As fans settle in for the stretch run of playoff games in the NFL, the most important date on their calendar shouldn’t be Super Bowl XLV on Feb 6, but less than a month after on March 3. That is when the current collective bargaining agreement in the NFL expires. Yes, fans could be looking at the league locking out the players in just over 7 weeks creating a work stoppage that, depending on how long it is, could possibly mean the cancellation of preseason games, at best and regular season games at worst.
The claim by the NFL is that if the players don’t reduce salaries and increase the amount they are providing in “expense credits” for expenditures such as stadium development, the league could see rocky times.
“Yes, NFL players deserve to be paid well,” said Commissioner Goodell in a January letter to fans. “Unfortunately, economic realities are forcing everyone to make tough choices and the NFL is no different.”
But, do the economic realities really point to the NFL needing to make “tough choices”? Here’s how it all breaks down.
What is Goodell basing his “economic realities” on?
The league has pointed to the only financial info made available to the public, the Green Bay Packers. The “economic realities” are that in the worst economy since The Great Depression, the Packers saw reduced profits last year. The club pulled in $9.8 million in profits for the fiscal year that ended March 31. That was a decrease from $20.1 million from the year prior.
That’s the Packers, is the league offering up other financial information?
The answer shouldn’t be surprising, but it’s no. In prior labor battles, namely MLB’s 1994-95 strike the players said, “If you’re asking for salary cuts, show us your books.” The NFLPA is asking the same, and was the case in the past with baseball, the NFL has rejected the request.
Is the NFL profitable by other measures?
According to Kurt Badenhausen of Forbes SportsMoney, “The NFL has never been more profitable by our count with the average team earning $33 million in 2009 in operating profit (earnings before interest, taxes, depreciation and amortization) thanks to huge incomes for teams like the Cowboys, Patriots and Redskins.”
The most recent Forbes NFL franchise valuations show 19 of 32 clubs being worth at least $1 billion. In Major League Baseball, where talk of a labor stoppage at the end of 2011 is nearly non-existent, only the Yankees have a valuation of over $1 billion, as ranked by Forbes.
What are the owners looking for?
In terms of economics, a rookie wage scale and increased “expense credits”, both of which would reduce total revenues (the amount of revenues after the owners take their cut off the top before it gets to the players) by approx. 18 percent.
How much do the players currently take in?
Players receive approximately 50 percent of all revenues in the NFL. Looking at it another way, the players receive less than 60 percent of “Total Revenue” – the amount of revenues after the owners take expense credits off the top. (see a listing of All and “Total Revenue” in the NFL since 2000)
Have rookie wages grown?
Actually, the amount of rookie share of the salary cap has decreased since 1994:
- 1994 (first capped year) – 6.86%
- 1999 – 5.41%
- 2003 – 4.94%
- 2009 (last capped year) – 3.71%.
How much revenue is the NFL pulling in?
From 2005, the year before current CBA was reached, to 2009, revenues in the NFL have grown dramatically. From 2008 to 2009, during the chilly economy, revenues grew 9%. Going back to the key “All” and “Total” revenues, which is the revenues after the owners take their expense credit cut that is used to determine the salary cap, revenues for the salary cap, the numbers are as follows:
Year | (All) Rev (Billions) | % of increase
| (Total) Rev (Billions) | % of increase | |
2005 | $6.5
| $6.0 | |||
2006 | $7.7 |
| 18% | $7.0 | 17% |
2007
| $8.0 | 4% | $7.1 | 1% |
|
2008 | $8.5 | 6% | $7.5
| 6% | |
* 2009 | $9.3 | 9%
| $8.2 | 9% |
* Calculated
All revenue increase from 2005 to 2009, 43%. Total revenue increase over same period37%
The owners are asking for increased expense credits, what do they pull in now?
Approx. $1 billion off the top before the calculations for the salary cap are made. The logic of expense credits is that in doing business activities such as building new stadiums, the increased revenues will trickle down to the players. The players have concerns about loopholes such as the league using the funds for travel expenses, which does not grow revenues. In terms of recent stadium construction, those expense credits have included $800 million to the new Meadowlands Stadium for the Jets and Giants, and $350 million to the new Cowboys Stadium.
