistics/?page=attendance&league=1
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Given how critical television presence is to a league’s success, the AFL was aggressive in
signing broadcast deals with major networks. Beginning with the 2003 season, the AFL made a
deal with NBC to televise league games, which was renewed for another two years in 2005. In
conjunction with this, the league moved the beginning of the season from May to February (the
week after the NFL's Super Bowl) and scheduled most of its games on Sunday instead of Friday
or Saturday as it had in the past. In 2006, because of the XX Winter Olympic Games, the Stanley
Cup playoffs and the Daytona 500, NBC scaled back from weekly coverage to scattered
coverage during the regular season, but committed to a full playoff schedule ending with the 20th
ArenaBowl. NBC and the Arena Football League officially severed ties on June 30, 2006, having
failed to reach a new broadcast deal. Las Vegas owner Jim Ferraro stated during a radio
interview that the reason why a deal failed is because ESPN refused to show highlights or even
mention a product being broadcast on NBC.
For the 2006 season only, the AFL added a national cable deal with OLN (now Versus)
for eleven regular-season games and one playoff game.
On December 19, 2006, ESPN announced the purchase of a minority stake in the AFL.
This deal includes television rights for the ESPN family of networks. ESPN would televise a
minimum of 17 regular season games, most on Monday Nights, and nine playoff games,
including ArenaBowl XXI on ABC. The deal resulted in added exposure on ESPN's
SportsCenter.
The AFL also had a regional-cable deal with FSN, where FSN regional affiliates in AFL
markets carried local team games. In some areas, such as with the Arizona Rattlers, Fox Sports
affiliates still carry the games.
Building upon the previously mentioned partnerships that exist with the NFL, the AFL
currently has its national television deal with the NFL Network, carrying a weekly Friday night
package. The deal began in 2010. All AFL games not on the NFL Network can be seen for free
online, provided by a NiFTy TV application.
In addition, unlike the NFL model, teams are free to strike regional broadcast contracts
with local affiliates.
Level of resource commitments
The AFL was successful in finding solid ownership for many of its teams, including
Arizona business and sports magnate Jerry Colangelo, and other NFL ownership groups.
Moreover, in 1999, the NFL purchased an exclusive option to acquire an equity interest in the
AFL. This allowed NFL owners to establish AFL teams in their own markets, something
previously prohibited by NFL bylaws.
That said, despite having many experienced and business-savvy owners, the AFL also
struggles with less capable ownership groups or those who are in it to turn a quick profit. While
numerous AFL teams enjoyed success throughout the existence of the league, many have failed.
There are also a number of franchises which moved from city to city; an example is the New
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York CityHawks, who moved Hartford to become the New England Sea Wolves after two
seasons, but were later sold and moved to Toronto Phantoms, who lasted another two seasons
before folding.
There are a number of reasons why these teams failed, including lack of financial support
from owners, lack of media exposure, or the city's plain lack of interest in the team. Ultimately,
these transient teams made it difficult to establish dedicated fan bases, while also giving off an
image of financial instability. This hurt the league both in growing their market share, and in
finding new team owners who were dedicated to the league for the long haul.
Exit strategies and the reversibility of commitments
On July 20, 2009, Sports Business Journal reported that the AFL owed approximately
$14 million to its creditors and were considering filing for Chapter 11 bankruptcy protection. In
early August 2009, numerous media outlets began reporting that the AFL was folding
permanently and would file for Chapter 7 bankruptcy. The league released a statement on August
4 announcing that while the league is not folding, it was suspending league operations
indefinitely. Despite this, several of the league's creditors filed papers to force a Chapter 7
liquidation if the league did not do so voluntarily. This request was granted on August 7, though
converted to a Chapter 11 reorganization on August 26.
All assets of the Arena Football League were put up for auction. On November 11, 2009,
the new league announced its intention to purchase the entire assets of the former AFL; the assets
included the team names and logos of all but one of the former AFL and af2 teams. The auction
occurred on November 25, 2009. The assets were awarded to a new ownership entity, Arena
Football 1 on December 7, 2009, with a winning bid of $6.1 million.
