National Football League is the most profitable sports enterprise. The industry boasts over 100 teams and grosses billions in profits each year. The purpose of this discussion is to analyze this industry using Porter’s five forces. We will also provide a company analysis of the Cincinnati Bengals. In addition, the discussion will focus on an analysis between the United States Army and the National Football league.
Industry Analysis of the National Football League using Michael Porters 5 Forces:
The national football league has grown tremendously since the time of its inception. Although the NFL is known today as the premier entity for football in America, it is not the first professional football league. The first league was the American Professional football league, which was founded in 1920. (NFL History Guide) The national football league came into being in 1922. (NFL History Guide) According to the NFL history guide, once the NFL was formed professional football became as popular as college football once the draft was put into place in 1936. (NFL History Guide) The guide asserts that the popularity of the NFL continued to grow and coaches developed new offensive and defensive plays that made the game more exciting. (NFL History Guide)
However by the 1970’s the popularity of the NFL began to decrease. (NFL History Guide) The guide explains that in 1970 ABC began televising Monday night football, which has become a mainstay in American television. (NFL History Guide) Today the NFL is extremely successful and football remains as an extremely popular sport. (NFL History Guide)
Threat of new entrants
The threat of new entrants into an industry can be an extremely volatile issue for many different industries. The national football league is the most lucrative professional sports entity. Football is an extremely popular sport and Americans spend a great deal of money on Football related items. For many industries, the threat of new entrants is extremely high.
For the National Football league, the threat of new entrants is extremely low. The reason why there is a low likelihood of this occurring has to do with the expense associated with the startup costs associated with entering the industry. It is extremely expensive to put into place the infrastructure that is needed to become a part of such an industry.
Bargaining power of buyers
Buyers in this industry have limited buying power. Because the industry consists of different teams, prices related to purchasing vary and are set by the individual teams. Depending on where the team is located, these prices can be higher or lower. Buyers have some power because if they are not willing to pay for tickets or purchase team products because they are too expensive.
Threat of substitute products or services
The threat of substitute products is very low. Arena Football can be viewed as a substitute product but Arena football is not nearly as popular as conventional football but it could be viewed as a substitute. In addition, some sports enthusiasts may become more interested in other sports and made substitute watching football for some other sport. However, the possibility of this occurring is unlikely because sports seasons differ and although they often overlap the threat of a different sport, becoming a substitute is extremely unlikely.
Bargaining power of suppliers
Suppliers have bargaining power. In the case of the NFL and its suppliers, one hand washes the other. The National Football League needs certain products and services to survive and the suppliers need that prestige of being associated with the NFL.
The suppliers with the most bargaining power are the athletes and their agents. They have the most power because they have the ability to negotiate contracts. According to an article found in the American Business Law Journal, this is referred to as individual contract negotiations. The article explains that ‘The salary system in the NFL is comprised of various mechanisms and rules that create the framework within which contract negotiations are conducted and league-wide salaries are generally determined.(12) Overall team salaries are largely controlled by the League’s salary cap, a mechanism in the League’s current CBA designed to limit the amount of money that individual teams can spend on player salaries.(13) The current CBA also establishes distinct categories of players, primarily on the basis of seniority or the number of accrued seasons in the League,(14) although two categories or designations of players, franchise and transition players, are determined on the basis of superior ability or value to a team.(15) Within the restrictions imposed by the salary cap, individual player salaries are driven by distinct sets of rules governing negotiations for each of these different categories of players.” (Lock 1998)
This process allows the player to receive the pay that they want while assuring the team that the player cannot receive an unlimited amount of money because of the salary cap that exists. The salary cap differs from team to team and taken as a percentage of defined gross revenues. (Lock 1998)
Rivalry among existing firms
The only existing firms are the Canadian Football League and Arena Football league, which really do not possess the wherewithal to rival the NFL. The Canadian Football League often recruits college players who are not able to get into the NFL. Arena Football also recruits college players and the game is played on a smaller field (50 yards). Although the arena league has had some labor disputes, the arena football league has had some success in recent years. (Fisher) According to an article found in the Washington Times the arena football league is quietly flourishing. The article asserts that the “AFL is ever so quietly posting some of the strongest growth figures in the entire sports industry, regardless of particular sport or size. Average attendance for the 2004 season, which started Feb. 5, is 12,503-12% above last year and on pace for the league’s highest mark in its 18 years. Sellouts in several markets, including Philadelphia, Columbus, Ohio and Denver, are regular occurrences. Television audiences for AFL games on NBC average around 1.7 million households, more than the NHL on ABC and competitive with CBS’ regular-season college basketball coverage. Franchise values have soared from $375,000 to $16 million in less than a decade. Merchandise sales have increased by more than 50%. The league has attracted a star-studded lineup of team owners including NFL legend John Elway, rock star Jon Bon Jovi, and current NFL team owners Jerry Jones, Tom Benson and Pat Bowlen. Neither one of these entities has the money or the know how to seriously compete with the National Football League.” (Fischer)
It is evident that the industry will remain profitable. The NFL will probably continue to grow and establish more expansion teams. Monday night football and the game of football will continue to be popular. In addition, the amount of talented players will continue to increase as advances in technology and the proper coaching increases. Although the Canadian Football league and Arena Football are much smaller players in the industry their productivity will probably remain steady because of the popularity of the sport.
