The cost of doing business in the XFL
Five-hundred million dollars. That’s the reported amount that Vince McMahon is investing into the league on his own. The funds are projected to be spent over the course of 3 years. It was initially reported that Vince McMahon would be spending 100 million dollars. When Oliver Luck was asked about this after he was initially hired, Luck said that this figure would only get them to the 20-yard line. The truth is that it takes at least 150 million dollars in expenses to start up and run an 8-team sports league. One of the reasons, Luck took the job was because of McMahon’s large capital investment. It’s something that Luck has cited in many interviews as to why the XFL has a chance to succeed in the long term.
A report was released recently that The AAF is hoping to raise 850 million dollars in funds over the course of their first 5 years. They are seeking investors. That’s a figure that they will need to reach if they hope to continue to have the league running and existing, because expenses in a league are very costly. When you don’t have reliable deep pocketed owners to fund each team. The league itself has to foot the bill for everything. That means everything from insurance, to travel expenses, to broadcast expenses, player and coach salaries, employee salaries, venue rent, technology costs, equipment, amenities, etc, etc, etc.
The pro football streets are filled with the corpses of past leagues who ran out of money. The USFL expanded way too soon. They had owners that were in over their heads and they didn’t have funds to pay their own players, or even feed them or provide them with equipment. They ran out of money and sued the NFL. They won a dollar and closed up shop.
The NFL ran 15 seasons of their own spring pro football league. The World League stopped operations, was brought back, and became NFL Europe before being laid to rest in it’s final resting place as NFL Europa in 2007. The NFL lost 30 million per season trying to fund their very own developmental league. The NFL kept costs down and still lost roughly 450 million dollars. The NFL had revenue streams set up for their league but the expenses out weighed the profits earned. If they weren’t so smart, they would have probably lost more.
The United Football League had the funds to start up a league but not enough to make it last. Billionaire William Hambrecht was the sole investor in the league. He got that league running with his own money. They started small with only a handful of teams. They even shelled out some money to pay for some name veteran football players and coaches. The league made several mistakes along the way. Playing in the fall on weekdays was one of them, the product itself was bland in presentation and the branding was poor. However, what ultimately killed The UFL was too much money going in, none coming back. There was no TV contract to help fund the league. No profits to speak of. They had to contract teams, relocate them and by the end. They couldn’t even pay their own players and coaches and had to cease operations. They are still being sued for money that they owe.
Does it really cost that much to run a league? The answer is a resounding YES. Let’s breakdown what the costs will be and are for the XFL.
The first major investment that The XFL made was getting sports risk insurance. These steps were taken before Vince McMahon made his relaunch announcement of the XFL. Without it, there would be no league. There are going to be over 400 football players employed with the XFL. In order to run a sports league, you need to have player insurance and invest in risk management and coverage. Vince McMahon needed to line this up before bringing back the XFL. The league has insurance deals with two of the biggest insurance-based companies in the country with The Berkley Group and The Fairly Group. Both groups work with all the top sports leagues and teams. This is a costly expenditure but an absolute necessity. No actual financial figures are available but this cost can be in the neighborhood of tens of millions of dollars.
Let’s crunch some numbers;
XFL Player salaries have been revealed to the public. They are going to have 4 tiers of player salary. On a seasonal basis, the top tier players will be paid 250 to 300k per season. That may very well just be 8 quarterbacks. 1 for each team. Not counting win bonuses, which are returning to the league. The low-end figure of 250k would have the league’s quarterbacks totaling 2 million dollars for season 1.
The lowest tier for players is expected to be 50 to 60k per season. Probably kicking specialists, long snappers and practice squad players that will be in that tier. The middle ground will be in the range of 75k to 100k per season. The second tier is expected to be in the 150 to 175k range. So to simplify all these numbers. Let’s assume that the average XFL player salary is 75k. The rosters themselves are supposed to be 45 players plus a 7-man practice squad. A 75k average would bring us to a team total salary cap of roughly 4 million per team.
8 teams and that means that the league will have to shell out 32 million dollars to their players in year one.
As reported, the head coaches are going to be paid roughly 500k per season. 8 head coaches and that brings that expenses to 4 million. XFL coaching staffs will not be as large as an NFL staff but there should be at least 10 assistants per team. From the coordinators to the positional coaches. Let’s assume that the average pay for assistant coaches is 200k. Counting the head coach’s salary. Each team staff would end up costing 2.5 million per team. Average that out over 8 teams and the cost of the league’s coaching staff expenses is 20 million.
