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14Feb/1221

OAKLAND RAIDERS, STANFORD ROUTT, AND CASH FLOW

stanford routt cash flowBy Jaboner Jackson 8 a.m. | The Oakland Raiders' cutting of cornerback Stanford Routt last week was popularly cited as being related to salary cap issues. But in reality, the transaction was part of an attempt by new owner Mark Davis and incumbent CEO Amy Trask to improve on the franchise's poor cash flow situation. The Raiders have ranked near the bottom of the NFL in terms of cash flow from operations for years. Before his death in October 2011, Al Davis had been using financing activities, such as the sale of equity positions in the Raiders to non-managing partners, to help fund daily operations. But Mark Davis can no longer afford to sell off parts of the team to pay player salaries due to pending estate tax concerns. Therefore, he has focused on cash flow from operations to field a team.

Cash Flow and Revenues

The lay media has focused on General Manager Reggie McKenzie's statement during his press conference of player contracts being "out of whack" as being relevant in the release of Routt but such is not the case. Rather, Routt's contract put a strain on cash flow from operations. Cash flow from operations for the Raiders refers to the generation of real money from the basic day-to-day operations of playing football in the NFL. Revenue is realized through two primary sources: shared revenue and unshared revenue.

Shared revenue refers to revenue that is split evenly amongst all 32 NFL teams. The largest component of shared revenue relates to television contracts. For the 2011 season, shared revenue from television contracts amounted to $3 billion. Additional shared revenue came from merchandise and licensing agreements.

Unshared revenues refer to local revenues that an NFL team does not share with other teams. These revenues include luxury box suites (most of the time), concessions, and parking. The bulk of unshared revenues come from stadium sources.

Table 1: Shared and Unshared Revenues

Type of Revenue

Definition

Examples

Shared

Revenues are shared equally by all 32 NFL teams.

 

Generally makes up 2/3 of a team's revenues.

Television contracts

 

Media contracts

 

Merchandise sales

 

Licensing and sponsorship agreements

 

Unshared Revenue

The NFL team keeps the bulk of this revenue and does not have to share it with other teams.

 

Generally makes up 1/3 of a team's revenues.

Stadium luxury box suites (most cases)

 

Stadium concessions

 

Stadium parking

 

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Accordingly, each NFL team gets an equal amount from a jersey sale regardless of which jersey is sold. Merchandising revenue is shared. No matter how many Tim Tebow jerseys are sold, the Denver Broncos share equally in the licensing fee with the other 31 NFL teams.

Therefore, NFL teams will employ onsite stadium apparel stores to supplement this shared revenue. For example, in 2011 a Tim Tebow jersey that sold for $90 to the public was in turn sold by Reebok to the store for $45. So when the Broncos sell the jersey in their own stadium store, the Broncos get to keep the $45 gross profit on the jersey. (Of course, the Broncos must pay for expenses associated with running the stadium apparel store, which in turn will net a profit far less than $45, but the point is clear.)

In the case of the Oakland Raiders, unshared revenue has been near the bottom of the league for several years, which in turn has been a direct consequence of playing in antiquated O.co Coliseum. The Oakland Raiders are at a distinct financial disadvantage to NFL teams that have newer stadiums and greater unshared local revenues.

Cash Flow From Operations For NFL Teams

NFL teams try to fund their day-to-day operations exclusively through shared and unshared revenues. Put simply, they try to make enough money from football activities to fund player salaries, coaching salaries, travel expenses, and all other day-to-day operations.

On average, an NFL team will generate approximately $15-20 million in cash flow a year. This means that the NFL team is taking in $15-20 million more cash revenues than they are putting out cash expenses. But in the case of the Oakland Raiders, cash flow from operations is thought to be in the range of $5-8 million per year. Cash flow from operations for the Raiders has been compromised due to low unshared local revenues and high player salary expenses.

Al Davis and Cash Flow From Financing

In 2007, Al Davis sold a 20% ownership stake in the Raiders to three east coast financiers, David Goldring, David Abrams, and Paul Leff, for $150 million. A portion of these proceeds were used for estate tax planning. But a significant amount of this money was used to finance player salaries, including big money contracts in 2008 and 2009 for Tommy Kelly (seven-year, $50.5 million), Shane Lechler (four-year, $16 million), and Nnamdi Asomugha (three-year, $45 million), all of whom became the highest paid players at their respective positions at the times of the contract signings.