Did Free Agent spending dramatically increase in the uncapped season?
In an uncapped season, there was concern that spending would go spinning wildly out of control. But, clubs in the NFL did the opposite, with spending on FAs growing at less than half the pace that it did in the last year of the capped season. Based on data as of Week 10, spending on free agents had grown 4.8 percent from the year prior. The following is a breakdown of free agent spending in the NFL as of Week 10 over the last three seasons:
YEAR | Total Players (UFA, RFA, OFA) Signed
| TOTAL FIRST YR $ | % Increase | AVG FIRST YR $ |
2008
| 374 | $708,878,082 | 51; | $1,895,396 |
|
2009 | 385 | $784,674,108 | 10.70% | $2,038,115
|
2010 | 425 | $822,227,925 | 4.80%
| $1,934,654 |
Has the economy impacted attendance?
Over the same number of home games (254), the NFL drew a total of 17,007,172 for the 2010 regular season. That was down 139,232 in paid attendance from 2009, less than one percent (-0.81%).
Have television blackouts increased or decreased over the current CBA?
There were just 7 blackouts in 2006, compared to 26 this year. The blackouts are tied to whether games are sold out. In an interview with Mike Florio of Pro Football Talk, Commissioner Goodell said, “The quality of what people are seeing on television sets with high-definition television and super-slow replays, all of those things make the experience at home terrific. We don’t want to discourage that. We want to encourage that, but what we have to do is make sure that the experience in our stadiums is equally as great. There is nothing like being in a stadium with 75,000 passionate fans enjoying NFL football.”
How does television play into any lockout?
The largest factor in a possible lockout stems from how the NFL’s agreements with their network partners are worded. The NFL would get still get paid for the TV rights, regardless if games are played.
Annually, the NFL pulls in more than $4 billion in television network rights fees (see table below). For all of the network partners, they have agreements in place with the league in which the NFL would be paid these fees, even if games are not played. Roger Goodell has said that the league will have to rebate the networks, with interest, when play resumes, but that’s only half true. The DirecTV fees for NFL Sunday Ticket, which are now almost $1 billion, would not have to be returned.
Network | Annual Rights Fee | |
|
| ESPN | $1,100,000,000 |
FOX | $720,000,000 | |
|
CBS | $620,000,000 | |
NBC | $603,000,000 | |
* DirecTV
| $1,000,000,000 | |
TOTAL | $4,043,000,000 |
* Approximate
Is ESPN looking to extend their agreement for Monday Night Football?
John Ourand of the SportsBusiness Journal reported last week that, even on the edge of a work stoppage in the NFL, ESPN, the ABC-owned network, is willing to pay considerably more than they already do for the rights to keep Monday Night Football. According to the SBJ:
ESPN and the NFL have agreed to broad terms on a new media rights deal that will be worth nearly $2 billion per year. Specific numbers still are difficult to confirm, but multiple sources say ESPN has told the NFL that it will increase its annual rights fee by 65% to 70%%, which means it will pay the league a record fee, between $1.8 billion and $1.9 billion a year.
How have television ratings been?
Extraordinary. Nothing comes close to the league’s popularity on television. The NFL have 18 of the 20 highest rated shows during the NFL season. According to a Dec. 19 article in The New York Times, “Of the 50 highest-rated programs during the calendar year, 27 have been N.F.L. games, including 8 of the top 10.” And looking at this New York Times graphic, Sunday Night Football ratings have skyrocketed since 2008.
Are any other business partners reaching lucrative deals with the NFL?
In May of last year, Anheuser-Busch knocked Coors out as the Official Beer of the NFL in a six-year, $1.2 billion deal that begins in 2011, the year there could be a lockout.
What are the players looking for?
Nothing. Technically, they are seeking an extension of the current CBA reached in 2006. To date, the owners have rejected the proposal 5 times.
Are the players willing to bend on any issues?