On February 17, 2010, AF1 announced it would use the "Arena Football League" name
and continue the tradition of the original league. The league announced plans for the upcoming
season and details of its contract with NFL Network to broadcast AFL games in 2010.
Summary of insights
The Arena Football League’s approach was unique in terms of entry strategy. Its value
proposition was different, patent was used to secure its uniqueness, and the ecosystem was set.
However, due to financial and other commitments, the AFL never achieved the full popularity of
the NFL. Its fan-friendly, affordable and exciting value proposition was different, but it was
ultimately regarded as a second tier league due to the lack of perceived player quality. The AFL
strategy and ecosystem wasn’t strong enough to penetrate or create the same amount of success
of NFL. The biggest reason was it couldn’t create enough value to participating members of the
ecosystem.
That said, as it enters its 25th year of play, it can certainly be considered successful in the
role of a niche player. From the onset, that seemed to be what the AFL strived for. Unlike the
American Football League, WFL and USFL, the AFL wasn’t looking to become a replacement
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for the NFL. Rather, it billed itself as an alternative form of football (thanks to its radically
different indoor gameplay), that played in the NFL’s off-season. In this regard, its survival and
moderate success can be attributed to the fact that it positioned itself as a partner with the NFL.
This attracted steady ownership groups, many of whom had NFL team interests, as opposed to
“fly by night” investors who wanted to go head-to-head with the league. Its current television
deal with NFL Network illustrates how it has successfully positioned itself as a complementary
league to the incumbent, as opposed to a threat.
Ecosystem Map – Arena Football League
Team Owners
City and State
Arena Football
League
NFL
College
Football
Sponsors
TV Networks
Audience
XFL
Overview
The XFL was a professional American football league that played for one season in 2001.
The league was founded by Vince McMahon, the Chairman of the Board of Directors of WWE
(formerly known as the World Wrestling Federation, Inc.). The XFL was intended to be a major
professional sports league complement to the offseason of the NFL, but it failed to find an
audience and ceased operation after its first and only season.
Timing and choice of entry mode
The concept of the league was first announced on February 3, 2000. The XFL was
originally conceived to build on the success of the NFL and professional wrestling. It was hyped
as "real" football without penalties for roughness and with fewer rules in general. The loud
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games featured players and coaches with microphones and cameras in the huddle and in the
locker rooms. XFL is created as a joint venture between NBC and the World Wrestling
Federation and the XFL was created as a "single-entity league", meaning that the teams were not
individually owned and operated franchises (as in the NFL), but that the league was operated as a
single business unit. The opening game took place on February 3, 2001, one year after the
concept of the league was announced, and immediately following the NFL's Super Bowl.
Although the XFL began with better-than-expected TV ratings and fair publicity, the audience
declined sharply after the first week of the season, going from a 9.5 rating to a 4.6 in just one
week41, and the media attacked the league for what was perceived as a poor quality of play.
Construction of the supply chain
First of all, XFL managed to get impressive media coverage early on. With the joint
venture with NBC, it also had agreements with TNN and UPN. In terms of players, similar to
UFL, there were tons of players who could not play at NFL but still wanted to have a shot to play
professional football. And a big part of the players in XFL were from Canadian Football League
too. In terms of stadiums, XFL managed to secure 8 stadiums from most of the biggest cities in
US: New York City, Los Angeles, Chicago, San Francisco, Orlando, Miami and Las Vegas. A
big part of the financing for XFL was coming from World Wrestling Federation. The XFL did an
extremely good job to create the hype for the audience. That’s why the first game attracted more
than 14 million viewers on NBC.42
Perception of value creation and value capture
The XFL aimed to attract two distinct audiences to games: wrestling fans and American
football fans. Such setup in the beginning put XFL in an awkward position because it was
essentially targeting only at audience who love both sports, which would be a much smaller base
had he targeted either one of them.
The concept of the league was conceived based on the success of the NFL and
professional wrestling. Therefore, XFL loosened the rules for penalties and stadiums featured
trash-talking public address announcers and scantily-clad cheerleaders. Moreover, the XFL chose
unusual names for its franchises, most of which either referenced images of uncontrolled insanity
After the first week of games, the media attacked the league for what was perceived as a poor
quality of play. The sloppy play, boring announcers, and wrestling kind of feeling would soon
doom the league.
