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If Andrew Luck Is Good, Irsay Made The Right Financial Choice By Dropping Peyton Manning

Peyton Manning said at his goodbye press conferencethat “the contract and the money was never a factor for either of us.”

Of course that’s not true.

Peyton Manning and Indianapolis Colts owner Jim Irsay hug during a press conference announcing that the Colts will release Manning in Indianapolis, Indiana.
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Peyton Manning and Indianapolis Colts owner Jim Irsay hug during a press conference announcing that the Colts will release Manning in Indianapolis, Indiana.

So I’m going to attempt to answer this question: Was getting rid of Peyton Manning in favor of drafting Andrew Luck the right move?

I asked my Twitter followers how the Manning for Luck swap would look in five years and 42 percent of the 236 people that voted said it would be a wash. More than 30 percent said it was a dumb move, while 27.5 percent called in “genius.”

So why not take on the herculean task of trying to figure out how many wins Andrew Luck has to have in order for owner Jim Irsay’s bet to pay off. We know that there are so many factors at work here, but we figured if we plugged in smart hypotheticals we could get closer to the number crunching that Irsay did, or should have done.

First, let’s talk about what doesn’t change:

Selling more or less merchandise (league splits everything equally) or appearing on fewer games on television (league splits national TV revenue equally).

Now, let’s talk about price. Irsay would pay Manning $63 million over the next four years versus paying Luck $23 million. So, Irsay has $40 million to play with, or a $10 million a year. Colts games have been sold out since 1999, which is 114 straight games, including the playoffs.

Even after a 2-14 season, the excitement of Luck and with the scarcity of the games in general, it’s reasonable to think that there will be no attendance drop in the first year. So how bad can Luck be in order to still make ends meet? For argument’s sake, let’s say Luck is good, but not good enough to get the Colts into the playoffs in any of his first four years. So let’s say that in Year 1, the Colts are 6-10 and Year 2, they’re 7-9. Under that scenario, the most they can lose on ticket renewals is probably 5 percent or around 3,100 tickets per game in Year 2 (remember, there’s a waiting list of 9,000 people who will still want to buy). I can see another 5 percent coming off if the Colts don’t win more than 8 games in Year 3 and 4. Over the four years, the Colts season ticket per game price will average around $90 (it was $85 last season).

If the Colts win 6, 7, 8 and 8 games in Luck’s first four years, let’s project they’ll lose 3,100 fans per game at $90 a ticket in year 2 (that’s $2.79 million), an additional 1,550 fans in Year 3 (that’s $4.18 million) and another 1,550 fans in Year 4 (that’s $5.5 million).

So we have the Colts losing $12.47 million in a four-year period of time if they win 29 games and don’t make the playoffs. Adding in concessions losses, based on collecting $10 in revenue per fan per game, I have $1.4 million concession losses over those four years. Parking is not affected because the Colts don’t have many spots to sell to begin with.

The value of sponsoring the Colts would have also dropped. It’s fair to assume the Colts have around 75 sponsors generating about $25 million in revenue. I think it’s fairly reasonable to think that, under a scenario where the Colts don’t make the playoffs for four years, they’ll incrementally lose 5 percent of their sponsors in Year 2, Year 3 and Year 4. At an average of $333,000 a sponsorship, that’s a $7.5 million loss over 4 years.

Put this all together, that’s about $21.3 million that Jim Irsay would lose if the Colts never made the playoffs and won 29 games. Sure, keeping Manning would mean you probably wouldn’t have lost that money and you might have been able to charge more for tickets, but that also assumes there won’t be any letdown with his injury and age. And remember, Irsay would have paid Manning $40 million more than Luck.

So even if Luck doesn’t have one playoff year, it seems like there is plenty of room for Irsay to still come out on top and that doesn’t even account for what Luck could do in the league after his four-year contract is up.

But one of the smartest Colts fans I know thinks Irsay could have done better.

Tobias Moskowitz is a finance professor at The University of Chicago Booth School of Business. As the co-author of “Scorecasting: The Hidden Influences Behind How Sports Are Played And Games Are Won,” he’s also very familiar with number crunching in sports. Moskowitz says that he thinks it would be a better strategy to keep Manning and trade down in the draft to get more prospects.

“Many say, it’s less risky to take a quarterback at number one now that we have the rookie wage scale,” Moskowitz said. “It’s actually more risky because rookies cost less, you can sign more of them and can afford to fail more times if you have more picks.”

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