New economic model resuscitates Arena Football
The Spokane Shock is more than a model franchise in the Arena Football League. It is the model for the model.
The Shock last season represented the best of a new economic plan that revived a bankrupt league. Forced to shut down in 2009, the AFL returned in 2010, and Spokane won the championship. The club made money in the league's smallest market.
"Our objective last year was to let people know we're back and we're operating under a business plan that has an opportunity to turn a profit," Shock owner Brady Nelson said. "There was no opportunity to turn a profit in the previous regime."
The sweeping financial changes played a large role in the birth of the Pittsburgh Power, one of three expansion teams the AFL added for the 2011 season. The Power play their first game tonight against the Philadelphia Soul at Consol Energy Center. According to the Power, about 13,000 tickets have been sold for the game. Consol holds about 16,800 for arena football.
"(The new business plan) provided us a much better model and a much better opportunity to not just break even but to be a profitable organization and to maintain control over the economics of the game while still allowing us to be competitive," said Steelers Hall of Famer Lynn Swann, part owner of the Power.
Power principal owner and general manager Matt Shaner, a State College businessman, said "the new cost structure probably weighed in the most for us to make the move" to bring the AFL to Pittsburgh.
After its hiatus, the AFL became what is known as a single-business entity, similar to Major League Soccer. The league -- supported by team "dues" -- pays for players' and coaches' salaries, along with health insurance and workers' compensation premiums, a significant drain in the past for many clubs.
In the old AFL, the salary cap alone reached $2.2 million, which is more than most teams' operating expenses today. Today, most players earn $400 a game, plus room and board. Teams can spend up to a certain limit on housing. Each club has three "showcase" players who make an additional $600 a week for promotional and community activities.
In addition to food and housing, individual club expenses include staff salaries, rental fees, office space, advertising and marketing. Revenues derive mainly from ticket sales, sponsorships and local radio and TV rights.
The league has a national TV contract with NFL Network that helps fund much of the salary costs but represents little of each team's revenues.
"The biggest problem with owners in sports is themselves," Orlando Predators managing partner Jeff Bouchy said. "It's the only business where your partners compete for personnel. A single-entity eliminates that. ... I would venture to say that in today's environment, we are the best economic model in sports."
Some might call it socialism intruding into sports, but the AFL would have existed only as a memory if not for the new system. Many pronounced it dead after the league, $14 million in debt, declared bankruptcy and shut down.
"People don't recognize that 2008 was a record year in terms of overall revenue for the league," Bouchy said. "The problem was, over the last 10 years, our annualized revenue increased 12 percent but expenses were going up 20 percent. That's a bad recipe for a bad economic model."
Bouchy said the AFL has reduced team operating expenses by 50 percent.
The Predators made money in 2010, Bouchy said, and "we are doing unbelievably well this year." He said he expects a 2,000 increase in this year's average attendance, to about 14,000.
"We've worked together to make our league stronger than ever," AFL commissioner Jerry Kurz said. "It's better than ever before. It now has the best economic model the league has ever had. We demonstrated that the single-entity model really works."
"I feel this is the perfect way to come back, as a single-entity with cost containment," said Soul co-owner Ron Jaworski, a former NFL quarterback and ESPN analyst.
The Shock averaged about 10,300 a game, a modest figure but impressive for a metro area that numbers about 460,000. The nearest big-league city, Seattle, is about 280 miles from Spokane.
"We're very relevant in our market," Nelson said. "There's no major league team in our city. The Shock fills a big void in spring and summer for live events."
