FanPost

How To Split $9 Billion: For Dummies!

In a normal year, we'd be hearing each team rave about how well its rookies did in their first minicamp right around now.  Except for a handful of spots that will be decided in training camp, we'd have a pretty good idea of how the roster is going to look.  By this time, most big names in free agency have already found teams, and the only players not signed would be older or injured vets looking for a team short at their position or the right situation (translation-- who's going to give me more than market value).  Instead, the offseason has been dominated by the work stoppage.  There is virtually no player movement, and everything seems to be up in the air.  Before we get into who's right and who's wrong or "it's millionaires vs billionairs, who cares?", let's take a look at the outgoing structure.

With the combined TV revenues and other shared streams, the NFL will get $9 billion for next season. Under the old structure, $1 billion comes off the top to be split amongst the NFL Corporate and the 32 owners for various operating expenses. Of the remaining $8 billion, the players got 60% and the owners got 40%.

Now when we say the players "got" 60%, here's what we mean: take that $8 billion total, multiply by .60, then divide by 32. That comes out to roughly 150 million per club. So under the old structure of 60/40 split after the first billion, the salary cap for next year would be somewhere near $150 million. So in essence, the "salary cap" is the 60% the players have negotiated for. Not every team pays its players at the cap.

In a capped year, there also exists a salary floor, which is around 85.2% of the salary cap. For example, if the cap is $150 million, the floor is $127 million. Owners have to spend at least the salary floor on player salaries and **aren't supposed to** spend more than the salary cap. To be noted, none of this money (player's salaries) comes out of the owner's pocket. It all comes from the shared revenue and is negotiated well in advance. In no other enterprise can you say with certainty that__% of the revenue is going to go to the work force. Owners have an advantage of having this fixed expense.

The TV revenue that is split between the 32 teams isn't the only source of revenue for owners. That 40% comes out to $100 million per owner. Each owner also gets $30+ million for operating expenses after splitting that $1 billion off the top with NFL corporate (so roughly, the players are alloted $130 to $150 million, and the owners already get around $130 million before their other streams of income come in). Owners still have revenue sources from ticket sales, concessions, merchandising, parking, selling of preseason games, corporate sponsorships, ect. The bottom line with these other streams usually has more to do with how well the team does on the field.

During this economy, the owners have all made money. Not one has lost a dime. And in many cases, the amount of profit each team has made has gone up. But what has gone down is the profit margin. Everything has gotten expensive. So after all the overhead, owners are still making good money, but they are having to spend more to do so. In essence, they aren't getting the same return on their investment (% wise).

Now we all know some owners put more money into it than others. For example, take the owner of the Cowboys, Texans, Falcons, or Redskins. These guys spare no expense. And in the case of the Redskins and Cowboys, they lead the league in revenue each year (yet when you make twice what a small market team does, it really doesn't hurt so much to spend). But then you have owners like in Arizona or Carolina or Cincinatti or Tampa who don't spend much. They rank near bottom in revenue.

There's a trend there. I understand small market and economics, and I can't say that I blame them, but there is much to be said for a small market team that makes better business decisions, especially with personel-- see the last two SB winners in New Orleans and Green Bay-- each team is making more in revenue than ever before because of their recent success you can contribute to great front office translating to great on the field product.

Anyway, the point of the above paragraph is that some owners are "hurting" because of poor business decisions/management on their part. All owners do have a legit gripe about the increase in overhead and decrease in net profit, but some only have themselves to blame when it comes to the quality of their product. The real issue with the CBA isn't the revnue that goes towards the players; the biggest issue is the revenue sharing system that the owners have in place.  Teams in a big market have at their disposal many revenue streams that don't exist in smaller markets.  The result is that a team like Washington-- who hasn't done well in recent years, can pull in $350 million in combined revenue while a team like Indianapolis (who has done well over the last decade) may only have combined revenue of $250 million.  Here's the significance:  the $130 million (salary floor) to $150 million (salary cap) that every team must spend consumes maybe half of the combined revenue a big market team brings in, but 75-80% of the revenue a successful small market team has to work with. 

