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NFL Labor Issues: Looking at the CBA, part 1 - How much is at stake?

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Now that football season is over, we've officially entered what I like to call the Dead Zone, which is the time between the end of the season and free agency. Sadly the Dead Zone this year will be even longer if the owners and the players don't reach an agreement by March 4 and the NFL owners lockout the players. This will have a big impact on the draft and I think we'll see different drafting strategies due to the negotiations. To help alleviate this dead zone, I'm going to be writing a series of posts about the CBA, what the issues are, what the reactions from the various sides are, etc.

Right now it's in the initial bargainining sessions, so you'll be seeing lots of dramatic pronouncements and actions from both sides as they set the boundaries for a move towards the middle. In my experience (having been involved in union and management negotiations before), the real talking doesn't get done until the last possible minute. I suspect we'll be seeing lots of meetings in the last week of Febuary, and a likely agreement to extend the time table to prevent a lockout.

Join me after the jump as I go over more details...

Here are some of the main concerns at the negotiating table:

  1. Rookie salary cap--this is a popular topic, but is probably not nearly as divisive a one as people like to think. Both players and owners want this and the incoming players are not yet part of the union, so they have no voice.
  2. HGH and steroid testing. League already does steroid testing, but they want to also be able to test for HGH. Players complain that there's not yet an accurate test developed for this18 game season. This is a big one for the league and I think it will be a done deal. The owners want this badly and this is the single biggest leverage that the union has.
  3. Extended health care for retired players
  4. Benefits to players who retired before the advent of free agency
  5. Bonus Recovery. The rulings against the owners in the case of the bonus money paid to Michael Vick and Plaxico Burress rankle. They want more guarantees against bad behavior, and the NLFPA opposes this.

These are the issues that are getting most of the press, but they're tertiary to the real issue, which is the revenue split between the owners and the players. Once that gets figured out these other issues will fall into place.

In 2006 the owners and players ratified a new agreement that was brokered by Gene Upshaw. Upshaw has gotten some bad press from former players about being "too friendly" with management, but the deal he brokered then bothered the owners so much that in 2008 they unanimously voted to opt-out of it. Pretty strong statement about their dislike for a contract negotiated by a supposed friend of the management.

Under that CBA the players got 58% of what is called Total Revenue. This is revenue, minus certain expensese. Last year the league revenue was $8.9 billion. Owners got to take $1 billion off the top of that for expenses, and then 58% of what was left was allocated towards player salaries. 60% of a 7.9 billion pie comes to about $4.75 billion, or just under $150 million per team.

The owners propose the same 58% split, but with a caveat. Their claim is that costs of doing business are rising. Between the need for ever newer and nicer stadiums, increased salaries, increased rents and everything else associated with running a team they want more. Their proposal is to take another $1 billion off the top, leaving the players to split 58% of $6.9 billion, or a total of $4.15 billion. This is an 18% reduction, which is where the players are coming up with their mantra of a pay cut.

The union and owners met last Wednesday, and the players made their most recent proposal, at which point the owners walked out. The players proposal was a straight up split of 50% of the total revenue. Using the most recent numbers then that would give the players about $4.5 billion to be split among the 32 teams. They would then take a smaller share of the incremental revenue from new stadiums and luxury boxes.

You'll hear a lot about how the league and owners are $1 billion apart. That's kind of true (because of the extra $1 billion the owners want to take), but the reality is only $500 million, or about $15 million per team. The larger issue is the growth of the league's revenue which Roger Goodell hopes to get to $27 billion in revenue by 2027, which is completely feasible given the growth rates of the sport. In that year (assuming a 50/50 split by the league and the players), the players will be splitting almost $14 billion in revenues. What this negotiating session is really about is the owners re-establishing dominance to pave the way for future CBAs.

Pete Kendall, the permanent player representative in the CBAs, wrote a memo last spring, where he had this line

"You would have to turn back the clock to the early 1980's, in the days before free agency, to find a season in which the players' share of football revenue was as low as that being proposed by the NFL owners for 2010 and beyond. Thus, the only way to describe this proposal is that it is a dramatic reduction in player compensation, which is not justified given the NFL's unprecedented growth and their failure to provide meaningful financial data relating to their expenses."

While this is technically true (given the reduction in overall share), it's certainly not true in hard dollars.

I had a tough time finding tv revenue money for the early 80s, but in 1993 Fox paid $290 million for the rights to broadcast the NFC games. If you figure the AFC contract was worth as much, and then figure every other source of income you might come to a reasonable number of $1-1.5 billion in league revenues for the year 1993 (I'd guess at best half of that in 1983). 58% of that revenue would amount to a split of $600 million between 28 teams.

One thing that the players have requested (and rightly so), is for the owners to release their records to prove their claims of rising costs. Without a court order I don't see that happening, but it's a nice piece of propaganda that the players can toss around.

When it's all said and done how far apart are they really? The league wants the players to get a total of 45% of the total revenue. ($8.9 billion minus $2 billion in expenses, leaving Total Revenue of $6.9 billion. 58% of that is $4 billion or 45% of total revenues.) The players want a straight up 50% split of total revenue. They're only 5% apart right now but in 5 years that could approach $1 billion in yearly revenues and if Goodell's right and the league is at $27 billion in revenue you're looking at nearly $12 billion in revenues. It's a big deal. I suspect they'll end up somewhere around 47% or 48% in total revenues going to the players.

So who's right and who's wrong here? Both sides have legitimate points, and they're not really that far apart when it comes to total dollars or percentage of the pie. My guess is that the total revenue that will end up in player's hands will be around the 55% number (whether they split that right off the top, or figure out some sort of arrangement like they do now with expenses).Next time I'll be looking at the financial impact of a lost season to the teams and the cities of those teams.

Additional Reading:

Adam Brandt of the National Football Post has an excellent series of posts on the CBA. Well worth reading to get more insight. He takes a very fair and balanced look at the issues.

Gary Myers of NYDailyNews.com has a nice overview of the history of the CBA

Pete Kendall's memo on the revenue split.

NFL vice-president statements