Whatchall know about that scrilla? I decided to follow the front page of the IAOFM site from Monday, and play off of the article that Doug referenced yesterday that put the Broncos on $50 million of cap room. I’ve been thinking a lot about the Broncos' finances lately, and some other tangential thoughts. It’s all part of being a football-thinking accountant, I guess.
Let’s start out with a provocative thought, right off the top. It’s unquestionable that the Broncos were better off making the playoffs in 2011 than not. I know that some of you disagree with that, and I’m here to tell you, you’re wrong. That doesn’t make you a bad person, and in recognition of that fact, I’m going to explain what I mean by “unquestionable.”
First, let’s do away with the Draft Fallacy. That’s the one that says that because the Broncos were 12th out of 12 playoff teams in talent, that they handicapped their future by making it too soon. You see, say these people, the Broncos would have picked 17th in the Draft, and by making the playoffs, the best they could do was 21st. By winning a playoff game (the horror!) they ended up at 25th.
This fallacy assumes that all teams that pick 17th in the Draft end up with better players than those which pick 21st, or 25th, or later. Nonsense, you say – it doesn’t always happen that way, just way more often than not. Picking 17th is better, especially because you can get all draftnik with it, write 73 mock drafts, and imagine trading up and down with that 17th pick.
What if I told you that the team that picks 17th rarely gets the best player available at that spot? So what, right? That’s like betting on the field – if other teams get about 235 chances to do better, it’s no surprise that one of them might end up being better sometimes. Well, I didn’t give them 235 chances, I gave them 7-9 chances (depending on the year), namely the 21st and 25th picks, and the best player picked in the first round after 25. That way we're not talking about some sleeper, but rather somebody who everyone knew projected to be a good player.
|Year||17th Pick||21st Pick||25th Pick||Best Alternative at 25|
|2011||Nate Solder||Phil Taylor||James Carpenter||Gabe Carimi|
|2010||Mike Iupati||Jermaine Gresham||Tim Tebow||Devin McCourty|
|2009||Josh Freeman||Alex Mack||Vontae Davis||Clay Matthews|
|2008||Gosder Cherilus||Sam Baker||Mike Jenkins||Duane Brown|
|2007||Jarvis Moss||Reggie Nelson||Jon Beason||Joe Staley|
|2006||Chad Greenway||Laurence Maroney||Santonio Holmes||Nick Mangold|
|2005||David Pollack||Matt Jones||Jason Campbell||Roddy White|
|2004||DJ Williams||Vince Wilfork||Ahmad Carroll||Jason Babin|
|2003||Bryant Johnson||Jeff Faine||William Joseph||Nnamdi Asomugha|
|2002||Phillip Buchanon||Daniel Graham||Charles Grant||Lito Sheppard|
|2001||Steve Hutchinson||Nate Clements||Freddie Mitchell||Reggie Wayne|
|2000||Sebastian Janikowksi||Sylvester Morris||Chris Hovan||Keith Bulluck|
|1999||Damien Woody||L.J. Shelton||Antuan Edwards||Al Wilson|
|1998||Brian Simmons||Randy Moss||Donvin Darius||Alan Faneca|
|1997||Kenard Lang||Renaldo Wynn||Jon Harris||Trevor Pryce|
I went back 15 years, and I could only name two where the best player picked at 17, 21, 25, or 26-32 was the 17th pick. In 2001, you could definitely say it was arguable whether Steve Hutchinson is better than Reggie Wayne. As for 2011, Phil Taylor could definitely end up being better than Nate Solder.
Look how many years the 26-32 field won? That’s 9 out of 15 years that the best player in the selected slots came after the 25th pick. It’s no coincidence that those were playoff teams, with smart front offices, picking good players, because they knew who the good players were. It’s not about where you pick, it’s about who you pick. The good teams stay good because they find the right talent, and the goal for all 32 teams needs to be to make the playoffs, and then find good players late in the Draft.