So the combination of the player and coaching salaries for the 2020 season is 52 million dollars. That’s a conservative figure. 8 teams, 32 million for the players and 20 million for the coaching staffs.
Figuring out team/league employees like trainers, presidents, office staff, marketing, equipment, pr, ticket sales, nutritionists and other employee salaries is a difficult thing to project. The team presidents themselves will make the same or more than the actual head coach. It’s also not taking into account XFL employees like the referees and the salaries of XFL employees like Oliver Luck, Doug Whaley, Sam Schwartzstein, the entire legal staff, etc.
Details were recently released of the agreement that The XFL made with St. Louis to rent out their dome for the upcoming 2020 season. The XFL paid 250,000 down. They then agreed to pay 100,000 per game. That’s 750,000 to rent the venue. The league will receive 100 percent of the ticket sales, minus taxes. However, the city will receive 100 percent of all revenue from concession and catering sales. This goes to show you how costly it can be just to rent these venues out. It’s safe to state that every XFL city didn’t get this sweet of a deal but they are probably all in this neighborhood. Renting world class venues are an expensive expenditure for sports teams/leagues.
Probably the biggest expense the league will have to make in order to stand out from the crowd is their broadcast expenses. It costs Vince McMahon’s parent company the WWE hundreds of thousands of dollars to run two weekly live broadcasts each week. The XFL was innovative in this field almost 2 decades ago and figures to try and change the game yet again. Sure, the league will have broadcast partners to aid with this but The XFL is going to be implementing a lot of new technology. 4 games are going to be broadcast each week. It’s going to cost the league a lot to air and produce these games. Over the course of a 12-week season, it ends up being 43 games counting the 3 playoff games. It’s hard to put a real figure on what the overall cost will be to produce these games but even if you are on the frugal end, you end up spending millions of dollars over the course of a full season. There’s also travel expenses for all the teams and employees for these games.
The cost of doing business for year one of The XFL is probably going to be in that 100-150 million-dollar range. This is without a single cent being earned. How does a league see a return on their investment? Well they probably won’t in year one. They just need to see enough of a return to survive for year 2.
As far as attendance goes. If the league’s conservative projection of a 20,000 average holds true. 43 games and that would bring the attendance total to 860,000. If the average ticket price is 35 dollars. The return on that would be a little over 30 million dollars. A decent figure but not enough to cover for all the expenses.
The whole key to surviving and seeing a return on the yearly expenses is going to ultimately be the league’s tv rights package. It’s the bank. It’s where all the money is. Without it, the league dies again…. Quite frankly, it’s the reason that the XFL went after 8 of the top 20 TV markets. There’s more money to be made on the TV side with their current markets than there would have been in smaller markets like Salt Lake for example.
What will The XFL rights deal look like and what could it be? This is hard to project but we can go through some figures. You can’t compare a league like The XFL to established properties like NASCAR, the NFL, NBA, NHL or MLB. It’s very different. It’s hard as a start-up league to command top dollar. The closest leagues, you can compare The XFL to in terms of potential viewership is the WNBA and MLS. It’s debatable that The XFL can get similar TV deals but we are going to find out soon enough. Here’s an idea of what similar leagues tv deals look like.
* ESPN and Fox pay 75 million per year to MLS. The national broadcasts for MLS average about 500 thousand viewers. With the exception of games against Mexico, which usually exceed 2 million.
* ESPN pays The WNBA 12 million per year. This league averages about 200 to 250 thousand viewers per game during the playoffs.
Will a network be willing to make a long term tv deal with The XFL? Something tells me that networks will not extend past 3 years. The deal might end up being a prove it type deal. If The XFL can get closer to the MLS deal than the WNBA deal, than they are really in business. They need to be in that 20 million plus range. Landing a deal with multiple broadcasters could help. They could plant the seed to recoup money down the road. The XFL could get more out of their tv deal by leveraging streaming. They can then use the tv exposure to make more money on advertising and all other potential revenue streams for the league. It’s the only way a league can survive.
All start-up leagues lose money. That financial bear starts chasing everyone. You don’t have to be faster than the bear. You just have to be faster than the guy that the bear is chasing.