Why the XFL is going into NFL markets

It’s all about the money.

On December 5, the XFL made official its eight markets for the 2020 season: Dallas, Houston, Los Angeles, New York, Seattle, St. Louis, Tampa, and Washington, D.C. On the same day, XFL Commissioner Oliver Luck was interviewed by New York Sports Day’s Peter Schwartz, where he said this about choosing New York as a market:

“I don’t know if you can start a league without being in New York. … This is our most important city. … I just don’t know if you can launch a league and try to have a national footprint, even a small national footprint like ours would be initially; I think you have to be in New York.”

The quote highlighted a major difference in how the XFL is thinking about the placement of their franchises with how a lot of the general public is looking at it.

Notably, seven of these eight cities are home to NFL teams, with only the recently-vacated St. Louis being the exception. New York and Los Angeles have two apiece. A common reaction I’ve seen to this portfolio has been surprise and skepticism, centered around the fact that the XFL didn’t target more markets without NFL teams. After all, it’s not the fans in New York and Los Angeles that need football, it’s the fans in cities like Albuquerque and Omaha, right?

In a certain sense, that’s true. But in another sense, it misses the big picture.

What is the XFL’s goal?

You can be forgiven for looking at the XFL as a vanity project, but the goal — the reason the XFL exists — is to make money. Whether that’s a realistic goal is a separate conversation, but make no mistake: the point of all of this is to turn a profit.

If the primary goal is to make money, then where is the money in football?

For a long time, the answer was in selling tickets, but that dynamic has long since flipped: the money in football is in broadcasting rights. The NFL’s least valuable property — the much-maligned Thursday night broadcast — has just started a contract with Fox that’s worth around $3 billion over five seasons. That’s obviously not what the XFL can hope to earn, but consider that the American Athletic Conference’s annual deal with ESPN is worth about $18 million annually. Only time will tell what the XFL’s ceiling might be, but this is where the league is, rightfully, pinning its hopes.

If the money is in broadcasting, then what underserved market is the XFL trying to capture?

It’s easy to look at the football landscape and think of the likes of Portland and Tulsa as the underserved markets; in a certain sense, that’s absolutely true. But that’s not the market the XFL is targeting: they’re chasing the 80 million fans, to cite Charlie Ebersol, that watch NFL and college football in the fall and then stop watching sports entirely until the next football season. It’s these consumers that are theoretically underserved for six months of the year, and they aren’t any better served in Tampa than they are in Orlando.

If the target consumers are television viewers, then what purpose do the home markets serve?

From this perspective, the home markets themselves serve a different purpose than just selling tickets and merchandise: the home markets’ primary role is to create a strong television product. There are a few ways that is accomplished:

Market Size and Out-of-Market Brand Awareness

By definition, this favors big markets.  The larger cities not only deliver eyeballs in their own market, but they’re also brands that people outside of the market are more likely to have strong feelings about. A given fan in, say, Boston is more likely to be able to get invested in a game involving a team from New York or Los Angeles than they would a team from Sacramento. Maybe they hate the Yankees, or maybe their wife is from Los Angeles. Statistically, a given person is more likely to have a connection to a larger market. These are fixed advantages for the big markets.

Regional Distribution and Television-Friendly Venue

Other things to consider are regional distribution (spacing your teams so as to cover as much of the country as possible) and having a venue that looks good on television. These are market-size neutral; neither big or small markets carry an inherent advantage.

Crowd density and energy level

Finally, you need a market that can fill your stadium and provide a energetic environment. Nobody knows better than WWE and Vince McMahon how much a “hot” crowd can improve the quality of a broadcast, and it’s here that the smaller markets get their chance to distinguish themselves: As the argument goes, a city without an NFL team could theoretically fill their stadium and create a wonderful backdrop for a broadcast. Meanwhile, a city with an NFL team might be apathetic, and the stands might remain empty.

So, should the XFL expect non-NFL markets to outperform NFL markets at the gate?

No! In fact, quite the opposite. The XFL has good reason to believe they’ll be able to draw just as well in NFL cities as they would in non-NFL cities, because that’s exactly what happened in 2001. NFL cities averaged 26,341 fans per game compared to the non-NFL cities’ average of 21,652. Those averages take into consideration Chicago, which finished last in the league in attendance thanks to the cold winter weather and an 0-5 start.

In Summary

  • The XFL’s goal is to make money, and the money in football is in broadcast rights.
  • This means the XFL is targeting television viewers without football to watch, not football fans without games to attend.
  • In turn, this means that the home markets are evaluated for their potential to create a strong television product.
  • Of the factors that go into to evaluating a market’s potential to contribute to a television product, the only area that a small market might even potentially hold an advantage is the ability to fill a stadium.
  • The XFL’s experience in 2001 instructs them that NFL markets will likely perform just as well, if not better, at the gate as non-NFL markets.

Bonus: Does the AAF have reason to believe that they will perform similarly well in NFL markets?

The AAF is following the same line of thought as the XFL: their path to profit also lies in broadcast revenue. But that league chose a less aggressive portfolio: two NFL cities (Atlanta and Phoenix) among its original eight markets. Why?

The AAF has another data point to consider. The first league to make a serious run after the XFL’s 2001 attempt was the UFL. They tried four of the best XFL markets (Las Vegas, New York, Orlando, San Francisco) in 2009 and got murdered at the gate. They eventually found a modest following in minor league cities such as Hartford, Omaha, and Virginia Beach before folding under a sea of debt.

There were many differences between the two — not the least of which was that the UFL inexplicably decided to run a fall schedule — but the biggest by far was the difference in the two league’s abilities to raise awareness. The XFL’s hype machine was basically so powerful that they lost control of it. The UFL couldn’t have generated a headline if their league’s life depended on it. Which it did.

The lesson to learn here is that you need to be strong enough to penetrate a major market. The XFL, thanks to the gravitas of WWE and Vince McMahon, was able to do it in 2001 and can be confident they can do it again in 2020. The UFL was not in 2009. The AAF is probably right to figure that it will land somewhere in the middle, which is why they chose a less aggressive starting position. But as the AAF’s status (hopefully) grows, I would fully expect that their expansion plans include moving up the food chain, not down.

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