In addition the American economy seems to be in recovery mode. This economic recovery will encourage spending and allow people to purchase more products. This increased spending will have a positive impact on professional sports because people will have money to purchase tickets and other sports related products.
Industry competitive forces
The competitive forces for this industry involve copycat leagues. These leagues, which have sprung up periodically throughout the life of the NFL, can be competitive by drawing away coaches and players. Although the arena league is not yet a serious threat to the NFL, it may become one as it continues to become more successful and gains more support from celebrities and ex-NFL players.
Drivers of industry changes
The main driver of industry change is the condition of the economy. Also in recent years there have been incidences of indecency and sexually explicit material that has appeared during televise NFL games. These problems occurred during the Super Bowl and more recently during a prime time NFL game. Because the NFL games have traditionally been associated with family entertainment, many people have been offended by these events. If these problems keep occurring, the NFL may have difficulty maintaining a faithful audience for televised football, which may hurt the NFL. As for the Arena Football league and the Canadian Football League economic factors also drive changes in the success of the leagues. In addition, the amount of investors who choose to invest in this industry can be a major factor in changes that may occur in the industry.
Key success factors
Many factors contribute to the success of this industry. The first factor is the popularity of the sport. The fact that so many people enjoy football and are willing to purchase football related products makes the industry successful. The industry has been able to capitalize of the popularity of the sport.
In addition, the NFL has been able to recruit and retain the best football players in the world; the ability to do so means that the quality of football that is played in the NFL is the best in the world. Maintaining a large pool of talent also ensures that the competition between the team will attract fans and keep them captivated. The NFL also has the ability to provide players with the best training and medical care, which can prolong their careers.
Franchising is also a key success factor in this industry. The NFL has the ability to provide franchise owners with the tools they need to have a successful team. The better the market, the more successful the franchise will be. For instance, the Washington Redskins is the most profitable team in the league because it is in a prime location. The location is prime because there is a large population with high per capita incomes.
Is the Industry stable or unstable?
The industry is extremely stable and established. The success of the industry is evidence of its stability. The industry has managed to significantly increase profits and maintain a presence on major media outlets.
SWOT analysis (strengths, weaknesses, opportunities, threats)
Strengths
The popularity of the Sport and the products that are sold through the industry- this allows the league to make consistent profits.
The profitability of franchises within the industry- the fact that the teams within the league are extremely profitable is important for the stability of the league. Not only are they profitable but they have also experienced steady growth each year over the past five years.
The ability to recruit players- the ability to recruit players is essential to maintaining a competitive environment, which makes for exciting games. Retaining high quality players is essential to maintaining the interest of fans. (Swindell)
The backing of major media outlets- the backing of major media outlets allows the industry to broadcasts football to millions of homes which also allows for the promotion of various products that the NFL and its sponsors sell. (Swindell)
Weaknesses
A lack of diversity among the Coaches of NFL teams- a lack of diversity amonst coaches has long been an issue in the NFL because there are so many minority players but not very many minority coaches,
A lack of decency which may drive viewers away-during the 2004 superbowl and a recent televised NFL game some of the scenarios that were presented were not conducive with family television. If this type of trend continues the NFL may loose viewers which may force sponsors to pull their advertisements.
Opportunities
Increases in the number of expansion teams- will lead to an increases in the number of teams in the league and increases in profitability. (Jozsa)
Capitalizing on the economic recovery- as the job situation for more Americans improve, consumers will have more disposable income. The league must capitalize on this by offering more package deals and discounts.
creating new innovative products to attract another generation of fans
Threats
Growth of the Arena football league- this league has been growing slowly over the last few years and if it continues it could become a threat to the NFL.
Strategy for growth
The main strategy for growth is to be consistent with implementing and maintaining the strategies that have made the industry successful. The current strategy is not broken; therefore, the NFL should continue to do what it has done in the past. It should continue to develop more expansion teams as it sees fit and continue to recruit good players.
