Tuesday, March 30, 2021

Tuesday Morning Sentimonies: Competitive Advantage

After many, many years of making fun of Manitoba and generally advising against voluntarily travelling there, I am now coming to you live from like the worst place in Canada to be right now. They are actually advising people against coming here. Oh the cruel irony. Its almost as if having the least stringent Covid restrictions in the country was a bad idea…. But let’s not go down that rabbit hole.

Let’s talk football.

As much as I’d like to talk Rider football and continue gearing up for the 2021 season, the talk of the sporting world continues to be the CFL/XFL discussions and what will come of it. There is a ton of articles and chatter out there on this ranging from reasonably well informed and thought out to outright ridiculous. I have no insider information or anything to tangibly add to the news cycle, so I instead thought I would spend today talking about a question that’s been bugging me for a while: What is the business angle of the CXFL?

Dolla Dolla bills yall is the name of the game and RedBird Capital would not be involved in talks with the CFL if it didn’t think it would make them money. People seem to have this misguided view that this is a one-sided transaction. i.e. The CFL needs money and this is all about how much they need to sacrifice to get it. But that view is wrong. The XFL is not exactly a money making venture at this point… or any point in its history. And history is littered with so many failed American football leagues its almost comical that anyone still thinks it’s a viable business venture. So the bottom line is that this is a two-way discussion, RedBird needs something from the CFL in order turn the XFL into anything more than a licence to lose money, just as much as the CFL needs financial stability.

This gets me to the concept of competitive advantage, basically what strengths a company has that would allow it to be successful. The XFL has just one solitary competitive advantage. It operates at a time in the calendar where other football is not being played. That’s it. It’s been repeatedly proven that then potential market for non NFL/NCAA football is tiny at best. So basically the XFL chances at success hinge on people being desperate for football and the XFL being the only game in town. People will try and point to their “unique” rules as another potential advantage but that is purely false. It’s a clever marketing tactic but the point remains if the XFL isn’t the only option for American football all its creative rules don’t matter. Its suicide to compete directly with the NFL and NCAA and any attempt by the CXFL to do so would fail just as quickly as every other attempt at an alternative American football league.

This brings me to the CFL. Unlike the XFL they do have some competitive advantages. It has a niche market of fans and despite half its season going head to head with the NFL it is not a direct competitor given that niche market. It is also a different game. I know I just said above that the XFL rules were not an advantage but Canadian football as a brand is at the core of what drives the CFL. Three downs, bigger field, 12th man (I’ll save the non-Riders fans the time and make the obligatory 13th man joke here) and pre snap motion make it a different game and its rooted in 100+ years of history. On its own, the Grey Cup game has value in that it is one of the most watched programs in the country year after year. So the CFL has lasted this long, not by trying to compete with the NFL but by targeting a specific section of football fans, with a specific type of game (Canadian rules football). The size of the Canadian market certainly limits the upside potential of this strategy (hence the interest in the XFL and globals) but as compared the XFL, AAFL and all the other failed American leagues over the years, it has at least been a quasi-viable strategy. Hell at least the CFL manages to get paid for their TV contract (something the XFL did not).

The ratio is another aspect. I think people underestimate the value of this. I am not a “Canadians” at all costs guy. I want the best players to play for a high quality on field product (Americans have and will continue to be a key part of our league). But I do think a core set of Canadian players is necessary. Would increasing the ratio add more fans to the CFL? No. Would dropping it to 5 drastically impact fans? Not likely. Would dropping it to 0? Yes.  People are talking lots about the failure of the league to attract younger fans. Killing the ratio would have a trickle down effect on U-sports, high school ball and minor football. This is how you grow the next generation of football fans. Its important to the ongoing success of the CFL.