41
42
Nielsen Ratings
Ibid
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Approaches to market definition and segmentation
On one hand, XFL tried to capture the off season market left by NFL because the games
usually started in Feb, right after super bowl. On the other hand, XFL wanted to capture audience
who both loved wresting as well as American football.
Level of resource commitments
Before its launch, XFL definitely had very strong support both from WWE and from
NBC since NBC did not win the bid to broadcast NFL that year. It was dying to find a
replacement. Financially, XFL did not seem to have any issues in the first year. It also did not
have problems finding the right players and securing the stadiums at the right location. Therefore
it managed to form 8 teams in a short amount of time. Overall, the XFL had pretty strong
resource commitments going into this game.
Summary of insights
In the XFL case, because of the poor TV ratings, NBC, who owned half of the league,
announced it would not broadcast a second XFL season, thus admitting failure in its attempt at
airing replacement pro football. As the XFL could not strike an appropriate deal with UPN,
Vince McMahon announced the cease of the league on May 2001.43
The biggest problem with the XFL is its wrong value proposition into this game. Vince
McMahon did not realize people would accept the XFL more positively if it were presented as
another form of entertainment rather than a traditional sport. However everything associated with
XFL made the media feel that this sport was a joke. There was no respect for the league in the
sports media. XFL games were rarely treated as sports contests, but rather more like WWF-like
sensationalized events. Many local TV newscasts and newspapers (even in XFL cities) did not
report league scores or show highlights. This led to many football fans treating the XFL as a joke,
rather than competition to the NFL.
Other problems included the scantily clad cheerleaders, trash-talking announcers, and the
lack of penalties for roughness have made the XFL less family friendly. Unlike the NFL, in
which tries to market their sport to families and children as much as possible, the XFL's
marketing brands were simply targeted to young adult males and low income inner city residents,
which has caused marketing problems for a mainstream accidence. A further problem was that
the XFL itself was the brainchild of Vince McMahon, a man who was ridiculed by mainstream
sports journalists due to the stigma attached to professional wrestling as being "fake".
Despite its financial solvency and massive visibility (perhaps infamy), the XFL was
doomed to fail because of its wrong valuation proposition into the game.
43
“WWF drops XFL”. Money.cnn.com. CNN. 2001-05-10
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Ecosystem Map – XFL
Coaches from
NFL
Players cut by
NFL training
camp
TV Networks
XFL
Investors
TV Networks
Audience
United Football League
Overview
The United Football League (UFL) is a professional American football league based in
the United States that began play in October 2009. The league currently has four franchises
playing in markets where the National Football League (NFL) has no current presence. UFL
mostly adheres to standard NFL and football rules with very few differences. The current four
teams are: Las Vegas locomotives; Omaha Nighthawks; Sacramento Mountain Lions; Virginia
Destroyers.
Timing and choice of entry mode
In the mid-1990s, when the Los Angeles Rams moved to St. Louis and the Houston
Oilers relocated to Nashville, Bill Hambrecht, a former investment banker was mystified. It
seemed illogical that National Football League teams would leave two of the largest and best
potential growth markets in the country. From a marketing angle, he knew there was room for
more football teams around the United States. His vision of expanding the football landscape
beyond NFL did not come to realization till 2009. He first formed a partnership with Google
executive Tim Armstrong and also hired a CEO and COO who both formerly worked for the
National Basketball Association. Moreover, they also convinced Mark Cuban to join this
venture not only for his investment but also eying on his HDNet to broadcast the games in the
future. On February 9, 2009, it was announced that Paul Pelosi, husband of former Speaker of
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the United States House of Representatives Nancy Pelosi, had stepped forward heading a group
of investors who invested $30 million to purchase four franchises to play in the league's 2009
inaugural season.44
It seems that there was not much strategy in terms of timing other than Hambrecht waited
years to gather the necessary resources to put his vision into realization and with no surprises, his
first four teams were based in areas where NFL had no presence.
