Are the NFL's Billionaires Actually Bad Businessmen?

-- Posted by Neil H. Buchanan

As of this writing, the commissioner of the National Football League is Roger Goodell.  Given the controversies that have recently embroiled the league (spousal abuse, child abuse, and the ongoing litigation regarding how the league concealed medical evidence regarding brain injuries), predicting Goodell's expiration date has become a bit of a parlor game.  I confess to being interested in that question on its own merits, but here I want to use that issue to discuss some questions about how leaders of organzations are evaluated, and what can get them fired.  Finally, I will ask whether the NFL's owners are showing themselves to be bad businessmen.

One theory regarding Goodell's job security was offered last weekend by the Times op-ed writer Joe Nocera.  To regular readers, I promise that this post is not primarily about Nocera's own puzzling ability to keep his job.  At some point, it just becomes sad.  There are bigger issues here, and Nocera is certainly not the only person to offer the following explanation: The NFL's owners are keeping Goodell on the job because he made them all rich (or, more accurately, even richer than they already were).  There is a certain casual appeal to that argument, but ultimately it makes no sense.  More interestingly, if the owners really are driven by that illogic, it would tell us some surprising things about their business acumen.

Allow me to offer two reasons why the explanation above -- that the owners are loyal to Goodell because he made them richer, which I will call the Simple Theory -- makes no sense.  The first reason is simply that Goodell might no longer be useful to the owners.  They might decide that they need a fall guy, even if he was doing exactly what they wanted him to do until now.  They also might suddenly be realizing that he was not, in fact, doing what they wanted him to do, and that they trusted him too much.  Or, they might conclude that Goodell, even if he was great at his job until now, is not equipped to handle the new environment in which the league is operating.  Certainly, Goodell's fidgety interview on a major network last weekend suggests that he is not good at what currently needs to be done.

All of that, I think, is pretty obvious, even for people who are initially drawn to the Simple Theory of job tenure.  Things change, and personnel needs might change.  The other reason that the Simple Theory makes no sense, however, has nothing to do with changed circumstances.  The Simple Theory wrongly assumes that Goodell is the reason that the NFL thrives.  We are told, for example, that the top three franchises by value in the league could now sell for two (New England) or three (Dallas) times what they could have fetched when Goodell took over in 2006.  Even the embarrassing Washington franchise has gone from $1.4 billion to $2.4 billion in resale value.

That is surely impressive.  But why is that proof that Goodell should stay in his job?  Why assume that he caused the growth?  (Again, even if he did cause it, his continued presence might begin to erode it.  In fact, even if he did not cause the league to prosper in the first place, he could nonetheless now cause the league to wither.)  The commissioners who preceded Goodell, Pete Rozelle and Paul Tagliabue, also presided over impressive expansions of the league, with Rozelle in particular presiding over an era in which the league doubled its franchises and far surpassed any other sport, including baseball, to become the one true national pastime.  Even if we think that Rozelle was a genius who is a but/for cause of the NFL's success, which is a plausible argument, that does not rule out the possibility that Tagliabue and especially Goodell were simply caretakers who are being given credit for other people's achievements.  To quote President Obama out of context: "You didn't build that."

Still, there is something to be said for not screwing up, right?  Maybe, but the question is why anyone would assume that only Roger Goodell could have done for the league what he did over the past eight years, and why other people are incapable of taking over for him now (even if circumstances have not otherwise changed enough to make Goodell an outright liability).  Is Goodell the only non-screwup out there?  The blurb for Nocera's column on the Times website reads: "Roger Goodell is very good at doing exactly what his owners want."  Again, maybe.  But why assume that no one else could be that good.  He received $44 million in compensation this year.  I would imagine that an awful lot of talented managers would be willing to give it a try.

As I noted above, the Simple Theory is obviously wrong, or at least incomplete.  No one who took even Econ 101 should be convinced by it, because it focuses on the wrong question, and it defies the basic logic of competitive markets.  Just because something works should not stop profit maximizers from seeking to increase revenue and decrease costs.  No sensible capitalist would keep Goodell in place for the reasons that the Simple Theory proposes, because those reasons are backward-looking, which is not how one maximizes profits.

Which brings me to a more interesting point.  Would the billionaire owners of the NFL's teams make such a basic error, when it comes to their decision about a mere employee, which is what Goodell is?  Certainly, the NFL is a "What have you done for me lately?" kind of place.  Players are dumped unceremoniously every day, used up when their limbs and heads are beyond repair, and they are replaced by willing younger and (temporarily) healthier men.  Even the coaches are on the shortest of leashes, with the day after the final regular season game each year now known as "Black Monday," because eight or so teams fire their coaches on that day.  Some coaches are fired mid-season.

One possibility is that the owners view the players and coaches are mere cogs in the machine, while they view Goodell as one of the elite.  They know him, they like him, they trust him, they appreciate what he has done for them.  The question is why they would view him as an exception.  As I discussed in my Dorf on Law post last Tuesday, there is a tendency even among mainstream economists to attribute profits to the leaders of corporations, in what is essentially a Great Man Theory of executive pay.  Maybe the owners see Goodell as a great man, and thus they defer to his greater expertise.

Surely, however, the owners do not buy into that theory.  There is at least some logic to the idea that coaches matter (although that evidence is weaker in the NFL, whereas one or two college coaches really do seem to bring success with them wherever they go), but why would NFL owners think that a mere commissioner is the source of their success?  Yes, the Dallas franchise is now worth three times more than it was in 2006, but it is impossible to believe that Cowboys owner Jerry Jones thinks that Goodell is the reason why.  Jerry Jones undoubtedly believes the Great Man Theory, but he is the great man.

In a post last month, I suggested that the owner of the disgustingly-named franchise here in Washington was leaving money on the table by fighting against those who have demanded that the team adopt a new name and mascot.  Maybe Snyder is so committed to being in charge, and so besotted with his memories of being a boy attending Washington games at RFK Stadium, that he is willing to lose money.  I doubt it, but it is possible.

One could certainly try to make the case that Snyder and other NFL owners are so detached from reality that they simply do not see what is in their own best interest.  Again, Goodell's continued employment by the league fits that theory well, although it can also be explained by other theories.  Most of the owners, however, became billionaires by running other businesses.  There is little reason to believe that they were more in touch with their employees and customers back then, given the cocoons in which top executives and owners live more generally, than they are now.

In any case, it is difficult to take seriously the idea that Roger Goodell is being rewarded now for his wonderful service in the past.  One would think that the owners, even taking into account any don't-rock-the-boat conservative bias that they might harbor, would be more than willing to believe that the market for managerial talent is just a bit deeper than one man.  If not, then maybe the business acumen that made them rich has now abandoned them.  Someone would need to explain, however, why these men suddenly believe that their buddy in the spotlight is more important than they are, and more important than their sponsors and their customers.

I am enough of a skeptic of orthodox economics to believe that irrationality can rule the day.  But the particular brand of irrationality that drives the Simple Theory of Roger Goodell's job status is truly difficult to take seriously.