Here’s where the rubber hits the road for me. Any departure from the Canadian game would jeopardize the existing core of customer to chase the “people looking for football after NFL ends” market in the US. Anyone who can’t see that adding a 4th down and playing on smaller fields fundamentally changes the CFL game is fooling themselves. The extra down radically changes play calling. Will you lose all customers? No. I might be pissed if the Canadian game changes but as long as there is a Rider team, I’ll probably be in the stands (and I think more of you fall in that category than you’d like to admit). But there will be a loss of fans. So the CFL needs to gain more American fans than they will lose in order for a merger to be profitable. Are Americans going to flock to the Canadian game? History would tell us no. Will Canadians flock to a non-NFL American league? Again history tells us no. So back to my original question, what’s the business angle?

Sure a merger likely creates some operating efficiencies by consolidating central office staff from both leagues. Though I will tell you that the actual gains in efficiency from mergers of this sort tend to fall drastically below what people predict in their business plans. Would a league with more teams/content be better positioned to negotiate things like TV contracts and gambling rights? In theory yes, but the CFL has already been working with ESPN to broadcast CFL games down south so its not like there is this massive untapped market that the CXFL could suddenly capitalize on. Plus, as previously mentioned, the XFL couldn’t even get paid for their own games. Why do we suddenly assume that with the CFL in tow they could find hundreds of millions of dollars? Not to mention the logistical issues that come with an XFL season that operates from February to April when it would be stupid to play in Canada (and don’t forget my point about the only advantage XFL has is being the only football on TV so they can’t deviate from this) and a CFL season that for all but 3 months competes directly with the NFL.

So while I do think there is serious talks about a merger going on, I honestly can’t see how anything beyond one central league office with the CFL and XFL continuing to operate as separate entities and maybe a few interleague games would be a smart business plan. I realize that I am biased as a Canadian fan and would fight any attempt to americanize our game but even objectively speaking I don’t see how you would make money even if you did that.


Anonymous said...

Probably the most common sense look at this I've seen. I've said it before & I'll say it again. The only thng that makes sense for the XFL is to run between February & Sept & I think once the Bowl games are done in January to mid-February, most fans are ready to move on to basketball & baseball in the US, also major sports with major TV contracts. Fans in Canada are busy with hockey which is king. I get that the backers have big pockets but so did McMahon who, by some accounts, is in the $4B neighborhood & wasn't the only rich guy in the last edition of spring football. His WWE empire has revenues of $1B annually. It's not about getting rich guys on board because their love of the game quickly wanes as their own $$ flow out the door. The chances of getting a huge network deal are small IMO. Dwayne Johnson is a draw if he's out bumping heads, not necessarily in the owner's box. Would you go see a movie just because the Rock produced it? The biggest fail even if you have sqillions to blow is the time frame. In Canada the major markets - Toronto, Vancouver & Montreal aren't switching the channel from the Leafs, Canucks & Habs to watch Arbuckle, Reilly & Adams. The same goes in Edmonton, Calgary & Winnipeg where the hockey teams popularity far outnumbers football.
Once you go down the merger road, there's no going back if it fails. You may have alienated the small, passionate fan base beyond repair in a do-over, especially if you've changed the rules. The trouble with 4 down football IMO is that, on the Cdn field, it becomes an arcade game. That's basically the XFL model anyway. Doesn't interest me, Rider team or not.

Anonymous said...

I love all this talk about the well heeled people behind the XFL. Again an article on TSN mentions Redbird "manages over US$4B in assets". Having managed a large investment portfolio at one time, this much I know. It's not my money. It's not like McMahon who reportedly has $4B of net worth. Apples & oranges. What does managing someone else's money have to do with what I can bring to the table? Just sayin'.

Rider Prophet said...

Anon 1 - I think Covid had a huge impact on XFL 2.0. McMahon had planned to invest big bucks to float it for many years. But that was assuming he still had the cash cow of the WWE to offset the loses. But Covid dramatically dropped WWE revenues and impacted how long he could afford to sink money into the XFL (i.e. not long).

Anon 2 - Good point.