So, there goes the only reason why it would be bad to make the playoffs. There’s a really good reason why it’s always good to make the playoffs, and it’s called straight cash, homie. Here’s a really simplified presentation the income statement for the Broncos, using data from Forbes.
The profit is almost $2 million per game, and the player cost represents cash cost in the fiscal year, and not salary cap expense. Pat Bowlen isn’t going broke, even when the Broncos fail to make the playoffs. What if they did make it, though, like say, in 2011? We can figure out the answer easily enough.
Well, first, we have to understand the ways in which cash flows happen from the holding of NFL football games. In the regular season, the home team keeps 60% of the revenue from all gate receipts and pays 40% into a central fund which is split 32 ways. That’s a form of revenue sharing which puts some cash from teams that can charge high ticket prices (Cowboys, Redskins, Patriots, Giants) into the pockets of teams like the Jaguars, Bengals, and Buccaneers, which are forced to charge much lower prices.
In the postseason, my understanding is that it becomes a transaction between the two teams playing in each game, and that the 60-40 split continues, with the 40% split of ticket revenue going to the road team. The host team keeps all of the ancillary revenue like parking, food, and beverages, so it’s obviously better to be the host team. (I’ve asked a couple of former team executives for confirmation of this understanding, and neither has known.) So how much extra profit (and free cash) is that?
Just on tickets, the total gate receipts for a sold-out Mile High are $5.9 million. If the Broncos get to keep 60%, that’s $3.5 million of revenue. I’m also making the following assumptions on Other Revenue, which leverage this analysis from Mint.com.
a. One parking spot sold for every three attendees, and $26 charged per parking spot.
b. $10 of food sales for every attendee.
c. $15 of beverage sales for every attendee.
d. $10 of merchandise sales for every attendee.
That brings me to a total of $3.3 million in incremental Other Revenue. I’m assuming that I get 50% margin on parking, food, beverages, and parking, which is probably conservative. ($8 for a beer? That keg sure as hell didn’t cost $4 per 16 ounces.)
I’m going to pull this together in a full playoff income statement momentarily, but since the Broncos beat the Steelers, let’s talk about the effects of playing a road playoff game in Foxboro, which obviously happened.
Because the ticket prices in Foxboro are so much higher, 40% of that pot is almost as much as 60% of the gate for the Broncos home game. On the expense side, you have stadium operating expenses for the incremental home game, and travel and logistic expenses for the road game. You have minimal player salary expenses for each game, totaling $22,000 per player, per game. Coaches and other employees get no extra regular pay, unless they have performance incentives of some kind, which I don't understand to be common in coaching contracts. The personnel cost is where you really bank the profit. Check out this income statement.
|Item||Home vs. Steelers||Road vs. Patriots||Total|
That’s an extra $5.4 million of free cash for playing in two playoff games. That can be taken to profit, or some portion of it can be reinvested in the team. You should realize that I’m being very conservative here, because I just want to make the point without letting it get carried away. Teams can charge higher prices for a lot of things at playoff time, and the excitement of fans can cause them to spend more money on their game experience than usual. I’m also not adding in any assumptions for the financial benefits of employing the league’s most marketable player.
Whether the money goes to profit or to investment, it’s a good thing for a business to generate an extra $5 million in free cash. Let’s work off of Brian Xanders’ comments that the Broncos have a cash budget, and not necessarily a cap budget, and say that Pat Bowlen is feeling generous, and he adds $3 million to that budget, and takes the other $2.3 million to profit.
Last year’s Broncos spent $129 million in cash on player costs, per Forbes. About $9 million of that goes for player benefits, so let’s say that the salary and bonus expense was an even $120 million. In 2012, let’s say that the cash budget will be $126 million, with $3 million coming from the playoff windfall, and the other $3 million coming from increased revenue.
