The Housing and Pro Football Bubbles

February/06/2011 22:51PM
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Congratulations to the Green Bay Packers, winners of Super Bowl 45. They deserved to win with all the injuries and issues they faced this season.

The afterglow of the Super Bowl gives us momentary pause before the NFL faces a labor issue that could result in a lockout and the loss of the entire 2011 season.

There are some correlations to the issue facing the NFL and the housing bubble that threw the country into a recession we are still facing.

Everyone though housing prices would go up forever. Too many houses were built and people bought houses they couldn’t afford. Pushed by politicians who felt owning a house was and entitlement and abetted by Freddie and Fannie insuring bad mortgages it became a fantasy game. When prices dropped, the game was over. Billions were lost.

Owners of professional football teams have watched the asset value of their franchises go up. Profit and cash flow is not a big problem for the owners. The value of the Cowboys is projected to be well over a billion dollars. There’s always a rich guy with a big ego who is willing to buy a franchise.

It is hard to fathom that workers earning over $20 million a year need a union. It’s hard to believe that this union would let old timers live on the streets penniless while they are willing to strike for bigger salaries. It’s hard to accept that ticket prices will go up forever. That TV revenues for the league will always be higher next year than last. That advertisers will continue to pay more and more each year.

Somewhere there is an end to this. It will come, like the housing market, when the first NFL franchise sells for less than the last sold for. Wealthy owners will accept bigger salaries if they can pass most of through in the form of ticket prices or get it back from TV revenue. They will accept losses if they know the value of the franchise if going up faster than the losses are accruing. They have deep pockets and owning these franchises are a hobby for many. But, they are businessmen and they will not hang on if the appreciation on the franchises start dropping.

This year may be the year when that happens. If the greedy players and the greedy owners can’t get together and there is a lockout, the NFL may never recover from that. Major league baseball hasn’t. If the owners’ force the players to play two more regular season games, the players will expect more money. If the players ask for and demand too much, there will be a strike.

Like the housing market, there is a ceiling to this. Once that ceiling is punctured, the bubble will burst. It’s a business based on emotion and not a rational business. Ticket buyers take a gouging and complain, but pay. TV networks take a gouging but keep paying. Advertisers take a gouging and keep advertising. But, there is a break point at all of these junctions. This potential labor negotiation may find those break points.

It would serve the players, the union, and the owners to study what happened to the housing market. Nothing goes up forever.

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