2. Company analysis of Cincinnati Bengals using Michael Porters 5 Forces:
The Cincinnati Bengals team was founded in 1937. (Cincinnati Pro-Football History) The franchise was originally a part of the American Football Leagues. (Cincinnati Pro-Football History) According to the official website of the Franchise, the AFL folded twice before the new era of the American Football league. (Cincinnati Pro-Football History) Eventually the Bengals Franchise left the American Football league. By 1970 the American Football League and that National Football league merged and the Bengals became an NFL franchise. (Cincinnati Pro-Football History)
Threat of new entrants
The threat of new entrants is relatively low because of the cost of owning a franchise. Compared to entry into other markets, the amount of entrepreneurs that can afford to buy a franchise is relatively low. However, the NFL has expanded in the past and the threat of a new entrant can arise at any time.
Bargaining power of buyers
Currently the Cincinnati Bengals are near the bottom of the list in terms of profitability. The Bengals are number 27 out of 32 teams with revenues for 2003 at $141 million and an operating income of $32.9 million. Compare this to the Washington Redskins who are number one with revenues of $227 million and operating income of $87.8 million. In this particular instant the customers that would do business with the Bengals franchise would have more power than they would with other teams. For instance, they could bargain for lower ticket prices because the team is not as successful as other teams in the league.
Threat of substitute products or services
The only threat of substitute products or services comes from the arena football league and from the popularity of college football. Some may choose to watch arena football and others may choose to go to college football games, which are less expensive.
Bargaining power of suppliers
Just as in the industry analysis, the suppliers have power. For the Cincinnati Bengals the bargaining power is lowered because the company’s caps are lower as a percentage of defined gross revenues. For this reason, players do not have as much negotiating power unless they are superior first year players or proven veterans. Other suppliers such as those that create safety gear such as helmets and knee pads do not have as much bargaining power because there are substitutes that are available to the company.
Rivalry among existing firms
There is certainly a high level of rivalry amongst the existing firms in the league. The firms compete for the best players and the best coaches. This competition exists because the teams that can get the best players and the best coaches have a greater likelihood of becoming championship teams. Championship teams have a competitive advantage because they attract revenue and better staffs.
The teams also compete to get fans and keep fans. Although many fans come from the city where the teams are located, but many cities do not have NFL teams and the existing teams compete for fans in those cities.
Industry economic trends
Economic trends indicate that the professional football league is growing and producing steady revenues. According to the following chart taken from “NFL Teams’ Profits,” all of the NFL teams all of them experienced increases in revenue over the past year.
Industry competitive forces
Industry competitive forces include recruitment of players and coaches. The teams want the best players and coaches that work well with the players. It is possible to have a good player and a good coach who do not get along. Therefore, one of the main competitive forces in this industry has to do with actually building a team. In addition, the when new teams are being developed cities may fight over who gets the team. The cities have to convince the owners that their location is the best. Location is also a competitive force with any professional sports team.
Drivers of industry changes
The drivers of industry change have to with the laws that govern professional sports. For instance, professional football players have certain laws that protect them. In addition, they have a union that will ensure that these rights are enforced. When laws change and one party is given more authority, the industry has to change to match the law.
Key success factors
The key success factor for the Bengals is having committed fans. The Bengals have been a part of the NFL for a long time and fans are committed to the team. The success of the team has been in capitalizing on the fan base. In addition, the Bengals have a solid management team that has made important business decisions concerning the team. In addition, this year’s team is currently ranked third in the AFC North. (NFL Standings)
Stable or unstable environment?
The environment is stable. The Bengals have been in the NFL for many years and are an established team.
SWOT analysis (strengths, weaknesses, opportunities, threats)
Strengths
Increase in revenues (up 11% over last year)
Stable fan base
Good Stadium attendance
Weaknesses
Poor record over the past few years- this makes it difficult for fans to continue to support the team.
Inability to recruit better players- many veteran players and top college players want to be on a winning team with a consistent record.
Opportunities
Possibility of improving the record that the team currently has
To recruit better players
Threats
People choosing to tune into arena football which has a growing fan base
People choosing to follow college football instead of the NFL team
Strategy for growth
The main strategy for maintaining the growth that the team has experienced over the last few years is to continue the strategies that have already been implemented. In addition, the team must work to improve its record so that they can compete with the other Franchises in the NFL. The company must focus on the success that other companies have enjoyed. Some of these franchises have very poor records as well and still manage to be profitable in the face of adversity. Benchmarking these strategies will allow the Bengals to succeed and grow.