At this moment, according to Doug’s meticulous records, the Broncos have $55.8 million in base salary commitments, and $7.4 million in bonus commitments for 2012. That’s a total of only $63.2 million in cash commitments, against the budget that I just set. They have $62.8 million of cash to spend, which is even better news than the fact that they have $50.7 million in cap room. They have a chance to either fatten up Pat Bowlen’s wallet or to seriously improve the talent level of the team.
For the hell of it, I’ve decided to take a stab at putting together a list of free agents and draft picks to pursue to spend that scratch. It’s completely un-serious, and just should be taken as an example of how $60 million of uncommitted cash budget can transform a roster.
|Player||Position||How Acquired||Years||Bonus||First Year Salary||Average Salary||Total Salary||Cap Number|
|Mike Adams||OT||1st Rd Pick||4||$4,000||$538||$896||$3,584||$1,538|
|Orson Charles||TE||2nd Rd Pick||4||$1,200||$375||$638||$2,552||$675|
|Chris Rainey||RB||3rd Rd Pick||4||$700||$375||$569||$2,276||$550|
|Audie Cole||ILB||4th Rd Pick||4||$500||$375||$569||$2,276||$500|
|Luke Nix||G||5th Rd Pick||3||$300||$375||$515||$1,545||$475|
|Darron Thomas||QB||5th Rd Pick||3||$200||$375||$515||$1,545||$442|
|Eric Latimore||DE||7th Rd Pick||3||$100||$375||$515||$1,545||$408|
|Total 2012 Cash||$63,403|
a. I’m hitting DT hard in free agency. Bunkley is a key priority to re-sign, because he’s an excellent run-stopping player. Jones is an outstanding penetrator, and has just as much free agent worth, to me. I also want Marcus Thomas back, and think he’s an excellent third DT instead of being a solid second starter.
b. The concept that you need another running QB if Tebow is your starter is pretty silly. The whole offense isn’t dependent on his running, only a certain part of the running game is. If Quinn has to play, you just limit your use of the zone read and option stuff, and run the ball more traditionally. This red herring of an idea comes from talking heads who don’t understand offense very well. It's easy to not call offense that's in your repertoire; the challenge is adding new offense on the fly, like the Broncos did for Tebow in 2011. Quinn is a pretty solid athlete, and I think he's fine as the backup QB. I do think Darron Thomas has some upside, and I like him as a possible mid-to-late round pick.
c. I thought pretty hard about Cortland Finnegan, with the bonus benefit that it would irritate some of you choirboy lovers. I ultimately decided that he would cost too much, and that signing both Deon Grant and Jason Allen was a better call. Both can cover TEs inside, and Grant was a quiet key to the Giants' defensive success in 2011. Big nickel is a coming trend, due to the presence of all of the good TEs around the league, and Grant is an ideal guy for that approach.
d. Everybody wants to figure out which former Fox or Del Rio guy is coming to town. My nomination is Brayton, who is a solid backup DE who will come cheap.
e. I keep mentioning that I want speed on offense, and Meachem and Rainey add value there. Meachem has been very good in New Orleans, just underused with all the weapons they have there. He’ll be on the move, and I like him a lot as a deep threat. Rainey is a Darren Sproles-type who can be a huge weapon if he’s used right. He has experience at both WR and RB.
f. I still like the idea of drafting a RT who can pass protect and moving Orlando Franklin inside. I also think that Mike Adams will probably go around 25th overall and be in the mix to be the best player available at that pick. The same story is true of the TE Charles, who should be a second-rounder.
g. I'm assuming that the Broncos will re-sign all of their own key free agents. Those guys have more value to Denver than they do to other teams because they've been with this team. Except for Jones, and to some degree Meachem, this is all about hitting some singles with value free agents and building through the Draft. I listened to Bill Polian the other day on Sirius, and he was talking about how the most important free agents every year are the midlevel guys who you can win with - the player who comes in and starts at RG for $2.5 million. He's not the difference maker, but he's a contributor to winning, and you need about 8 or 10 of those guys on your roster.
That’s all I have for today, friends. What do you think?