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sportsminorityreport · 5 years

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AAF update: WTF?!!!

I didn’t write an AAF update last week because frankly I wasn’t sure there would be a schedule of games.

I wrote this about a week ago in thinking about the factors that lead to that state of affairs and have decided to publish it, pretty much as is.

.....

I am a businessman and an entrepreneur in real life. I love to talk business and my favorite businesses to discuss are the comic book business and the business of spring football.

The AAF chairman Tom Dundon has assured that I will enjoy the twists and turns in the business of spring football over the next 48 hours more than I have over a two-day period since the USFL ended.

This morning Tom Dundon dropped a huge bombshell on all followers of the AAF. He announced that unless the NFL players Association backs the AAF, he would potentially pull the plug on the spring league. Furthermore the decision would be made in two days.

That is mind blowing.

It sounds like Dundon basically has gotten sick of hearing about how the NFL might be interested in the AAF being their official spring League and not seeing anything actually happen, all the while Dundon continues to lose stacks of money due to poor turnouts at AAF games. (The AAF has three teams that are fairly well supported in terms of fan turnout and five teams that are not.)

One way to interpret this might be that the NFL is pointing the finger at the NFL's player association and stating, “Well we'd love to be in association with the AAF however our agreement with the NFL's Players Association states that we cannot allow our scout team players to participate in the AAF.”

“It's not us... it's the players union.”

Taken at face value it seems like Dundon has gotten sick of that line and is telling the players union "Hey either you guys give me those Scout team players for my league or I'm going to pull the plug on the AAF and you guys can go f*** yourselves.”

“If you don't want to deal with us in an honest fashion then I am perfectly content to let these jobs go away and the guys who are on the fringe of NFL rosters will lose their soft landing spots and the NFL player Union can just deal with that firestorm.*

It reads to me like he wants a freaking answer now from the NFL player Union so he can then go to the NFL and say, “Are we in business together or not?’

Pretty much the only thing missing here was Dundon dropping the mic and walking away with two birds flying at full mast.

Which led me to think a little bit about Tom Dundon.

A while back I read about him on Wikipedia and it sounds like he basically made his money giving loans to people who had shitty credit history so that they could buy cars.

Logically when I think about that, the only way that that would financially make sense is if he's charging a higher interest rate. And if I take it a step further that doesn't sound a hell of a lot different from what a loan shark does. And Dundon was amazingly successful at his job.

There's a part of me that thinks that Dundon probably went to some poor dude's house at some point in his life with a baseball bat saying where's my f****** check!" I sit and think of this and I think it's no wonder he's a billionaire and I still have a hole in the wall shop... Now I don't know any of this, this is just a fun fantasy in my head.

In my head, Dundon is just a crazy ass baller.

Anyway as a longtime fan of spring football, I love it when someone walks across the grass in the NFL business world. But there's so much more to the story than just that. For Dundon to take this action, it's pretty clear that he has reached a point that almost everyone who has tried Spring football has reached, where he looks around and says, “This burn rate on my cash is making me very very uncomfortable. I thought I put a ton of money away for this thing and it's almost all gone!”

Now to be clear Dundon did commit to provide $250 million dollars to the AAF, but the reports that have been out have suggested that he didn't just put $250 million dollars into the AAF account, more than he made a loose commitment to eventually put that money in there. There is every reason to believe that he's put some money in, and at this point there may be a fairly good reason to believe that most of that money has been burned due to the League's poor attendance.

Now another interesting aspect about this is that Dundon owns a professional sports team and presumably knows that there are things that you don't say in season. One of those is, “yeah, We might be going out of business soon.”

Yet here he is saying that publicly, which begs the question, “why?”

If this was targeted specifically at the Players Association leadership, you can state that in a way where it is not publicly handed out to the media. So why wasn't it done that way? One particularly intriguing possibility is that he did it specifically to tank attendance.

Now this is admittedly a very out of the box theory, but consider the fact that since Dundon took over, he has been saying that the league has no intention of moving any of their teams.

Three of their teams are drawing excellent crowds. San Antonio will probably end up averaging 29,000 per game for the season. Orlando and San Diego will probably end up somewhere right around the low twenties.