Al Davis continued to spend lavishly for 2010 and 2011, including new contracts to Richard Seymour (two-year, $30 million), Kamerion Wimbley (five-year, $48 million), and Routt (three-year, $31.5 million). The Raiders used the financing activities of 2007 to partially fund these contracts rather than only using cash flow from operations, a concerning situation for any business.

Mark Davis Refocuses On Cash Flow From Operations

Mark Davis does not have the luxury to sell portions of the team to finance large player contracts. The Davis family (Mark Davis and his mother, Carole Davis) currently owns 47% of the Raiders. Per NFL bylaws, the Davis family must own 30% of the team to maintain operational control. Since estate tax considerations will likely require Davis to sell close to 17% of the team upon his mother's death, Mark Davis can ill afford to continue to finance daily operations by selling off chunks of the team.

Accordingly, he has already started the process of using only cash flow from operations to run day-to-day operations. The decision to cut Routt saved the Raiders $5 million in real cash expenditures that would have been due as a roster bonus. For a team like the Raiders that would have generated only $5-8 million in cash flow for 2012, the release of Routt has the potential to almost double the team's cash flow situation.

Raiders' Offseason Financial Outlook

The Raiders will never generate the league average of $20-30 million in cash flow from operations with their current stadium situation. The lack of unshared local revenues will continue to hinder them while playing in O.co Coliseum. Furthermore, the new Collective Bargaining Agreement's salary cap floor mandates that NFL teams spend 95% of the salary cap on player salaries. Therefore, the Raiders cannot completely gut their roster. Until the Raiders get a new stadium, they will struggle to compete financially with the rest of the NFL. Fortunately for the Raiders, the San Diego Chargers, who also play in the AFC West, have a similar stadium issue.

 

References:

Shared and Unshared Revenues (06/2011)

Mark Davis and Estate Tax Planning (12/2011)

 

jaboner@footballphds.com

Comments (21) Trackbacks (0)
  1. It aint about money, routt was a bitch ass player that couldn’t cover my 11 year daughter in a game of flag football

  2. Wow. It sounds like Al Davis was running his team like the Fed runs the government, mortgaging the future to satisfy today’s wants. It’s good to see that the son learned the lessons from the father and is correcting the situation with fiscal responsibility.

    • correction…the Fed (aka Federal Reserve) is destroying the present via quantitative easing by generating stealth inflation…the Feds (aka Federal Government) are mortgaging the future by selling long term debt (treasury notes) to cover structural gaps in the federal budget.

      • The Federal government continues to sell more and more debt overseas (China) to cover up the fact that entitlement programs such as Social Security and Medi Care are bankrupting the country. The Federal Reserve is complicit with this because they print more money to cover up the out flow of cash and make people believe everything is all good. It’s not.

        Ever wonder why a dollar today doesn’t buy as much as it used to? Because we went off the gold standard meaning that a dollar used to entitled you to “X” amount of gold in exchange, and we foolishly switched to a confidence based economy meaning that currency is backed by a promise of value made by the government. We did this because there is a finite amount of gold in the world but there is an infinite number of promises. Therefore we can project year over year economic growth when by the law of limited resources this is impossible to sustain. Just wait until people realize the paper in their wallet is worthless.

        • oh my the old gold standard argument.

          fiat currency definitely has its pitfalls as we are seeing now but all the gold standard did was put an artificial cap on the amount of cash in circulation based on a fictional value of a mineral so while there was more perceived stability with gold the currency was in fact confidence based…it’s quite simple actually just ask yourself “what is the intrinsic value of gold?” and you’ll have your justification for the gold standard.

          if you want to have a true asset backed currency then your best bet in the modern world for a currency equivalent would be energy reserves.

          your law of finite resources does not apply in a world of global currency as nations can always print their way out of a bad situation at the citizens’ expense…the other option is to simply default or renegotiate outstanding debts which has happened many times over and the world hasn’t come to an end.