Construction of the supply chain
Firstly in terms of teams, the UFL initially identified 21 cities with strong economic
bases, passionate football tradition, and a high number of average TV viewing households. In the
end, they chose New York City, Las Vegas, Orlando and San Francisco Bay Area. In all cases,
the UFL leased the stadiums and they never own one.
Secondly, they have no problems with obtaining players or coaches. There were tons of
players who either used to play for NFL or who were not good enough for NFL. Moreover, those
players were not very expensive and they were dying to get onto a professional stage again in
their life. They were also able to hunt down some high quality coaches who used to coach in
NFL. The resource pool for both players and coaches were huge thanks to NFL and college
football.
Thirdly, they have partnership with Cuban’s HDNet and VERSUS who have national
broadcasting capabilities. And last by not least, with its affordable price, UFL was convinced
that it would have enough audience in those underserved areas.
Perception of value creation and value capture
The UFL’s valuation proposition is to provide quality football at affordable prices
(around $20 per ticket) in underserved markets. And its revenues were primarily from both ticket
sales and TV, which were not different from traditional football league business model. However,
given its low ticket price, and relative smaller target market, the fiscal status of UFL was not
very optimistic since the very beginning.
Approaches to market definition and segmentation
UFL’s target markets are cities which do not have any NFL team present. Moreover,
since the game is nationally broadcast, it also hopes to lure some audience away from NFL
during the regular season with its “high quality” football performance.
Level of resource commitments
UFL was owned by a consortium of private investors, who were passionate about the
return but not necessarily Bill Hambrecht noble vision. If the business is not going to produce
profit in 5 to 7 years, the entire UFL is in great danger. Actually in Jan, 2011, Mark Cuban filed
44
“First and Long – Very Long”. www.nytimes.com. The New York Times. 2007-06-03.
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lawsuit against the UFL for their failure to reply the loan. Because of a lot of the financial
constraints, the league was never able to expand to more than 5 teams. And with high operating
expenses per game, in 2011 immediately after each team’s fourth games, the remainder of the
2011 season had been cancelled and the championship game was moved forward.
Summary of insights
A critical element of the professional football league’s ecosystem is scale. The league
needs to have enough teams with enough audience to have enough revenues to breakeven or
make a profit. Since the founding of UFL in 2009, the league had been losing $40 to $50 million
every year simply because its revenue was not able to cover its fixed cost.45 As a result, they
could not lease some of the stadiums in big cities such as New York City and was forced to
move to smaller cities with lower costs. However, the downside of this is you are not serving a
smaller market with even less revenue going forward. Besides the fact that UFL was not able to
achieve its scale and will eventually die in the cradle, another critical element in the ecosystem is
to have strong partnership from nationally broadcast cable firms. With two 2nd tiers partners,
VERSUS and HDNet, UFL could not reach out to its potential audience as quickly as possible.
This further deteriorated UFL’s situation and not to mention the fact that without solid revenue
stream to buy quality players, how could UFL claim to have quality football?
Ecosystem Map – United Football League
Coaches from
NFL
Players cut by
NFL training
camp
45
UFL
TV Networks
Investors
Audience
“UFL, Colonials Hope It’s Just A One-Month Delay”. www.courant.com. Hartford Courant. 2011-07-19.
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Lingerie Football League
Overview
The Lingerie Football League (LFL) is a women's 7-on-7 tackle American football
league, created in 2009, with games played in the fall and winter at NBA, NFL, NHL and MLS
arenas and stadiums. The league was founded by Mitch Mortaza. The concept originated from
the Super Bowl halftime alternative television special called the Lingerie Bowl, a pay-per-view
event broadcast annually opposite the Super Bowl halftime show. The television show has
become a staple of Super Bowl Sunday festivities for millions worldwide and is broadcast in
over 85 countries.
Timing and choice of entry mode
Lingerie Bowl, originally aired as an alternative to the half time show, Lingerie Football
soon became a mainstay of Super Bowl Sunday throughout a nation of Americans who realized
that anything on the planet can be made that bit better by involving half naked women in tight
shorts. Producer Horizon Productions has expanded the concept into a ten team league called the
Lingerie Football League (LFL) that played its first season with 10 teams from September 2009
to January 2010 on Friday nights in major arenas and stadiums.