Yes. The NFLPA proposed changes to the rookie wage scale that has been in the works for over a year. The union for the players offered up what they call a 60;Proven Performance Plan61;. The proposal would reduce rookie contract lengths to a max of 3 years. According to the NFLPA, that would reduce spending on rookie salary by approx. $200 million. The proposal would then take those savings and divert $150 million to players who signed relatively low contracts either as rookies or veterans, but whose performance has been much greater. The rest of the balance (approx. $50 million) would be devoted to a fund for new retired player benefits. The proposal is also seeking the league to match those funds creating a $100 million pool for retired player benefits.
Did the league accept the 60;Proven Performance Plan”?
Since the Players’ proposal does not reflect the savings on the reduced length of player contracts coming back to the owners, unsurprisingly, the owners rejected the proposal.
Would the players have benefits in the event of a lockout?
No. Medical insurance and other benefits would not be provided to the players as they are tied to CBA. In fact, each of the NFL’s 32 clubs is saving millions in this uncapped year. According to a Q&A released by the NFL in 2010, “The union agreed that in the Final League Year, clubs would be relieved of their obligation to fund numerous benefit programs. Examples include second career savings (401K), player annuity, severance pay and performance-based pay. The total league-wide contributions to such plans in 2009, the last capped year, were in excess of $325 million or more than $10 million per club.”
Do the players have any weapons to try and fight back?
They do, but it’s certainly not full-proof, and fraught with risk. The NFLPA has said that they are considering decertification. That would mean the union for the players would dissolve becoming, ostensibly, a trade organization. Based upon anti-trust law if the NFL clubs, acting as 32 individual businesses, were to attempt to do so, it would be a group boycott of the workers which is illegal.
The NFLPA did this 1989 only to reform as a union in 1993. The NFL would claim through the courts that the new move to decertify is a sham based upon the actions that the NFLPA did prior. It also could mean that a new union could be formed while the current one is dissolved setting up a possible power struggle with the players.
If decertification were to be used, it would likely be a trump card – something that would be acted upon very close to the March 3 deadline
Most of this looks like it shows the NFL doing better, rather than worse, why are the owners looking to a possible lockout?
The NFL could make a compelling case that they are in need of cutting salaries for the players, but as mentioned, they are not releasing financial information, so what is provided paints the picture. If the picture is indeed correct (and unless the NFL is willing to show otherwise, it is as it is), then one could suggest that opportunity is at the center of it. With the television money being so lucrative, the fact that they get paid those rights fees, even if games aren’t played, on top of keeping approx. $1 billion in DirecTV money, then clawing back to where the owners were before the 2006 agreement was reached is a tempting proposition. After all, with the economy just now starting to thaw, it’s easy to say that the NFL is hurting like everyone else, even if they league isn’t presenting compelling figures.
And while the NFL will say that they have to pay the television money back, in the battle of attrition, the owners can clearly outlast the players. If so, the owners will make back part of what they have to pay back through savings on player payroll.
And all of this doesn’t account for other issues the owners are asking for including an 18 game schedule, and possible hGH testing as part of the drug policy. On the 18 game schedule, the players would incur more injuries, which, unless the league is willing to add more money in the way of benefits, is a key concern for the players.
Lastly, there are the fans, who are stuck in the neutral zone of this goal line stance. The owners appear to be willing to sacrifice games while seeing incredible revenues, ratings, and sponsorship deals reached over the life of the current CBA. The players have been asked to take a cut. As you look back over the numbers above, ask yourself if your company was thriving in this economy, and then asked you to take an 18 percent pay cut, how would you react? What the NFLPA is asking seems reasonable in light of what the owners are asking: show us your books and prove it.
When will there be a new CBA?
This is the $64,000 question. What seems clear is no agreement will be reached in time for the Super Bowl. The sides have had discussions, but they have not been of the “meaningful” variety. Real movement in labor negotiations occur the closer one gets to the deadline. The period from after the Super Bowl to the expiration date on the CBA will be telling, especially the week beginning Feb. 28 leading up to March 3rd on a Thursday.