That is the #1 problem, and the fact you don't hear about it shocks me.  Now here's why it's a problem.  If a team has additional revenue that isn't shared, that additional revenue raises the total revenue of the NFL, which in turn raises the amount of the 60% alloted to go towards the players.  So you wind up with big market teams making extra revenue, and small market teams having to pay their players more as a result, without the benefit of extra money.  It's a flawed system that needs to be fixed, and its THE reason owners haven't opened their books-- more on that later.

Since the owners have opted out of the CBA, perhaps we can come up with a new one that will save them from themselves -- one that will help police the owners.

There is much talk about a rookie pay scale. It's just a very small issue dealing with a very small group of players, namely the top 10-12 picks of the first round. Here's how you fix that. Take the league minimum for a first year player-- something like $325,000. Last pick of the draft gets $10,000 more. Every player before him gets $5,000 more than the player after them. For example, pick 255 gets a $335,000 salary. Pick 250 gets $360,000. UDFA's get the minimum- $325,000. If you are a 6th round pick, add an extra 25k. Add an extra 50k for being picked in the 5th round, 75K for being picked in the 4th, $150k for being picked in the 3rd, 300K for being picked in the 2nd, and 1 million for being picked in the 1st.

A top pick in the draft would make around $1.6 million from the $5,000 slot, and $1.6 million from round bonus-- a total of $3.2 million for first year of service. Pick 32 would make $155,000 less. Pick 33 would make $1,160,000 less. This eliminates "we have to pay__ pick more than__ pick becasue he's a QB" or "we have to play the 3rd overall pick at least 5% more than last years 3rd overall pick because that is what was done in the past". Shorten the rookie deals to 3 years. Allow extensions after 2 years. Rookie salaries no longer increase at a ridiculous rate-- you know what next year's rookie will make because it is tied to the league minimum.

I just threw a number out there. The NFLPA will agree to a rookie pay scale IF owners agree to shorten the length of a rookie contract. The owners want to eat their cake and still have it here. If they expect to get a rookie pay scale, they need to shorten the contract and perhaps increase the salary floor so that veterans are guaranteed to get more of that money not going to rookies.  Raise the veteran minimum for vested veterans-- each year of service a veteran accrues, his minimum salary rises.  Raise these base values with the money saved from a rookie pay scale and invest some of that saved money towards retired players benefits.

Here's another solution. Put a cap on the amount you can spend on any player. For example, the salary cap is $150 million. There are 53 players on the active roster. Divided evenly, each player would acount for 1.9% of salary. So lets say the most you can pay any one player is 6% of the salary cap. With a $150 million salary cap, that's makes it $9 million the highest salary you can pay any one player during a season.

You know what that does? It levels the playing field for every team in free agency. It also keeps owners from making foolish decisions and giving players deals that really hurt when they don't work out. It raises the salaries of the bottom and mid tier of players who don't make anywhere near $1 million per year. It makes contracts easier to extend when you have a salary floor that you must spend and a limit on what you can give your top guy.  As it is, when the salary cap rises, that extra revenue goes mostly to top tier players.

Yes, Peyton Manning is worth "the most",  but the most shouldn't account for 15% of your salary cap.  Putting a cap on how much you can pay an individual player limits what the top tier player makes, but it raises what the bottom 90% make.  And it prevents Al Davis from  paying a CB more than almost every starting QB.  It prevents owners from paying a midlevel TE or S significantly more than the top TE or S already makes, thus preventing the salary "cieling" for certain positions from skyrocketing because an onwer was desperate to get that one player. Want the players to agree to this? Guarantee 50% of their salaries upon signature. By capping the % you can pay each player, it doesn't hurt to guarantee a good portion of the salary now. Want to lure a free agent-- offer 75% or 90% of a salary guarantee. Players sign deals that read 6 years $80 million, and many times only see a % of that because they get cut/restructure (then get cut a year later), etc. The reason they sign these large deals with large signing bonuses is because none of the salary is guaranteed. The majority of the players would agree to this because it represents financial security in the event of injury.

