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)
Industry economic trends
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.