Why the NFL Scandal Won’t Matter in the Long Run

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The National Football League is facing some intense scrutiny nowadays. A full-blown NFL scandal has developed as the result of the Ray Rice domestic violence blow-up, and Commissioner Roger Goodell’s subsequent mismanagement of the situation.

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Grantland’s Bill Simmons, a wildly popular sports personality who also runs his own podcast, even accused Goodell of lying about the handling of the Ray Rice elevator video. ESPN suspended him for three weeks — an eternity in that line of work — and critics are even railing on ESPN, which now looks like it’s protecting its close business partnership with the NFL.

Major sponsors like Anheuser-Busch (BUD), McDonald’s (MCD) and Pepsi (PEP) are voicing their displeasure over the NFL. On top of that, the fans are angry, and some politicians are even debating yanking the NFL’s tax-exempt status.

Essentially, the NFL is reeling from self-inflicted wounds, and many expect a harsh financial backlash.

But that just won’t be the case.

If the NFL were a publicly traded company, the situation would look quite different … but it’s not. Instead, the NFL’s enormous strength will allow it to soldier on and remain commercially viable, for better or worse.

Broadcasting Billions

Disney‘s (DIS) ESPN pays the NFL $1.9 billion per year for the exclusive right to broadcast its Monday Night Football games. The current contract runs out in 2021, so that deal won’t be going anywhere anytime soon. CBS (CBS), 21st Century Fox (FOXA), NBC and DirecTV (DTV) also will cough up a combined $3.6 billion this year to the NFL for broadcasting rights.

That’s a lot of guaranteed dough that the NFL won’t be forfeiting this year despite the moral shortcomings of its players and the reprehensible inaction of Commissioner Goodell.

The harsh reality of the situation is that even if broadcasters could finagle their way out of their contracts, they simply wouldn’t. According to the New York Times, Sunday’s regional games on CBS enjoyed a 44% overnight ratings increase, to 11.1.

Apparel sales and licensing revenue might take a hit in the wake of the Ray Rice incident and the Roger Goodell blunder, sure. But it will require millions of conscious consumers to stop watching football for broadcasting deals to be threatened.

Clearly, that isn’t happening.

One way the NFL might take a financial hit is in its favorable tax situation.

Thanks to a fortunate turn of history long ago, enjoys the tax-exempt status of section 501(c)(6), which specifically grants “professional football leagues” and other organizations like chambers of commerce and boards of trade, tax exemption.

A change.org petition has garnered more than 360,000 signatures in protest of that reality. And politicians — such as Sen. Tom Coburn (R-Okla.) — have from time to time attacked the NFL’s tax-exempt status amid one scandal or another.

Of course, the NFL doesn’t need tax-exempt status to stay afloat. The league’s teams split some $6 billion in revenues last year.

Bottom Line

If the average investor could buy stock in the NFL, it’d probably have been a popular stock over the past few years, and it likely would be on the decline over the past few weeks.

But they can’t.

The NFL is private, and football is as much a part of the modern American human condition as food is. It holds a monopoly on the country’s most popular game, and that guarantees you some stability.

The NFL’s moral compass is hopelessly compromised, and that will take some time to correct.

But the business will move on.

As of this writing, John Divine did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/nfl-scandal-nfl-tax-exempt-roger-goodell-bill-simmons-ray-rice-elevator-video/.

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