Analysis between the United States Army and the National Football league
How is their training similar and what is the correlation between them if any?
The United States Army and the National football league can easily be compared to one another. The similarities are most obvious in the way that training is handled. Both the Army and the NFL have camps to train the participants. The army has boot camp while the NFL has training camp. During these camps, one of the main goals is to get the participants in to good physical shape. This is done through repetitious exercising and putting the participants in the real life situations that they will be expected to deal with once training is complete. In addition, to the physical training of participants they are also taught camaraderie and the importance of teamwork. There is also hazing that is involved in both cases.
What are the benefits for the industry to train like the military?
The main benefit is that is builds relationships. If teammates understand that they have to work together to win, they can be successful. In addition, this type of training teaches the players what their jobs are and equips them to carry those jobs out completely. This type of rigorous training also ensures that participants will be in good condition and will aid them in avoiding injury.
Conclusion
The purpose of this discussion was to analyze the Professional Football industry using Porter’s five forces. We found that the National Football league is the forerunner in professional football leagues. In addition, the research suggests that the Canadian Football League and the Arena Football league play a role in this industry. The research suggests that the NFL is an extremely profitable organization and has maintained a faithful following.
The evidence suggests that the outlook for the NFL will be prosperous. The franchises that compose the NFL are doing well and experiencing increases in revenue. This evidence that the organization is well managed and fans are committed to the various teams. The other leagues in the industry such as the arena football league are making strides in professional sports and have proven profitable. However, the National Football League remains the preeminent organization in professional football.
We also provided a company analysis of the Cincinnati Bengals. We found that the team has had some problems getting and retaining good players and coaches. We also found that the team is the 27th on the list of most profitable teams. The investigation found that the franchise is currently third in the AFC North. Our investigation also asserts that the team has extremely loyal fans.
The outlook for the Bengals seems good as long as the organization continues to perform well and compete with the other teams in the league. The team must attempt to recruit and keep good players and coaches in the future. The Bengals must not take for granted their fan and continue to strive for excellence. This will ensure the teams success in the future.
References
The 12 Stories to Watch. (2002, September 5). The Washington Times, p. E18.
Arena Football Quietly Flourishes. (2004, March 21). The Washington Times, p. C03.
Bengals Can’t Change Stripes. (2003, September 8). The Washington Times, p. C01.
Cimini, M.H., & Behrmann, S.L. (1993). Five-Year Impasse Ends in Football. Monthly Labor Review, 116(3), 50+.
Clark, J.M., Cornwell, T.B., & Pruitt, S.W. (2002). Corporate Stadium Sponsorships, Signaling Theory Agency Conflicts, and Shareholder Wealth. Journal of Advertising Research, 42(6), 16+.
Cohn, B. (2000, January 3). ‘It’s Not Pretty Football’. Insight on the News, 16, 32.
Football . 2000. In The Columbia Encyclopedia (6th ed.). New York: Columbia University Press.
Fisher, E. (2000, February 4). A Perfect Marriage: Football, WWF?. The Washington Times, p. 1.
Jozsa, F.P., & Guthrie, J.J. (1999). Relocating Teams and Expanding Leagues in Professional Sports: How the Major Leagues Respond to Market Conditions. Westport, CT: Quorum Books.
Kochman, L. (2000). Securities Market Efficiency and the Reigning Super Bowl Champions. Review of Business, 21(1), 21.
Lock, E. (1998). The Regulatory Scheme for Player Representatives in the National Football League: The Real Power of Jerry Maguire. American Business Law Journal, 35(2), 319-347.
NFL Network Begins Tonight. (2003, November 4). The Washington Times, p. C01.
NFL Network Conducts Second Coming-Out Party. (2004, February 1). The Washington Times, p. C07.
Ravens Burst Bengals’ Bubble. (2003, December 8). The Washington Times, p. C11. Retrieved November 19, 2004, from Questia database, http://www.questia.com.
Swain, W.N. (1998). If We All Want It, Why Can’t We Have It? Replay Officiating as a PR Issue for the NFL. Public Relations Quarterly, 43(4), 10+.
Swindell, D., & Rosentraub, M.S. (1998). Who Benefits from the Presence of Professional Sports Teams? The Implications for Public Funding of Stadiums and Arenas. Public Administration Review, 58(1), 11+.
NFL Standings. Retrieved November 19, 2004, from http://www.nfl.com/standings
NFL Teams’ Profits. Retrieved November 19, 2004, from Date Added: May 1st, 2004. http://www.teenanalyst.com/business/nflteams.html
(NFL History Guide). Retrieved November 19, 2004, from http://www.nflhistoryguide.com/
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