          • Yes I don’t believe that “gold standard” argument either. It’s naive, the world is different now. Paper money doesn’t even matter either now. It’s electronic money, transfer money here and there, all over the world, account to account. Money depends on faith in the government, plain and simple! I don’t care what anyone else says, I’m betting on the government paying back before I’m getting on companies.

            Maybe that was gregnowles101 I saw on that NGC show about Doomsday Hoarders.

          • The premise behind the gold standard still holds water. There is a finite supply of gold in the world regardless of whether or not we are now in a global economy. Some kind of finite resource (gold, oil, water or whatever) needs to define a real quantifiable value to a currency.

            When nations artificially apply a value to their currency it is meaningless because no real asset backs the value of the currency. Case in point, let us pretend that Greece succeeds from the EU. Greece can say the value of the newly re instituted drachma is $5 US to one drachma but that doesn’t mean shit on a global market because the market will dictate its value.

            Fiat money and the ongoing printing of money with nothing to back it has created a global revolving door of credit. Moral of the story, resources are finite.

          • ???? This crap hurts my brain. Stop with the money mumbo jumbo and stick to Raider news bitches

    • Fiscal responsibility is never going to the atm in the strip club.

  3. Darth Raider finally said something that makes sense? Has hell frozen over?

  4. the raiders get what they deserve…they’re the ones that bent the city and county over a barrel when they moved back and now they’re tied at the hip to this shitty deal…by the time it’s all said and done they’ll be scraping the bottom of the barrel in the revenue department.

    • My hair says it’s the terrible drafting that is hurting the Raiders: Jamarcus, DHB, Rolando McClain, Mike Mitchell. Want my hair to go on? Money can’t buy my hair’s insight.

  5. Sure, the haters come out now. How can you fault Al for wanting to win? Even though Al killed me with his scholarship players at least I knew he was trying to win. How do you cut Routt and get nothing back for him? That’s just stupid for Mckenzie to do. We already lost Aso last year for nothing and Gallery last year for nothing. It’s not like we didn’t have talent this year. Now we have some no name coach too. Trust me, Raider Nation will be wishing for Al to still be alive once this kid gets done with the Raiders.

  6. I could care less about Raiders. Its just funny to read these comments. Raiders fans always talking out their a$$es!

  7. Al Davis put his beloved team in this position when he turned down the Hollywood Park stadium in ’95. He didn’t want to share the stadium with another team, and, sure the NFL did jerk him around, but I can’t imagine the team would be anywhere near the hole it is had they taken Hollywood Park.

  8. Al had a huge ego. When he left LA it was all ego. He could’ve negotiated more. Remember, this was before crazy mega stadiums. You’re right….the Inglewood deal was good. It was Lakers down the street, Raiders up the street. You get the feeling no city really wants the Raiders any more.

  9. @HeeLacksawLamilton Totally agree and that whole time no team would of moved in either. It has been so long since LA has a team he got what he deserved. Millions from LA and more millions to go back to Oakland. I heard the city of oaland has to pay the Raiders 15 million a year on their false promises with psls and Luxury suites haha. His rent is like 5 million a year. Talk about Motel 6 style Stadium.

    The Raiders are going to leave and where ever they go they want cash and a free stadium. That is Mark Davis said he couldn’t strike a deal with the LA groups. Plus they are screwed by having no leverage with that type of ownership. Mark Davis is going to have to realize one day he can’t buy back his shares, cant afford the estate tax and will have to sell the team. Nothing he could do about it. It is like getting your car repossessed. Since this is the current status the raiders will either play in that dump for another 10 years because they couldn’t afford the rent with Niners in that new stadium.

  10. I was reading the Santa Clara article again (http://www.footballphds.com/2011/12/06/financing-santa-clara-stadium-part-2-questions-and-answers/)…why is every one on this site so sure that the Raiders aren’t going to Santa Clara? Its the only place they can go if they wana survive. Its that or stay in a shitty baseball stadium and get crapped on by the 49ERs in the bay. Money will make them move to Santa Clara.

  11. Not sure if you heard but Mark Davis fired Herrera the spokesman. Was with the Raiders for 35 years, Al Davis crony. Probably was making a big chunk of $ for not doing much.


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