NFL Labor Strike Is Coming

Sports leagues are beginning to suffer as corporate sponsors are pulling dollars due to the slumping economy.

The NBA has already laid off 80 employees. The MLB recently laid off 4 percent of its staff. The Arena Football League is planning on suspending its entire 2009 season due to financial hardships.

The economy is hitting NASCAR especially hard as corporate sponsors, such as GM, are cutting back on advertising. Honda Motor Corp has completely pulled out of Formula One Racing. The PGA Tour has lost major sponsors.

And now, the NFL has just announced that it is cutting 150 jobs.

Let’s look at the NFL, the king of all sports, to see just how the economy is impacting sports leagues.

Over the past 10 years, revenue and ticket prices for the NFL have risen to unprecedented amounts. According to Bloomberg, the NFL makes approximately $7 billion in revenue annually from its television contracts, sponsorship agreements and ticket and merchandise sales.

NFL television contracts have led to bidding wars between networks due to the NFL’s mass appeal. The average ticket price has risen 8 percent from the previous year. Sounds great. So, what’s the problem?

With the slumping economy, merchandise and ticket sales have slowed as fans have cut back on non-essential spending. Corporations are cutting back on luxury box purchases and stadium naming right deals.

Advertising sales are taking the biggest hit, as automobile makers and financial service companies have been the largest sponsors of sports leagues. The problem for the NFL and other sports leagues is that all of these events will surely take a big chunk out of their revenue.

This may force sports leagues like the NFL to undertake dramatic steps to maintain revenue.

I expect that leagues will be forced to cut ticket prices. The average price for a family of four to attend a football game is about $400. This is not realistic in a recessionary environment. Teams will have to cut prices in order to sell season tickets and merchandise and fill stadium seats.

I also expect leagues to make an attempt at reducing player salaries in upcoming labor agreements. The NFL is currently trying to renegotiate their labor contracts, which are set to expire in 2010.

Player salaries amount to $4.5 billion annually, which accounts for 60 percent of all revenue. It's the league's largest fixed operating expense. In a league of variable revenue, decreasing fixed expenses is paramount.

Owners are not going to give in until they get players to take a much larger slice of the revenue share. Players are not going to cave into owner pressure. They do not want to take a pay cut or have an additional two games added to the season.

This strike looks like it could last for a while.