Jerry Jones Has a Point, But the Wrong One.

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Much has been written about NFL Commissioner Roger Goodell’s contract extension and Dallas Cowboys President Jerry Jones’ objections to the amount he can earn and the lack of rigorous performance criteria.  While Jerry might be right, I think the bigger issue is a classic example of misalignment between owners and the executive.

Owners earn a healthy annual return on their investment.  But the serious money is made from the growth in the value of the franchise.  The franchise value grows tax-free over time from enhanced TV contracts, merchandising, stadium deals, operating management and keeping the stadiums filled.  When the franchise is sold, the gain is taxed at favorable long-term rates.

From press accounts, it appears that the contract being discussed is a collection of bonus arrangements designed to reward the commissioner for improvements in the various metrics that drive the franchise value.  One of the arguments is whether the performance goals are sufficiently difficult or if the bonuses are just disguised salary.  This is a typical “managerial” approach to compensation – pay me for the things I can control and I’ll “manage the hell out of them”.  Its not a contract compatible with the group of entrepreneurs that own the place.  In a public company this would be like paying the CEO huge annual bonuses, but no stock.

Here is an idea for a better approach.  Scrap the bonuses entirely.  Pay the Commissioner a nice high salary consistent with what the top players make – maybe an average of the top 5 players in each position or a fixed percentage of the cap.  The Commissioner represents the players too and he should have something in his package tied to their welfare.  But the true wealth from this contract should come in the form of something like a Stock Appreciation Right (SAR) tied to the increase in the aggregate franchise value.  Forbes Magazine, an objective third party, conducts a study each year.  The values they compute may not be 100% accurate, but the trend is consistent with the trend in the Owners’ value.  The SAR would only pay out at the end of the Commissioners term to ensure a long-term alignment with the Owners.  NFL Commissioners serve a long time – Rozelle served 30 years, Tagliabue 17 and Goodell has already served 11.  It’s a long-term job.  The pay should be too.

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