The NFL, the Union and the Bottom Line

It didn’t come as much of a surprise that the NFL owners earlier this week opted out of the collective bargaining agreement. After all, the owners have never been shy about doing whatever it takes to maximize their profit margins. What is somewhat surprising, however, is that the NFL Players Association seems nonplussed by the whole matter.

Maybe that’s due to the fact that any impact of the owners’ action is still a few years out. What’s also emerging is that the union, while perhaps not encouraging the owners action, aren’t all that unhappy about it either and you can thank the latest overpaid unproven rookie, Matt Ryan, for that.

In an interview on ESPN Radio earlier this week, Players Association president Kevin Mawae, a center with the Tennessee Titans, sounded like anything but a union representative when discussing what’s been a lingering hard spot for players and owners alike: the skyrocketing value of first year contracts for NFL rookies, particularly those of the marquee variety

Mawae told ESPN’s Colin Herd, “as a guy who has been in the league for 14 now going on 15 years and being around other veteran guys, for a young guy to get paid that kind of money and never steps foot on an NFL football field, it’s a little disheartening to think of. It makes it tough for a guy who’s proven himself to say ‘I want that kind of money’ when the owners, all they’re going to say is, ‘Well, you weren’t a first-round pick.’”

That may sound like sour grapes, but there was more: “And I know there is sentiment around the league amongst the players like, ‘Let’s do something to control these salaries and control these signing bonuses’ and things like that, and I know that’s something that the owners are talking about and I’m sure that’s going to play into this round of negotiations for this collective bargaining agreement.”

If you just substitute “owners” for “players” and “players” for “owners” in that last comment, you’d swear it was NFL commissioner Roger Goodell talking. But coming from Mawae, you get the strong sense that the Union sees some opportunity themselves with the recent turn of events.

To be sure, this is an owners’ initiated re-opener of the labor agreement even though either side could have pulled the trigger. Despite the problem the players have with rookie salaries, it would have been political suicide for Gene Upshaw, the union’s executive director, to even suggest opting out of a contract that guaranteed 60% of gross revenues just to make a point about the Matt Ryans of the world.

But Upshaw also knew it would never come to that because the owners all along planned on doing the dirty work. When the latest contract was signed in 2006, it literally had to be rammed down the throats of many of the owners. In fact, it’s not all that inaccurate to suggest that the only reason the owners actually approved the deal was in deference to former commissioner Paul Tagliabue who already had announced he would be retiring. Many owners didn’t like the new deal mainly because of the increase in revenues guaranteed to the players, but with a re-opener they were willing to swallow hard in order not to embarrass Tagliabue or otherwise tarnish what was shaping up to be an impressive legacy. It was Tagliabue, after all, who brought labor peace the last time the players struck. He also brought unprecedented growth and the attendant riches. He deserved the bone the owners threw him, even if they would have rather aimed it at his head.

The problems owners identified with the current contract at its inception have only grown worse, at least in their minds, and in no small part have been exacerbated by the economy. Their own costs are rising, like everyone else’s, and while 40% of consistently increasing overall revenues is an impressive amount, it’s not as good as, say 50%. The owners now estimate their labor costs at $4.5 billion, which is pretty serious money in any language. If they could shave even 5% of that back, it would mean another $225 million or so in their pocket. It’s certainly enough money to fight about.

Of course, scaling back even at a seemingly modest 5% isn’t an easy ask and absent compelling circumstances there really isn’t a reason for the union to consider it. And right now, the fact that the owners aren’t making even more, as opposed to actually losing money, isn’t likely to move the “compelling circumstances” needle much for the players. But here’s where the interests do converge: rookie salaries.

The owners have said for years that they favor a rookie salary scale, which the union has mostly resisted. Smartly, the owners haven’t pushed it and instead have just gone about letting agents drive up rookie salaries while at the same time decreasing the available salary cap space for every one else. Over the last several years players have watched time and again teams cut veteran players in order to free up cap space and now, finally, they’ve are starting to see the light, as Mawae acknowledged.

In other words, you can start to see the makings of a deal. Of course, it will take more than just this redistribution of the salary cap space to make the players willing to cut back their share of the revenues. Another idea being floated already is the elimination of one or two preseason games and the concurrent expansion of the regular season. This benefits the players because they get a salary check for regular season games but only a small per diem of around $1,000 for preseason games. Even if the salary is divided up over 17 or 18 games rather than 16, that’s still far more money than what they get now for a meaningless preseason game.

When it comes to union matters, the average player is like the average auto worker. The only bottom line is the bottom line. The issue to them isn’t the share of revenues as much as it is what their paychecks look like. Of course the two are inextricably linked, but how the money gets to them isn’t nearly as big of a concern as the fact that it got to them.

For the near term, don’t expect much to happen. Though the union and the NFL claim that there is still three years of uninterrupted football on the horizon, it’s really two. There’s enough incentive on both sides to get a deal done and not get to that third year because while it will lack a salary cap, it also will lack a minimum salary. Anyone who thinks one of the owners will go off the reservation and spend frivolously that third year isn’t much of a student of the business side of this game. Far more likely is that spending will go precipitously.
In the interim, expect a muted amount of saber rattling and posturing. Also expect clear thinking to prevail. The one thing the owners and the players in the NFL have always understood far better than the counterparts in the NHL, for example, is that in their sport they really do have a hen that lays golden eggs. Far better to feed it then kill it and start from scratch.

Follow the Money

On the surface, the two stories wouldn’t seem to have much in common. Chicago Cubs owner Sam Zell said earlier this week that he would definitely consider selling the naming rights to Wrigley Field. At roughly the same time, Dallas Cowboys owner Jerry Jones was heard saying, again, that he believes NFL owners will vote to opt out of the current labor agreement.

