A Decision to Share Less
As we enter the final month of salary cap football in the NFL for what may be a short or long while, something happened this weekend that could shake the uneasy truce between the NFL and the NFL Players Association in their closed-door discussions over a new Collective Bargaining Agreement (CBA). The move has the potential to escalate a growing disparity between teams in their revenue, player costs and, in theory, success – or lack of it -- on the field.
The NFL, which has many partners, has informed its most important partner, the NFLPA (union), that once the calendar turns to the 2010 league year in March, the Supplemental Revenue Sharing (SRS) program that promotes competitive balance and helps the lower-revenue clubs will cease.
Let’s review. On that fateful day in March 2006, when NFL ownership approved a new CBA, the dominant discussion of the day was not what the players were getting but rather the revenue sharing plan. The late Gene Upshaw, the NFLPA’s executive director at the time, relied on the owners’ preoccupation with the SRS while the labor part of the deal sailed through virtually unnoticed.
The SRS was passed to take money from the top 15 revenue-producing teams and distribute it among the lower tier of teams (nine received funding last season). Those SRS amounts have been a nominal slice of overall revenues yet are responsible for distribution of more than $100 million per year in propping up teams struggling to find new revenue streams and build new stadiums.
Meanwhile, the new CBA passed by a 30-2 vote of ownership. The two opposing votes -- Mike Brown of the Bengals and Ralph Wilson of the Bills -- were seen at the time as contrarian voices in the wilderness, but they soon became the majority opinion as owners exercised an early opt-out in May 2008, terminating the CBA following the 2010 season. And, as per the document, the last year of the CBA --2010 -- will operate without a salary cap.
And, apparently, without the SRS program -- although not without a fight. Immediately after the NFL informed the union that the SRS would be discontinued, the union appealed to the Special Master – the person in charge of interpreting CBA issues. The hearing, scheduled for Tuesday, will determine whether the league has the ability to tie the SRS to the salary cap, meaning neither would be applicable in 2010. The union maintains they are separate issues.
What no SRS means
Why is the union so concerned about continuing the SRS? It’s because that $100M that goes to the lower-revenue clubs can be spent, in theory, on players. It’s a mechanism, like the salary cap, to achieve competitive balance and ensure a system where everyone has a chance. As NFLPA executive George Attalah told the Associated Press, “Revenue sharing helps maintain the 'any given Sunday' dynamic in the NFL.”
That, of course, is in theory. While there is a mandatory minimum in cap spending for each team – around $108M this season -- there is no mandate for teams to spend a designated percentage of revenues on players. In other words, there are no strings attached to the SRS money that designate the money must be spent on players as opposed to other uses.
No cap, less spending?
As I’ve written, the prospect of no salary cap next year is less about teams engaging in profligate spending than about teams not doing enough spending. This is the biggest issue facing the players today. Without a cap, there is no minimum; without a minimum, there is the possibility that a number of teams could roll back next year, using the time to recover from previous bad decisions, a downturn in suite and sponsor sales resulting from the economy and their mounting debt service.
NFL to MLB?
Were that to happen, football could look more like baseball from a player spending point of view. The disparities in team payrolls announced last week were eye opening. While the Yankees had an average player salary of $7.66 million, the Pirates and Padres had average salaries of less than $1M! While the Yankees had a payroll exceeding $200M, the Pirates hovered around $30M!
This enormous disparity is only possible without a cap. The NFL – with a $128M cap this season – will have spending ranges for 2009 from a high of around $155M to a low of around $110M, a spread of about $40M, less than a quarter of the gap between the high and low in baseball.
Absent a cap and SRS, that spread will likely grow. While there may be a couple of NFL owners who spend liberally without the restraint of a cap, there may be another group of owners who will pull back. The payroll disparity will not be anywhere near that of baseball, but it will get bigger.
All part of the negotiation
The proposed elimination of the SRS is strategic. It illustrates an approach of continuing to point out to the union the ill effects of not having a deal in place before next year. The league negotiators have appeared completely unfazed by the prospect of operating without a salary cap and are now ready to pull the plug on a plan that would theoretically provide lower revenue teams more funding to buy players. The league is putting itself in a leveraged position to try and forge a better deal.
And what’s the problem with the deal they have now? Simply, the NFL believes that player costs – mandated by a floor and ceiling of a salary cap that has risen geometrically in the last five years – are significantly outpacing club revenues and operating costs of running an NFL franchise. The league wants the union to share the risk. To that, the union says, “Show us your books,” and then the quagmire starts anew.
Where will this go?
Tuesday’s decision by the Special Master will have some impact, but the slow negotiating pace of the meetings so far gives us no confidence that 2010 will be played with a salary cap, having all kinds of ramifications for player spending – or lack thereof – and thinning the free-agent pool considerably (more on that later this week).
I’m often asked these questions: Do I think there will be a new CBA negotiated by the end of the 2009 season? No. Do I think there will be a new CBA negotiated by the start of the 2010 league year in March? Better question. Do I think there will be a new CBA by 2011, a year when all bets are off? I’m cautiously optimistic that there will be, yes.
The pulling of the plug on the SRS by the NFL hit the union in the blind side. This is one play of many, perhaps the biggest game of any played prior to next season, when the NFL could look a lot different than it does now.
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