The other five teams in the AAF haven't drawn s***.

The other five teams will probably have average attendances between 9000 and 13000. The AAF player salary is about $80,000 a year. The USFL default salary was about $20,000 or about $60,000 in today's money.

In addition the AAF has a bunch of little perks for the players the cost some money. The USFL’s Dixon Plan called for an average attendance of something like 20-25,000.

I don't want to bore you so much with the logic behind it but I suspect the AAF break-even point is somewhere in that range even though tons of stuff have changed about the business of football since then.

They're nowhere near that.

If they move five teams after saying they're not going to move any teams, they would see the majority of their existing TV audience dropout and likely would have a very very tough time getting a similar replacement TV audience to emerge from the new cities as their honesty and commitment to a community would be in question.

But what if in the last three or so games of the season attendance went into a free fall?

What if instead of Birmingham having 11,000 an average attendance for the season, Birmingham ended up with an average attendance of 9,000. What if Arizona instead of an average attendance of 9,000 ended up with an average attendance of 8,000? What if all five of these teams average attendance fell at the end of the year and ended up in the sub 10,000 range for the season?

The League leadership would look a lot more justified in pulling the plug on these five communities.

I'm not saying that Tom Dundon just didn't make a tactical mistake here.

I'm not one of those people who worships rich people. The more that I have studied the more I realize that rich people aren't successful because they only make good decisions. It's more that unlike the rest of society they are not paralyzed with fear of making a bad decision.

Maybe Dundon just made a mistake here. But just maybe the part the looks like a mistake was all intentional. When you think about it in business terms, if he made the decision to move five teams they would very likely see difficulty getting established in the five new cities and would see a dramatic fall off in their viewership numbers.

If he kept the teams in the five cities, history suggests he won't be able to turn around most of those teams, which would mean bleeding a lot of money each week when those teams draw small crowds.

From a business perspective there is a financial number that you could compute where it would make sense to lose that money this year in order to potentially retain a more viable product in the coming years.

If Dundon can come out at the end of the year and say, “well I had hoped that when I bought in fans would realize that the future was secure and they would show up. Sadly that did not happen in these cities as attendance dropped to under 10,000 people per game. The losses we sustained in these cities threatened to force the league out of business so we had no choice but to move those franchises for now. We hope that we can return to those communities in the near future when maybe stadium changes occur or something else that suggest better turnout might be likely.”

Now that is a spin that you can use to get people in those communities still watching your games. Being able to accomplish that would have a very substantial financial value and my suspicion is it's one that is far greater than the additional losses they're going to see over the next few weeks.

But wait....there's more....

Vince McMahon sold 270 million dollars worth of shares today.

The timing is Beyond conspicuous. The thought that immediately jumps to mind is “That that seems like far too much money for year one operating expenses of the XFL ---is Vince McMahon getting ready to buy the AAF?”

Could that be what Vince McMahon want you to think? Could that be what Vince McMahon wants the NFL players Association to think?

If the NFL players Association believes that the AAF threat is a bunch of crap because the XFL is about to buy the AAF, the NFLPA may want to blow off Dundon threat.

But the NFL owners on the other hand might see that as a real threat and bring pressure on the NFL players union to back the AAF. That suggests something of a win-win situation for Tom Dundon.

Either the NFL forces the Players Association to back the AAF and Dundon effectively gets immediate NFL approval or the NFL players Association balks and Dundon starts making plans to shut down his League.

Why a shutdown of his League and not a merger with the XFL? Primarily because the AAF treats their players entirely differently than the XFL does. The AAF default contract allows players to leave for the NFL whenever the heck they feel like it.

The XFL does not.

That is a huge deal.

And it comes out of the fact that Charlie Ebersol and Vince McMahon appear to have entirely different beliefs on what it takes, on what is required, to have a successful Spring League.

As a longtime advocate of a competitive league in the spring, I can tell you that there are basically two camps of spring football advocates.