The shift in free agency will be not "which team pays me the most" but which team guarantees me the most, and because there will exist a cap on what a player can make (a % tied to the salary cap), the team a player chooses in free agency will be closer to the team that 1) "fits him" and 2) has a good reputation.  Teams can sell themselves on merit, and it will no longer be about who has the biggest amount of cash flow.  You won't see that owner overpaying for a kicker, thus making it harder for a team doing things the right way to keep their kicker.

So now that we have protected owners from the long term player decisions that cost them dearly and also raised the % the bottom half of the roster makes thanks to capping the top half's earning potential while having a salary floor that must be spent, lets talk about the 60/40 split.

You may have heard the players offered a 50/50 split, and the owners wanted a 41/59 split. When the players say they offered a 50/50 split, they don't mean splitting the $8 billion (after the NFL and Owners get $1 billion off the top), they mean 50/50 of the $9 billion. It is a small point, but it's their way of saying we'll take $4.5 billion (50% of $9 billion) of the pie instead of $4.8 billion (60% of $8 billion). I personally think that is a very fair offer, right out of the gate, for the players to make. They've basically already conceded $300 million to the owners. The owners eventually offered the 50/50 split in the final hour before the NFLPA moved to decertify. 

This year, due to no salary cap, there was no salary floor. Not all, but more than half (the majority) of teams did not spend the salary floor. All that money allocated to go to players salaries (60%) that did not went straight into an owners pocket. Many owners made up for their increased expenses. Also, owners didn't have to pay many benefits to players because of an uncapped year.  In a capped year, owners can spend something close to $15 million on player benefits that don't count against the cap, like insurance or 401K.  So in addition to not meeting the salary floor and pocketing $30 to $50 million they would have had to spend with a CBA, they pocketed close to $15 million in unpaid benefits.

In essence, all the money that was "lost" due to the last CBA was made up for by the teams who were frugal this past season.  Here's my solution. Work out a seven to ten year CBA. Year 1, the owners get 55% of the total pie, and the players get 45%. Year 2, vice versa. Due to the increase each year in TV revenue, the salary cap number at 55% will be the same as the 45% the following year. So your cap is fixed for two years, one year the players see revenue increase, the following year the owners see the revenue increase.  Over the course of the CBA, each side averages 50%.  Don't like this one?

Here's another idea.  The logic behind it came from Sirius Radio's Pat Kirwin.  The owners want $1 billion extra off the top for the purposes of improving facilities, improving benefits, and growing the pie.  It's the owners way of not fixing their revenue sharing problem and instead just taking more money for the players-- which will only lead to the same problem a few years later because it is addressing a symptom, not the problem.  The players aren't dumb.  When this one entity makes record profits, gets record TV revenues and experiences record growth every year when the rest of the economic landscape throughout the country is in shambles, how can it claim  to be losing money?  The players want a form of justification before agreeing to "give back" what they've negotiated for.

Here's what may shock you:  most owners want to show their books.  One look at the economy and most everyone can agree that expenses have gone up.  Most companies nationwide have cut benefits to some extent.  It doesn't take a genuis to see that it is costing owners more money to operate, and by that logic, even the big market owners are seeing declining profit margins.  The crux is that the "haves" will not show their books because doing so will mean revisions will occur to the revenue sharing for the benefit of the "have nots".  This is what the NFL was built on, and these handful of greedy owners like Jerry Jones don't want to play by the rules and principals that allowed the NFL to become what it is today.

So lets assume that the owners will never agree amongst themselves to show their books and fix their revenue sharing problem.  Here's the solution: the players can agree that the owners are facing more expenses.  Without seeing the books, as partners, the players can agree to meet the owners "half way."  They can agree to "give back" $500 million each year before the split, as an investment in "their" business.  The players do not need to see all of the owners finances, but every penny of what they give back must go to the stated purpose.  If only 80% goes to improving facilities, improving benefits, etc. then the following season the players will  get back the 20% not used  (This was Pat Kirwin's suggestion; on another note, Kirwin suggested that all money "saved" with rookie pay scale should go directly to retired player benefits and raising of the minimum salaries league wide).

The final ploy is the 18 game schedule. I say ploy, because I believe that's what it was-- a distraction, a manufactured bargaining chip.  Players will never agree to it, just as they'll never agree to giving back money without justification.  But inventing this issue is part genius.  "We can bring in ___ revenue with these games; oh, you don't want to agree to this, well give us ___ revenue instead".