Construction of the supply chain
Very little information was found on the initial ownership of this league. LFL does have
MTV Networks' MTV2 to broadcast 20 regular season and two conference playoff highlight
program.46
Perception of value creation and value capture
Given the success from Lingerie Bowl, the sex appeal from half naked women in shorts is
LFL’s main value proposition. And often in times, you could not tell whether the audience were
really looking at the physical contact or the sexy bodies that those girls were showing on the
field. Male audience is certainly the majority of the audience.
Summary of insights
LFL is an animal of its own because at least initially people did not view this as an
alternative to professional football game but rather a new type of entertainment. And because of
its novel value proposition, it hit the ground running without much resistance and hurdles. LFL
started with 10 teams and have been expanding very steadily since its inception. With a health
start, LFL is able to keep MTV’s contract and it is able to generate steady cash flow to further
expand its market into other areas of US. However, if one day LFL is no longer considered as a
46
Lfl360.com. “Lingerie Football League Returns to the Gridiron Live This Fall on MTV2”.
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type of entertainment but rather a new professional sport, then it might follow the similar fate
that the XFL had in the end.
Ecosystem Map – Lingerie Football League
Coaches
Players
LFL
TV network
(MTV)
Investors
Audience
Conclusion
The NFL’s innovation ecosystem has provided a foundation for many other leagues to
create and capture value. A number of football leagues have risen to challenge the NFL head-on.
However, these leagues, such as the XFL, USFL, and WFL, have failed. At the same time, we
have seen other football leagues attempt to establish a niche in this market. Although it has
struggled at times, the AFL will soon enter its 25th year of existence, the second longest running
professional football league in the U.S. The league has demonstrated some signs of success,
expanding to 17 teams in its newest format. At the same time, the LFL is growing with
expansion plans in Canada and Australia.
Ninety years later, the NFL has established itself as the unquestioned leader. Through the
course of its history, the NFL created a strong innovation ecosystem and continued to refine this
ecosystem. With its national expansion, the NFL has a presence in all major markets and most
mid-markets within the United States. This reach has allowed them to capture the entire U.S.
population. Today, the NFL’s strategy is to develop a stronger presence overseas, primarily in
Europe and Latin America. Also, the NFL has embraced technological changes, including the
television, the internet, and other forms of media. In addition, the NFL’s strategy has focused on
ensuring a product of the highest quality. The league attracts the best talent from college football
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and pays the highest salaries. The NFL also promotes parity with its revenue-sharing model and
salary cap. Looking ahead, it is doubtful that this dominant position will change.
Alvin Hsu, Min Sung Kim, Tae Hoon Kim, Bin (Thomas) Li, Nate Walsh, Kurt Zwald
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EXHIBIT 1: NFL LEAGUE REVENUE & OPERATING INCOME
Alvin Hsu, Min Sung Kim, Tae Hoon Kim, Bin (Thomas) Li, Nate Walsh, Kurt Zwald
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EXHIBIT 2: U.S. MAJOR SPORTS LEAGUE AVERAGE TEAM VALUATIONS, NFL
TEAM VALUATIONS, 2000-10
Alvin Hsu, Min Sung Kim, Tae Hoon Kim, Bin (Thomas) Li, Nate Walsh, Kurt Zwald
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EXHIBIT 3: NFL MEDIA RIGHTS DEALS
Source: http://www.sportsbusinessdaily.com/Daily/Issues/2007/09/Issue-238/NFL-SeasonPreview/NFL-Media-Rights-Deals-For-07-Season.aspx
Alvin Hsu, Min Sung Kim, Tae Hoon Kim, Bin (Thomas) Li, Nate Walsh, Kurt Zwald
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EXHIBIT 4: GREEN BAY PACKERS 2010 INCOME STATEMENT
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EXHIBIT 4: GREEN BAY PACKERS 2010 INCOME STATEMENT, CONTINUED
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EXHIBIT 5: NFL TEAM VALUATIONS, 2011