There is my camp that believes that the way to build a successful spring League is to own up and compete head-to-head with the NFL. Now that doesn't mean that you compete head-to-head with the NFL for the services of Tom Brady. You still have to pick your battles because they're working on an entirely different Financial Field than you are.

But you choose big markets, you try to develop the biggest TV audience you can, and you acknowledge that you're going to spend big money.

There is a second camp that believes the failing of all of these spring leagues is due to not avoiding competition actively enough. That is the Charlie Ebsersol camp.

These people believe that you don't compete with the NFL. More to the point, you should try to become a feeder League to the NFL. They believe that you don't have to choose big media markets, in fact they think it's better to choose small media markets where you're not competing with spring sports pro teams like pro hockey or pro baseball.

We are like radical Christians and radical muslims. We think the other side are of the argument are misguided foolish zealots.

What seems plainly apparent to me is that Charlie Ebersol went from doing his XFL 30 for 30 story to talking with Vince McMahon about a rebooted XFL and that it likely all fell apart because Vince McMahon is in my camp and Charlie Ebersol is in the other camp.

These are not compatible blueprints.

Charlie Ebersol hired Bill Polian, a longtime NFL executive who is beloved in the NFL. Bill Polian has believed strongly that the NFL should have a developmental League and has pushed that in NFL circles for decades.

That is why the AAF is a developmental League. Charlie Ebersol and Bill Polian created the contracts that allow AAF players to bail on the week at any time and go join the NFL rosters.

For this reason any talk of a straight-up merger seems highly, highly unlikely.

One can imagine a scenario where Dundon after the season releases all of his players from their contracts and then sells the league to the XFL.

The XFL then instructs the AAF teams to try and re-sign their rosters to XFL contracts which do not allow the players to leave for the NFL. It is likely that the vast majority of AAF players would sign again with their same teams as most are unlikely to get NFL invites.

The XFL would then be able to move those 5 teams to five of their nearest announced cities with hardly any backlash at all.

They could simply name one expansion team and be at 12 members at a pretty good discount. And where would that 12th team be located?

How about Raleigh North Carolina?

Tom Dundon owns the NHL team in Rayleigh. One of the thoughts when Dundon bought the AAF was that Dundon might be angling to have a brand new sports entertainment compound in Rayleigh that included a stadium for an AAF team.

I find that to be a very believable premise.

Keep in mind that the NFL has a team in Charlotte so they were never going to put a team in Rayleigh. The XFL is 100% owned by Vince McMahon and he has shown little interest in selling a team to a stand-alone owner at this point.

The only way for Dundon to scratch that itch would be to buy into the AAF to a point where he could put a team in Rayleigh.

That seems to all check out except for the fact at the AAF appears to be burning through its money faster than Dundon expected.

Now there's one more thread out here to pull into this ridiculously ornate tapestry that I'm weaving.

The AAF was founded by Charlie Ebersol, the son of a major media mogul. The AAF surprisingly ended up with all kinds of TV contracts even though there wasn't much of anything to suggest they deserved to land TV contracts.

When these TV contracts were announced, there was no talk at all about how much money the network partners were going to pay the AAF.

For a fan/historian of spring football like myself that was mind boggling.

When you start up a spring football league you need credibility. One of the few ways that you can show credibility is by talking about how much money the TV stations are going to pay you.

The last spring football league, The UFL, ended up losing their TV contract and they were told that they could purchase broadcast time to showcase their games.

As a product the AAF games are not qualitatively different from the UFL games. The players are not significantly different.

This has led me to speculate that the AAF got some homie hookup TV deals that really aren't generating a ton of revenue, if any.

Now on the positive side for the AAF, their network partners have been grabbing up more content suggesting that the AAF is outperforming the projections of its network partners and it's a network partners have an appetite for future seasons of spring football.

Now while everything is coming out roses for the AAF in TV terms, the XFL still does not have a TV contract.

This suggests that if the XFL were to buyout the AAF, the XFL would likely see competitors emerge bidding against each other for the XFL product.

This suggests that even though the AAF product is currently not compatible with the XFL design due to the early escape clauses, there is a definite value for the XFL in purchasing the AAF from Dundon.

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