How to run a business, Communist Party-style
Some of you may not believe this, given my UC Berkeley education, lefty political orientation and recently expressed views on the NFL labor standoff, but I am not now, nor have I ever been, a member of the Communist Party.
However, I can think of 32 extremely wealthy individuals for whom such a statement might increasingly appear to be a stretch.
In defending the NFL owners’ decision to lock out the league’s players last week, many pro-management readers asked derisively if I understood capitalism. The owners, they argued, assume all the risks – and are thus entitled to extract whatever concessions from their employees they felt were necessary to increase the profitability of their respective businesses.
Well, I’m not sure if I understand capitalism in quite that way, but I do have a basic comprehension of communism. And I’m here to tell you that there are many similarities between the people running NFL teams and the folks in charge of Soviet-bloc governments between World War II and the fall of the Berlin Wall.
The first and most obvious parallel is that the NFL’s 32 franchises equally distribute a large portion of their revenues, most glaringly the multi-billion-dollar TV-rights deals that are the lifeblood of the league, but also national sponsorships and licensing fees, and a percentage of gate receipts.
There is also a de facto cost-control mechanism via the presence of a salary cap, which annually mandates minimum and maximum spending figures for player compensation. With apologies to Adam Smith, there is no “invisible hand” regulating the NFL economy; rather, it’s more like a hand making a clenched-fist salute you might have seen in Red Square in the 1950s.
In fact, it looks like a “command and control” principle has replaced Smith’s invisible hand as the guiding principle. I haven’t seen so much central planning since Czechoslovakia was a country.
The NFL is one big Eastern-bloc party. The league’s owners protect their economic fates by establishing perfect barriers to entry, courtesy of a partial government antitrust exemption and, until last week, a collective bargaining agreement with the players union. In other words, if my super-rich buddies and I decide we want to create a 33rd franchise and join the league, we’re told to go pound ice in Siberia. There’s no legitimate competition allowed unless it’s sanctioned by the Politburo – er, the league office.
The owners are like the party faithful who occupy powerful Politburo posts – they ultimately make all the command and control decisions, en masse, to maximize their own aggregate benefit first, then split the spoils afterward.
Throw in the presence of numerous facilities that have been publicly subsidized, at least on a partial basis, as well as the owners’ insistence upon financial secrecy, and you have a decent impression of Lenin’s “state capitalism”.
Ah, but the NFL has something for the Marxist purists as well: a draft designed to improve the fortunes of the downtrodden at the expense of the fortunate. Yes, the worst shall be first at the end of April, with the Carolina Panthers now on the clock and the Super Bowl-champion Green Bay Packers picking last. Somewhere, Leon Trotsky is smiling in his grave.
Similarly, the NFL’s scheduling formula is weighted toward giving the previous season’s also-rans a smoother path to the playoffs than the division winners – a system that regularly results in a 50-plus percent postseason turnover. And isn’t “parity” just another word for uniform equality?
One more amusing similarity: Like the Soviet Union, the owners have their own news service (with the league’s PR operation filling the role of TASS) and a ubiquitous broadcast arm (with the NFL Network/nfl.com as the Soviet TV/Pravda counterparts).
And yes, I know I’m going over the top with those comparisons. In reality, the folks on the NFL PR staff are pretty down-to-earth, and the NFL Network has done a commendable job of remaining reasonably balanced on the labor situation thus far – certainly better than Fox News (or, to be fair, MSNBC) on its best day.
Still, the NFL’s latest PR spin (that the union’s decision to decertify “forced” the lockout) is a flat-out lie that would have made Leonid Brezhnev proud. As for the NFL Network, it was a bad look last Friday when, after talks broke down between the two sides, it provided live coverage of league attorney Jeff Pash making a statement and conducting a lengthy news conference but later cut away from union lawyer Jim Quinn before he fielded a single question from reporters.
Do these things bother me? Not really – if this is the NFL’s version of a Cold War, the propaganda efforts have actually been pretty tame so far.
What infuriates me, however, is the notion that the owners’ efforts to extract significant financial concessions from the players – to the point of shutting down their businesses – are forgiven by so many of you because, you proclaim, they assume so much risk.
Really? What risk? I would argue that among major U.S. businesses, owning an NFL team carries the least amount of risk of any private entity.
