The Financials Behind The NFL Playoffs
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The Financials Behind The NFL Playoffs
Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. Subscribers include investors, professional athletes, team owners, and casual fans. So if you are not already a subscriber, sign up and join 78,000+ others who receive it directly in their inbox each week — it’s free.
Today At A Glance:
Every year, we hear about all of the glitz, glamor, and money behind football’s biggest game — The Super Bowl. But what about all the games that come before it in the Playoffs? We’ll take a look at a brief history of the NFL playoff system, the format’s recent changes, and all of the money behind the playoff games themselves.
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Friends,
The National Football League (NFL) is the world’s most profitable sports organization. We know this, of course — they’ll soon cross $20 billion in annual revenue (+100% over the last decade), and the average franchise is now worth $4.14 billion (+18% YoY).
Average Franchise Valuation By US Sports League
NFL: $4.14 billion
NBA: $3 billion
MLB: $2.31 billion
NHL: $1.01 billion
MLS: $582 million
But one of the most unique aspects of the NFL’s business is how playoff revenue is handled — many players see a drastic drop in compensation, and some teams even lose money by making it into the playoffs.
So today, we’ll dive through everything you need to know about the money and business behind the 2022-23 NFL playoffs. Enjoy!
History Of The NFL Playoffs
The NFL currently runs a 14-team playoff format — seven teams from each conference — but that’s actually a relatively new format. For example, there have been seven iterations of a playoff and championship system in the NFL’s 103-year history.
Here’s a brief rundown of the NFL’s playoff history:
1920-1932: No playoff system
There was no playoff system in the first 13 years of the NFL. Instead, the team with the best regular season record was crowned league champion (like the Premier League today).
1933-1966: 2-team NFL Championship Game
The NFL was split into two divisions in 1933 — Eastern & Western — and the division winners faced off at the end of each season to crown the league champion. The NFL then merged with the American Football League (AFL) in 1966 and created the Super Bowl to determine the best team in football.
1967-1969: 4-team playoff
In the 1967 season, the NFL split its league into four divisions — Capitol, Century, Coastal, and Central. The winner of each division played in a four-team playoff, with the winner of the first-round games facing each other for the NFL Championship. The NFL Champion then played the AFL Champion in the Super Bowl.
1970-1977: 8-team playoff
The NFL and AFL officially merged operations and integrated schedules in 1970, which increased the league from 16 to 26 teams. The NFL was then broken up into two conferences (AFC and NFC), and three division winners and a wild card team from each conference made the playoffs.
1978-1989: 10-team playoff
The NFL added a second wild card team to each division. These two wild card teams faced off against each other in the new wild card round, with the winning team advancing to the divisional round.
1990-2019: 12-team playoff
The NFL added a third wild card team to each conference, resulting in the top two seeds earning a first-round bye.
2020-Present: 14-team playoff
The new CBA with the NFL Players Association added a third team to the wild card round, expanding the playoffs from 12 to 14 teams. The #1 seed in each conference is now the only team that gets a first-round bye.
The NFL’s shift from 12 to 14 playoff teams has been in the works for over a decade. In fact, the NFL was very close to making the change in 2014, but they delayed the plan and eventually pushed it through as part of the new Collective Bargaining Agreement (CBA) in 2020.
The reason for this change is simple: money. The NFL and NFLPA estimated the league would generate $150 million in additional revenue per season from the expanded playoff. And while it’s difficult to calculate precisely how much each game is worth, the NFL signed media deals in 2021 worth $110 billion over 11 years ($10 billion per year), and the additional playoff inventory certainly didn’t hurt.
Still, the most interesting part about the NFL playoffs comes down to how the money is earned and distributed — because the players themselves don’t actually benefit all that much. Let me explain.
NFL Playoff Revenue Share & Bonuses
The financial structure of the NFL playoffs is unique for several reasons. First, the league gets to keep nearly all the ticket revenue from playoff games, while both home and away teams receive just a stipend to cover travel and stadium operation costs.
Each stadium has different price points and capacities, but let’s use the Buffalo Bills as an example. Buffalo Business First estimates that a sold-out home Bills divisional game for 2023 would net the team $12.8 million in ticket revenue.
So while it’s true that home teams get to keep their portion of concession and parking revenue, which typically amounts to anywhere between $1 million to $2 million, all of the $12.8 million in ticket revenue would go directly to the NFL.
This is a drastically different approach from all other major US sports leagues.
Playoff Ticket Revenue-Share (% that teams keep)
NFL: 0%
NBA: 75%
NHL: 65%
MLB: 40% for the first three games of the Division series, the first four games of the Championship series, and the first four games of the World Series; 100% for any games beyond those thresholds.
But NFL owners tend not to complain too much about this because their current centralized revenue-sharing model seems to be working just fine.
“The centralized revenue sharing gives NFL teams less control over playoff dollars than their counterparts in other leagues,” Sean Clemens, director of sports investment banking at Park Lane, told Sportico. “But it’s the same system and revenue base that see them ending with the highest profit margins in sports, so you don’t see owners complaining.”
