Wednesday, February 6, 2008

Gregg Easterbrook Thinks He’s Smarter Than Every NFL Team

If you’ve read Gregg Easterbrook’s Tuesday Morning Quarterback before you know that he likes to go off and discuss, at length, random things. Cheerleaders, astronomy, economics, environmental policy, etc. are the usual fare for Easterbrook. He also has a running commentary about the executive structure of NFL teams, which he finds to be ridiculously layered with executives. He spent some time on this topic in this week's column. I will focus on what he said about the New England Patriots for the simple reason that he says they are the most “top-heavy” and because I believe it’s a good example of how he doesn’t know what he’s talking about here.

First, a portion of his commentary:

• The Patriots, this year's winner for most top-heavy front office, have a chairman and CEO, a president, a vice president of player personnel, a chief administrative officer, a chief financial officer, a chief operating officer, three other vice presidents, two executive directors, two people who both hold the title director of sales, a director of strategic initiatives, and 12 other directors.

Morons! Easterbrook could run that shit with 5 people and a monkey. He’d of course add an Executive VP, Football God Compliance because he thinks Football Gods are real or something. Anyway, so that’s 26 executives.

Later he says:

When pondering football title inflation, bear in mind that individual NFL franchises are fairly small economic entities. Forbes magazine estimates that the Patriots earn about $255 million in annual revenue, with about $200 million in revenue being the NFL average. If $200 million sounds like a lot, it's half the annual revenue of Barney's, the New York department store. There are many enterprises viewed as small businesses whose revenue exceeds the $200 million brought in annually by the typical NFL team; $200 million in revenue just doesn't justify large numbers of grandiose executive titles. If General Electric had the same ratio of titles to revenue as the Patriots, GE would employ 652 presidents, 1,304 executive directors, 1,956 chief officers and 9,780 directors.

As usual, Easterbrook does a good job of oversimplifying things to support his argument. The statement that the revenue number is half the revenue of Barney’s (which is more than 1 store, of course) is meaningless, as they are completely different businesses. It’s also very misleading for a different reason, which I’ll explain later. He ignores the fact that the CEO of a company is almost entirely devoted to that Company. They typically serve on a few charitable boards and may possibly be on the board of other companies, but those are not their jobs by any stretch. Bob Kraft’s role as the CEO of the Patriots is not analogous to that of a CEO of a similarly sized company, for a variety of reasons. His job is to oversee his broad business holdings, of which includes the New England Patriots. Many CEO’s of pro sports teams are just rich guys who manage their investments, one of which is their team. The following is from the Patriots’ website:

Kraft founded The Kraft Group to serve as the holding company for the family's varied business interests, which are concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing.

This guy’s role with the Patriots is not analogous to the CEO of Barney’s at all. Not unless that guy/girl is also running a timber operation or something. Also, the Kraft Group’s revenues in total are almost certainly higher than Barney’s, which makes Barney’s as a point of reference even more off-base. Using GE as an example is terrible, as I’m sure they have a startlingly high number of executives anyway given that they have about 320,000 employees. Using Easterbrook’s lame extrapolated supposedly-hyperbolic numbers (based on revenues) to compute that there are 13,692 executives at GE, you’d wind up with executives representing about 4% of their workforce. That’s low. I know my Company has more than 4% of employees classified as Director level or above. If your business has 50 employees, don’t you have more than 2 executives? Unless you are working in an all-manufacturing environment or a larger business with thousands of lower level employees with compartmentalized job skills, I would think this is true.

So Easterbrook has noted that the Patriots have a Chairman/CEO, that’s Robert Kraft (above), as well as a President, Jonathan Kraft. Let’s read what the Patriots website says about Jonathan’s job:

Kraft's NFL obligations are only a small part of his day to- day responsibilities, which are as diversified as the many different companies he oversees. The Kraft Group has a diversity of interests concentrated in five specific areas: the distribution of forest products, paper and packaging manufacturing, sports and entertainment, real estate development and private equity investing and Kraft is responsible for overseeing the operations of each division.

Does it sound like he’s spending the bulk of his time on the Patriots? Do you think the President of Barney’s job description starts with “so and so’s Barney’s obligations are only a small part of his/her day to day responsibilities”. What Easterbrook fails to recognize is that the top 2 executives of the Patriots are tied into to Kraft’s other businesses, and most others also devote a significant amount of time to Gillete Stadium, which the Kraft Group owns. Don’t forget that if the team owns the stadium then that is a year-round business that requires executives (operational, sales, finance, etc.) to oversee to make sure that this asset worth several hundred million dollars is being fully utilized for economic purposes while being maintained. That’s a full-time business. Here, let’s look at a portion of the Patriots’ COO’s job description:

As Chief Operating Officer he oversees the daily business operations of each department in the organization to ensure the efficient achievement of operational and financial objectives. With its active calendar of concerts, trade shows and private events within the Fidelity Investments Clubhouse, the stadium complex is a year-round convention center in addition to being a premier sports and entertainment venue.

Going back to his revenue number, if U2 performs a concert at Gillette Stadium, does it show up in the Patriots’ revenue figure? I don’t know, but I wouldn’t just assume it does.

It’s not entirely uncommon for a company with revenues of a few hundred million (let’s say domestic only, to keep it simple) to have the following executives:

Overall Executives
- CEO/President (could also be two roles)
- COO (or some companies just call this type of role the President)
- Could have….Chief Marketing Officer, Chief Technology Officer (hi-tech), Chief Accounting Officer, etc.

Functional Executives
- VP, Marketing
- VP, Research & Development
- VP or Director, Human Resources
- VP, Sales
- VP, IT/IS (could be two Director roles)
- VP, Professional Services (or manufacturing, Ops management etc. – industry specific).
- VP, Corporate Controller
- VP or Director of Finance (FP&A, budgeting, finance management of verticals, etc.)
- VP, Corporate/Business Development
- Other potential VPs = Strategy (related), Mergers and Acquisitions, Product Marketing, Customer Service, etc.

Business (verticals) Executives
- GM – Business line 1
- GM – Business line 2
- GM – Business line 3

Industry specifics and company size dictate the org chart of a company, that’s just meant to be a quick overview of what you tend to see.

Now here’s where it gets interesting (or probably really, really, painfully boring), each of the functional executives likely have at least 1 Director level executive reporting to them. In something as important as development for a hi-tech company or a pharmaceutical company (even a small one, pre-revenue), there could be 2-3 VP’s reporting to a Senior VP, and those VP’s could have responsibility for certain product lines possibly (or disciplines – pharmacology, chemistry for a biotech, etc.) with Director level employees under them. For sales, you could have a few Directors managing sales teams by geography or vertical or both and reporting to a VP of Sales. Or you could have a VP of Sales under each vertical. In finance, under the Controller or CFO, you probably have a director (or VP) of tax and Divisional Controllers. Each of the GM’s likely have a “Director of Operations” or something analogous for that line. Also, I’ve ignored legal but a fair number of small/mid-size public companies employ a VP/Director level internal legal resource.

What I’m saying is that you can easily get to 26 executives. While that may be a more robust org chart that he is considering when looking at an NFL franchise (and the 26 execs above), my point is that the number of executives is not surprising to me nor does he have any basis for saying it's extreme in comparison to businesses of similar size/complexity.

So the point of this long, boring post, is to say that Easterbrooks’ long running rant/joke about the number of executives at NFL teams is a stupid waste of time. I’m sure some teams are top-heavy, just like some companies, but this isn’t worth the effort that he (or I) have put into it.

No comments: