626 WIREIMAGE AND THE NFL
April 3, 2004
The NFL has offered WireImage a three-year contract to take over management of its NFL photo archive. Some observers think the proposed deal is too heavily weighted in favor of the NFL. WireImage is expected to make a counter offer.
Earlier the NFL proposed a deal with Getty Images, but photographers overwhelmingly rejected it because they were asked to give the NFL unlimited free usage of their images. The majority of past use has always been for NFL related projects.
WireImage is asked to pay the NFL a "minimum guarantee" of $300,000 per year from royalties with gross royalties for commercial sales divided: 20% to the NFL, 40% to WireImage and 40% to the photographer. Gross revenue for Editorial Sales would be divided equally (50%/50%) between WireImage and the Contributing Photographer with the NFL getting none of these sales.
An additional kicker is that WireImage would be required to provide the NFL and all its affiliate organizations with a $200,000 product credit per year for basically anything the league wants to do with images. WireImage "shall be responsible for all payments to the photographers as it relates to the NFL's use of such images" meaning that the NFL wants to saddle WireImage with the responsibility of trying to negotiate some type of discount from the photographers since the NFL knows the photographers won't give then a discount directly.
And on top of all this, WireImage is asked to scan, process and upload a minimum of 20,000 new images per year from the existing NFL Photo Library. That's in addition to the new material that would be coming in.
Sources indicate that total revenue NFL Photos has been able to generate in the past has been between $1 million and $2 million annually, and that the revenue is probably closer to the bottom number than the top. (This does not include any of the money paid to personalities for endorsements as that is controlled by the player's association and players contracts and handled separately.) It seems likely that in the first year of transfer of the operation to a new manager that gross revenue may be less than $1 million.
Realistically what is this deal likely to mean for WireImage. If they do $1 million in sales the photographers will get about $400,000. The NFL will easily meet its product credit limit and get a total of $500,000. WireImage ends up with $100,000 and all the work of managing the operation.
If they can generate $1.5 million in sales the photographers would get $600,000 and maybe a little more (if some are editorial sales), the NFL would get its $500,000 and WireImage would have $400,000 or less to cover its operational costs and ongoing maintenance of the file.
For this deal to go through 90% of the current photographers must accept it. It would seem likely that at least 10% will not be willing to take any less than 40% for all uses of their images, so the chances of the deal being accepted seem slim.
The key leverage the NFL holds is credentials. The NFL has promised to use "reasonable efforts to provide WireImage a minimum of (2) credentials to the NFL draft, pre-season and regular season games and four (4) credentials to the Super Bowl and Pro Bowl..."
This gives WireImage a lot of control over which freelancers get to cover future games.
Photographers who enjoy covering NFL games may find that they can no longer get access if they don't give in to lower royalties. On the other hand freelancers who cover these games entirely on speculation are totally dependent on royalties for their income. The NFL seems to believe that these photographers enjoy photographing the games so much that they will accept a bad economic deal just to get on the field.
There are team photographers who already have guaranteed access and whose situation will be little changed. It is unclear what the teams will do. In the past some teams have allowed freelancers to work and some haven't. If the images produced by the team photographer totally meet the team's needs, they may want to cut back on the number of people on the field. On the other hand, if there were times when the team has needed to use the resources of the NFL Photo office, they may now want to make it possible for some freelancers to shoot since the NFL Photo office resource will no longer be available. Of course the teams may also be able to get what they need from AP, Corbis, Sports Illustrated Picture Sales, or the Football Hall of Fame and these organizations stand to benefit if the NFL photo library is no longer available.
For photographers who can arrange access the best arrangement might be to let the NFL library fold. The photographers get their images back and can either scan selected images of the all-stars and some of the major events they have covered (or let WireImage do it). Then they deliver the digital files to WireImage at a normal percentage.
If the NFL library is broken up WireImage will probably get most of these photographers anyway, although some might go to Corbis. It seems doubtful that many would go to Getty since they have already rejected a Getty offer, and since Getty wants all their sports photographers to work on a salary basis with no royalties. (There is some indication that Getty might be willing to enter into a royalty arrangement with certain photographers, but that could not be confirmed. If that were the case the photographers would have to worry that Getty would push the wholly owned images shot by their other photographers rather the images on which they had to pay a royalty.)
Not only are the photographers likely to get a better percentage, if payments to the NFL are cut out of the deal, but WireImage will also earn significantly more and that means that there is a much better chance that the sports side of their business will prosper. Looking ahead, photographers need another outlet to prosper.
It is also important to remember that WireImage is not set up to handle and manage a three million image analog file. They only want to scan a very small portion of the prime selects. They don't need the added costs of either storing or trying to return all the images they don't want to scan. Leave that burden to the NFL, or get that NFL to pay WireImage to manage the breakup of the file -- not the other way around. The brilliance of the WireImage business model is that everything is delivered to them digitally, fully captioned, minimizing their upload costs. Taking on an analog file is a major headache and cost burden that WireImage doesn't need.
One of the great risks to WireImage in the deal, as it stands, is that the sports photo side of their business could become a "loss leader", and a drag on the profitability of the rest of their business.
The NFL is too used to negotiating deals with TV networks and major corporate advertisers and from that perspective the guarantees asked in this situation don't seem all that out of line. But the stock photo business doesn't generate the kind of revenue some of these other corporations do, and given the significant competition already in place growing a sports photo business may not be that easy. All in all, the NFL may be much too greedy in this instance.