Two different sports, two completely unrelated issues. Hardly. Like everything else in sports these days, the two stories share a common parent: money. In particular, the root is the ever spiraling cost of owning and running a professional sports franchise and what to do about it.

There was a time not all that long ago when old white men bought sports teams for the pure ego and hobby of it. That era was characterized mostly by the alarming lack of business acumen these owners brought to their hobby. Whatever rigor they applied to their “real” businesses, the ones that made them all the dough, was thrown out the window when they dabbled in sports.

But this didn’t necessarily cause them any great concern because the value of their teams continued to climb ever higher, seemingly defying all the laws of economics. Owning a sports team became the ultimate boom enterprise. But the downside, at least from a fan’s perspective, is that the economic health of their sports eventually grew worse. Most owners, more interested in stroking their egos than making good business decisions with their teams, wouldn’t hesitate to sign the next great superstar to an even more outrageous contract then the last great superstar. Ticket prices rose.

But eventually a different breed of owner started making their way into pro sports. Buying at ever increasing prices and taking on the kind of crushing debt that made the old white guys shake their heads, this breed grew up on budgets and business plans and didn’t see any reason not to translate that into their sports properties. Indeed, it was a necessity. This breed has no less of a desire to win than their forbearers; it’s just that given what they paid for their team, they aren’t as comfortable dipping into their personal fortunes any further in order to meet their debt payments, let alone such trivial matters as player acquisition expenses.

Zell and Jones are two such owners. Zell is a somewhat reluctant owner of the Cubs, having acquired them when he purchased the Tribune Co., the Cubs’ previous owner, last April for more than $8 billion. Zell’s interest seemed, at least at the time, much more focused on the media properties under the Tribune banner and not, necessarily the Cubs.

Most expect Zell to sell the Cubs sooner rather than later if only to retire some of the massive debt he took on to buy the Tribune Co. in the first place. But Zell is letting it be known now that he will sell the Cubs when he’s good and ready and, by the way, he plans to maximize his recovery by selling the Cubs and Wrigley Field separately.

There is good reason for Zell to wait and to sell separately. According to Forbes, the value of the Cubs franchise has been increasing at an average annual rate of 14% and increased a whopping 32% just between 2005 and 2006, not atypical figures whatsoever in either baseball or football. Needing money is one thing, but given these returns it compels Zell to wait a little longer to sell. In the meantime, why not create a tidy little revenue stream by selling the naming rights to one of the most famous stadiums in the world? For an owner more interested in money than history, it makes perfect sense.

For the baseball purist out there, Zell’s plans may be sacrilege but don’t blame Zell. Baseball’s ownership fraternity has never been all that keen on sharing revenue among themselves and thus it’s not a surprise that left to their own devices things like this would happen. With baseball having created an economic mess of itself for the last several years with no appreciable end in sight, now is hardly the time to begrudge even Sam Zell from making a little more money on the backs of fans. There are much bigger issues to solve in that sport first.

At first blush, it seems that’s what Jones and at least 23 other of his fellow owners are trying to do by opting out of the labor contract early, solving the big problems. Under its terms, the NFL’s collective bargaining agreement is supposed to expire after the 2012 season. But either the owners or the union can opt out of the final two years by giving notice by November 8th of this year. If that occurs, 2010 becomes the final year of the contract and it would be sans a salary cap.

But lest anyone think that this tactic has anything to do with eradicating the sport of a salary cap, think again. Though the owners once fought the concept, the presence of a salary cap does, from their perspective, achieve the desired result by acting as a sort of lifeline or net to those among them who would otherwise try to scale a mountain they have no business climbing in the first place.

What Jones and his brethren really want is a re-working of the cap. It’s no secret that the owners feel that the current collective bargaining agreement, which was actually an extension of the previous contract, was rammed down their throats by then commissioner Paul Tagliabue after several months of hard bargaining with the union. In fact, it’s not a coincidence that Tagliabue’s retirement announcement came just days after the contract was signed. He knew he had lost the support of many of the owners.

It’s not hard to see why. Putting aside the contract’s complexity just know that in 2010, assuming the contract were to stay in place, the players share of projected total revenues (itself an incredibly complex calculation) rises to 58%. That’s a pretty long arm into the owners’ rather deep pockets. Keep in mind, too, that the definition of total revenues was further expanded so that virtually any income that the owners generate gets included in the calculation.

Ever since Jones bought the Cowboys in 1989, he’s been trying to find ways to increase his own bottom line. When he tried striking his own marketing deals built off the Cowboys brand, he got cut off at the pass. Since then he’s been working from inside with an ever-changing fraternity that used to see him as a no-nothing maverick. Now he has the ears of a majority of owners who see the players getting an ever bigger piece of what they consider to be their pie. And the bigger the piece that goes to the players, the less that goes to the owners, many of whom are juggling huge debt.

None of this makes Jones or any of the other owners bad guys, but it does set football up for the kind of labor disharmony that is at the root of some of baseball’s biggest problems, including the lack of a legitimate, wide-ranging drug testing program. Upshaw has vowed that if the cap comes off, it will never return, a big promise that he probably can’t keep. Football owners aren’t quite the patsies that permeate baseball’s ownership ranks.

Whether Zell ultimately sells the naming rights to Wrigley Field and whether there is a period of labor unrest in football ultimately are just the visible and transient outcomes of a larger unspoken issue. But all you need to remember when trying to connect the seemingly unrelated dots in such matters is what the “Deep Throat” character kept telling Robert Redford’s Bob Woodward character in All the President’s Men: follow the money.