For one thing, franchise values continue to rise astronomically, and all economic indicators (other than the ones the owners steadfastly elect not to reveal) suggest that even in this poor economy, the business is thriving. But the real reason NFL owners don’t have to stress out like most of their counterparts in the private sector is because the TV deals are so lucrative, and their annual split so sizable, they’re basically guaranteed to make a profit.
This has been true for several decades – no matter how lousy they may be at running their organizations, no matter how miserably their teams may perform on the field and no matter how anemic their marketing efforts may be.
For instance, someone like ultra-cheap Cincinnati Bengals owner Mike Brown, who essentially had a stadium built for him by taxpayers and who resists creative means of generating revenue at every turn, can field a perpetually poor product and laugh all the way to the (Ohio River) bank. Similarly, Brown’s comrade William Clay Ford can afford to lure Matt Millen, a man with zero managerial experience, out of the broadcasting booth and put him in charge of the Detroit Lions for seven-plus years and, despite disastrous results, continue to haul in F150-sized truckloads of cash.
Again, the model is deliciously Eastern-bloc. The owners love free markets, but not when it comes to labor. There is the salary cap, which ensures that more than 40 percent of adjusted revenues (and, essentially, a little more than 50 percent of total revenues) don’t go to the players; there are rules limiting free agency and movement; and, coming soon, there will be a rookie wage scale that drastically holds down the free-market value for the top incoming players. The draft, as I wrote Wednesday, violates U.S. antitrust law. Imagine Harvard’s top business-school graduate being told he must work for a firm in Buffalo, at a predetermined wage, or have no other realistic options to ply his trade.
Certainly, I understand that football players aren’t exactly suffering under the oppressive reign of a totalitarian state. To me, they’re analogous to those Soviet and East German Olympic heroes who got to live in the nice houses, drive cool cars and go to the front of the bread lines, only with perhaps a few more perks.
And believe it or not, I am sympathetic to the owners who’ve embraced capitalistic principles like nurturing and growing their brands, increasing their revenue streams through creative means and making bold investments like new, privately financed stadiums. I annually place these entrepreneurial leaders at the top of my owner rankings, and I regard them as a huge reason for the league’s impressive growth and unquestioned standing as our society’s preeminent sports operation.
A brief history lesson: For too long, old-guard owners sat back passively and got fat on the shared-revenue gravy train, acting like ’70s Politburo bosses with little or no incentive to aggressively build their businesses. That changed when a new wave of owners, beginning with men like ex-San Francisco 49ers boss Eddie DeBartolo and continuing with the Dallas Cowboys’ Jerry Jones, the New England Patriots’ Robert Kraft and, yes, the Washington Redskins’ Daniel Snyder, came in and blew up the slacker model, with the selection of Paul Tagliabue as commissioner (over Jim Finks, who’d been anointed as Pete Rozelle’s successor) as one of the first acts of the revolution.
Tagliabue and longtime NFL Players Association boss Gene Upshaw worked together to push the envelope, simultaneously creating an environment that rewarded capitalistic enterprise while increasing the wealth and rights of the workers. There was central planning – Tagliabue, in a sense, was the Alan Greenspan of the NFL – yet there were mechanisms for owners to maximize their individual brands, all of which trickled down to the workers. It was the best of both worlds, a league propped up by a communist-style safety net yet propelled by the spoils of capitalistic innovation, and all they had to do was figure out a way to split up the cash.
That’s what the respective successors to Tagliabue and Upshaw, NFL commissioner Roger Goodell and NFLPA executive director DeMaurice Smith, would be best served by accomplishing in the months ahead. Until then, the ramped-up rhetoric will fly from both sides and the conflict will play out in the courtrooms, where the players will argue that the NFL is a monopoly which, in the absence of a CBA, violates antitrust law through its implementation of uniform rules.
If the monopoly analogy doesn’t work for you, and you prefer to consider the NFL’s 32 teams to be individual businesses operating under common practices, perhaps it’s best to regard the league as a cartel. Maybe that’ll be my next column: NFL owners as OPEC chieftains.
Realistically, I’m not sure I have a deep understanding of any of these economic principles, so I’m going to stick with my initial assertion. The NFL is the most glaring illustration of institutionalized communism in American society, and if you’re one of those knee-jerk management apologists who reveres the ground on which the owners walk, you should probably come to terms with the fact that you’ve got a fair amount of pinko coursing through your blood.
All of which makes me wonder: When those tens of thousands of fans waited 90 minutes or more outside Cowboys Stadium last month, were they preparing to watch the Packers battle the Steelers in Super Bowl XLV – or were they merely in line for bread?