Dundon Cuts Losses, Shutters AAF

AAF

Less than a week after Alliance of American Football Chairman Tom Dundon threatened to shutter the start-up league, the Carolina Hurricanes owner has suspended football operations. While sources tell Pro Football Talk that Dundon has not yet formally decided to permanently disband, his inability to negotiate the use of NFL players with the NFL Players Association (and thus gain subsidies from the NFL) means the end is near; the decision to suspend league operations was made at his sole discretion. ProFootballTalk.com reported that it was going to cost another +/- $20 million (Inside The League says the league’s weekly burn rate could be as much as $8-9 million/week) to get the league through the season’s final 4 weeks.

Howie Long-Short: Credit Dundon for realizing the writing was on the wall – viewership on NFL Network steadily declined from over 600,000 viewers in Week 1 to less than 300,000 in Week 7 and in stadium attendance hit season lows in both San Antonio and Salt Lake City last week – and for the willingness to cut his losses. His decision to throw in the towel before the end of the first season isn’t about the lack of cooperation received from the NFLPA as suggested, though – Dundon’s certainly smart enough to know 3rd string QBs aren’t selling tickets. He realized he’s been sold a bunch of goods and by suggesting that the league’s viability is tied to the NFL’s participation, he’s able to save face.

There is no saving face saving face for Charlie Ebersol here. The league’s co-founder told ESPN in January that he had a “sober business plan” – a slow and steady approach to eventually becoming a minor league for the NFL – but his economic model was always a bit inebriated. There was no logic in signing players without another winter/spring football option to $70,000/year contracts ($15K above the annual household medium income) for 3 months of work (+ 1 mo. of training camp); the G-League’s minimum salary is $35,000 and their regular season is 2 months longer.

There was also no reason to be playing games in 60,000+ seat stadiums. The league had to know it wasn’t going to draw more than 20,000 fans/game (that’s the number Oliver Luck told me the XFL penciled into their budget), so why sign leases for venues 3x the size? One source estimated that the league could have paid as much as $750,000/game to cover all the stadium related game day expenses. They could have played in mid-major college football venues or minor league baseball parks and spent half the amount. Ebersol also frequently told the media that the league had enough capital for 3-5 years “if we completely screw up” – he made it just 8 weeks.

The AAF had always positioned itself as a developmental league, but it never publicly stated that its success was contingent upon NFLPA participation which is why Dundon’s announcement last week sent shockwaves through the football-sphere. Back in January, Charlie would tell anyone who would listen that the Alliance was a “tech company that owns a football league.” That description never made any sense, though. No one would commit hundreds of millions of dollars to demo gaming software and technology companies that operate as loss leaders (think: Uber), do so with billions of dollars in runway behind them; the Alliance failed to make payroll in the first week.

The AAF wasn’t a technology company, but Dundon remains bullish on its “real-time” sports betting application leading some to believe he bought the league to strip it of its assets. That seems unlikely. $70 million would be an exorbitant amount of money to spend on I.P. that’s been “plagued with bugs and setbacks” and has met with a tepid consumer response.

Dundon covered player payroll through last weekend’s games, but apparently, that’s where the buck stops. Robert Klemko reported that “AAF teams are making players play for their own flights home” and a source tells me that “plenty” of the league’s vendors have been left holding the bag (one told me his company is owed $125K); a debate between Dundon and the founding ownership group about who should have been responsible for paying expenses down resulted in invoices ultimately going unpaid.

Fan Marino: The AAF’s demise should prove beneficial to the XFL. The prospective player pool will increase in size and sources told the Action Network that the league has interest in acquiring both the AAF’s football and broadcast equipment (remember, Charlie worked to put forth an NFL quality broadcast, so the equipment is valuable). Commissioner Oliver Luck said the league will also pick up a few of the AAF’s on-field advancements including “fewer stoppages of play so we can get the game done in under 3 hours and offering fans access to insights and experiences not previously available within a football telecast (see: listening in on replay reviews); we might take our fans into the locker-room for a pre-game talk. We want to provide content that you don’t see very often unless you’re a football player.”

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Author: John Wall Street

At the intersection of sports & finance.

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