Still, that same principle doesn’t necessarily apply to players. Why? Well, player contracts only run through the regular season, so the NFL uses gate receipts in the playoffs to create a bonus pool for players that work during the postseason.
But there’s just one problem: These bonus payments can end up being drastically lower than a player’s salary during the regular season. For example, players competing in this year’s NFL playoffs will receive between $41,500 to $69,000 each week leading up to the Super Bowl, provided that they keep winning games.
And for someone like Patrick Mahomes, who currently receives a weekly $2.5 million salary, that represents just 1-3% of his weekly salary.
Note: NFL players’ salaries are split up and paid across the 18-week season, so Mahomes’ weekly payment is $45 million/18 weeks = $2.5 million.
Of course, a rising tide lifts all boats. The current CBA stipulates that NFL players receive about half of the NFL’s annual multi-billion-dollar TV deals, which certainly wouldn’t be as valuable without playoff football.
The other interesting force at play here is the playoff bonus incentives many of the league’s best players have written within their contracts. These bonuses can range from just a few thousand dollars to more than $2 million, and it’s become a way for teams to reward players for a successful season. Here are a few examples:
2022 NFL Playoff Bonus Incentives
Cowboys DE Dorance Armstrong: This season, Armstrong was paid a $250,000 bonus for making the playoffs AND recording 8 sacks.
Seahawks QB Geno Smith: Earned a $1 million bonus for playing 80% of the season’s snaps AND making the playoffs.
Chiefs QB Patrick Mahomes: This playoff season (and every playoff season through 2031), Mahomes can earn a $1.25 million bonus if the Chiefs win the AFC Championship game.
Cowboys QB Dak Prescott: Can earn a $1 million bonus (this year and every year of his contract) for playing 50% of the season’s snaps (has 70.65% this year) and winning the Super Bowl.
Buccaneers QB Tom Brady: Past example, but was paid a $2.25 million bonus for his Super Bowl win in 2021.
So while I don’t think anyone will protest Patrick Mahomes’ weekly salary dropping from $2.5 million to $50,000, the changing economics behind the NFL playoffs are undoubtedly interesting.
The (Growing) Price Of NFL Playoff Advertisements
We all know that the Super Bowl is king when it comes to sports commercials.
For example, last year, Coinbase spent $14 million for a color-changing QR code to bounce around on the screen for 60 seconds. It was so popular that app downloads increased by nearly 300%, and their website crashed.
And this year, FanDuel is taking it to another level. The sports betting app has paid $7 million for a 30-second commercial — but rather than coming up with a traditional ad, they plan to live-stream Rob Gronkowski attempting a 25-yard field goal during the 3rd quarter. If he makes it, anyone who uses FanDuel to bet on the game will be eligible to split $10 million in free bets.
My point is simple: These commercials have continued to get more creative every year, but they have also become more expensive.
Cost Of A 30-Second Super Bowl Ad
1967: $42,500
1970: $78,200
1975: $107,000
1980: $222,000
1985: $525,000
1990: $700,400
1995: $1.15 million
2000: $2.1 million
2005: $2.4 million
2010: $2.95 million
2015: $4.25 million
2021: $5.5 million
2022: $6.5 million
2023: $7 million
And while the Super Bowl tends to get all the attention, the price for a 30-second spot during the first few rounds of the NFL playoffs has also quietly climbed.
For example, 30-second ads for early playoff rounds (Wild Card and Division) cost $1 million, and ads for conference championship games cost $2 million. This is a significant increase from the ~$400,000 fee during the regular season, but still 70 to 80 percent cheaper than the $7 million fee during the Super Bowl.
But how can the NFL charge so much? Well, even though the Super Bowl is the king of all American TV programs, the playoffs generate tens of millions of viewers, making them one of the most valuable TV products.
49ers vs. Cowboys: 41.5 million viewers
Eagles vs. Buccaneers: 30.37 million viewers
Bengals vs. Raiders: 27.7 million viewers
Chiefs vs. Steelers: 28.94 million viewers
Bills vs. Patriots: 26.37 million viewers
Rams vs. Cardinals: 23.15 million viewers (postseason debut of Monday Night Football)
Chiefs vs. Bills: 42.74 million viewers
Rams vs. Buccaneers: 38.14 million viewers
Bengals vs. Titans: 30.75 million viewers
49ers vs. Packers: 36.92 million viewers
2022 Conference Championship Ratings
Bengals vs. Chiefs: 47.85 million viewers
Rams vs 49ers: 50.23 million viewers
For context, the 2021 NFL regular season averaged 17.1 million viewers per game.
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I hope everyone has a great weekend. Monday is Martin Luther King Jr. Day in the United States, so we’ll be back on Wednesday. Enjoy the playoffs!
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Huddle Up is a 3x weekly newsletter that breaks down the business and money behind sports. Subscribers include investors, professional athletes, team owners, and casual fans. So if you are not already a subscriber, sign up and join 78,000+ others who receive it directly in their inbox each week — it’s free.