Key to a CBA: tip of the Cap
Beyond all the rhetoric of this two-year labor dispute, there has been and remains one issue that stands above the rest: the split of revenues between the owners and the players. In other words, who gets how much. As with every answer, follow the money.
Understanding the Cap
The Salary Cap (Cap) – which defines NFL revenue allocated to players – is one of the most misunderstood mechanisms in sports. It is not well known that the NFL Cap consists of two parts: the “Team Salary” (TS) portion and the “Benefits” portion.
The TS number is the number we usually peg at the Cap number, the amount of negotiable dollars that a team can use to pay its players.
The Benefits number includes allocations for health benefits and other mechanisms that have been part of the most recent CBA. These include the Minimum Salary Benefit (MSB) – paying a higher cash but lower Cap number for older veterans making minimum salary – and the Player Performance Benefit (PPB) – adding compensation to low-salaried players with high playtime. The PPB benefit alone saw some players add over $300,000 to their earnings following the 2009 season (the PPB benefit was suspended in the uncapped 2010).
The owners would like to keep growing the Benefits side of the Cap number.
Previous divisions of revenue
Pre-2006: The formula for splitting revenues was dividing Designated Gross Revenues (DGR), a limited amount of total NFL revenues. Players received up to 64% of DGR, peaking at a TS number of $85.5 million in 2005.
2006-present: With the new CBA, DGR changed to TFR (Total Football Revenues), where the players received a lesser percentage -- up to 59.5% in 2009 -- but out of a larger pie of revenues. The TS number made a staggering 19% jump to $102 million in 2006. That jump was well over any previous jump that we had experienced in the NFL and I remember the reaction that teams and owners were having. Moreover, I dealt with many disgruntled players who negotiated contracts prior to 2006 and watched the market pass them by with contracts at the 2006 Cap levels.
The Last Cap
The 2009 Salary Cap was $148 million. The TS number was $123 million, adjusted to $128 million due to the Cash Adjustment Mechanism (CAM), which accelerated $5 million into the Cap in the last capped year. For negotiation purposes, however, both the NFL and the NLFPA appear to be dealing with a TS number from 2009 of $123 million.
The actual amount of spending per team for 2009 was $116 million. In other words, the actual spend on players was $7 million per team less than the $123 TS number. NFL teams left $224 million on the table in allowable negotiable in 2009.
ICONRichardson's Panthers spent far less than the minimum in 2010.
Although numbers aren’t finalized for 2010, spending was at a lower or similar rate. Several teams used the uncapped year as a year to recover and prepare for the new system in 2011.
The owners’ offer of March 11
The NFL offered a 2011 Salary Cap of $141 million with fixed increases through 2015. Of that $141 million, the offer contained only $114 million in TS. With further negotiation, though, the owners were prepared to go to a division of $121 million in TS and $20 million to Benefits. With a few more million massaged into the TS number and taken from the Benefits number, we will probably have a deal at some point.
Although that $121 million would be less than the $123 million from 2009 by $2 million per team, or $64 million overall, it is above the $116 actual cash spend of 2009. This, of course, begs the question of whether the owners will actually spend the money, leading to…
The Cap minimum
The Cap has had – the TS number – as well as a minimum spending number. In 2009, the minimum Cap spending required per team was approximately 86% of the TS number, or about $108 million.
That, however, has always been a Cap number, not a cash number.
As I know well from managing a Cap for many years in the NFL, Cap is a much less meaningful figure than cash spent. NFL teams – as I often did -- massage Cap numbers to look any way they want them to look. There are tricks of the trade such as rolling Cap dollars from one year to the next or creating “dummy incentives" (i.e., giving a third quarterback a $10 million incentive if he throws eight touchdown passes in a game) to soak up Cap room that is then credited toward the next year. The Cap minimum, therefore, from a players’ perspective, has lacked true meaning.
In my opinion, the key for the NFLPA is to focus on a Cash minimum rather than a Cap minimum. Speaking of which...
The Cash minimum offer
In their last ditch proposal of March 11, the owners offered a Cash Minimum, requiring teams to spend at least 90% of their TS negotiable dollars on their players.
The Cash minimum is something the players’ have to achieve in this CBA, as a Cap minimum is relatively meaningless. It appears that is on the table; it is now their challenge to raise the number higher than 90%.
In terms of striking a deal, the (former) union should be less focused on what the Cap number is and more focused on what the Cash minimum spending requirement is.
The next CBA
There is a deal to be made here on this, the biggest issue of the labor dispute (assume we get back to negotiating). It will likely include a 2011 Cap number of $141-144 million with a TS number of $121-124 million and a Cash minimum of about 92-93% of that number.
So what are we fighting about again?
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