I am against increasing the 16 game schedule, but in the spirit of negotiation, lets go to 17, and that extra game will be played on a neutral site (either overseas or in a market like LA or Nebraska with no NFL team) for the purpose of providing extra TV revenue, growth, and market study. Half the teams shall play overseas, the other half in abroad in the US/Canada. If an NFC west team plays overseas, all NFC west teams play overseas-- no competitive disadvantage for having to play overseas when trying to win your division. Expand the rosters, both practice squad, active roster, and gameday roster.

These numbers don't have to be the numbers, but the logic is there to make both sides happy, each giving a little and compromising. You cap and slot what rookies make, yet you shorten the contract and give bonus money for each round, allowing the player to renegotiate after two years when you know what he is or is not. You cap what the superstars make, yet you guarantee 50% of all salaries (except in the event of incarceration). This raises the salaries of the bottom 60% of your roster and gives every player financial security in the event of injury or getting cut. 17 games instead of 18 is a happy medium to increasing revenue and growing the league-- it expands rosters and provides more jobs. Owners take favorable cut one year, the players get favorable cut the next year, but as TV revenue rises, the salary cap does. 55% may be 150 million this year, but next year 45% will be 150 million. So year A the players reap the benefits of growth, and in year B the owners reap the benefit.

Problems solved.  Well, almost.  The truth is, even if players and owners agreed to all of the above, only the symptoms would be relieved.  I knew all along the real problem lies with the revenue sharing system-- the "haves" versus the "have nots", and I was prepared to research the exact mechanics of revenue sharing and include it in this writing.  Only thing is that I found a complete dissertation on the subject, something that brings the big picture together in a coherent and easy to understand way.  If you want to truly understand why we are in the position and where the blame lies, read the following links.  Giving an overview would be an injustice.  This is the real issue, and makes everything you've read insignificant. Interested? Click on the following links found on SB Nation:

Part I - http://www.bloggingtheboys.com/2011/2/18/2000707/nfl-lockout-cba-2011-revenue-sharing

Part II - http://www.bloggingtheboys.com/2011/2/21/2004505/nfl-lockout-2011-revenue-gap-problem

Part III - http://www.bloggingtheboys.com/2011/2/21/2005431/nfl-lockout-2011-the-haves-and-have-nots-of-the-nfl

You'll thank me (or Mr. One.Cool.Customer) for it later.  Trust me.

P.S.

Parity. It's what has made the NFL the top professional sports league in the WORLD. If it wants to remain on top, above all costs, it has to ensure a viable opportunity for every team to go from worst to first.

If the fans of Cleveland, Buffalo, or Arizona can't look at the examples of New Orleans or Kansas City or Atlanta of going from worst to first and making a playoff push in a single year, what do they have to be excited about? Each year hope is renewed and everyone has a chance because each team is faced with the same salary cap and floor. Each team can improve in the draft, free agency, or coaching changes. Each team has the opportunity to reinvent itself.

That is why the NFL is at the height of popularity. That is why it is a year round business. That is why functions like the Draft get more attention than playoff games from other leagues occuring at the same time. That is why when there is an offseason, fan intrest is high as ever, begging for news on which free agent will we or won't we sign, or how did so and so look in minicamp, or whose that UDFA gem gonna be?

In short, that is why the NFL can have unprecedented fan hunger year round-- just look at the mulitmedia coverage: you have Sirius NFL Radio that talks about football 24/7/365; you have an NFL Network, you have blogs and websites, ect ect ect-- an entire machinery that is the direct result of a real chance that every team COULD actually be making the changes/additions necessary to go all the way.

If these greedy few owners-- who coincidentally had no hand in building the NFL, but acquired long established teams, continue to feel entitled to exploiting the system as if this is one of their other businesses, they will ruin it. The original owners understood how vital keeping all teams financially viable was, and until Jerry Jones bucked the system in 1996, they had a model of revenue sharing that kept all teams in the same ballpark.

This FanPost was written by a reader and member of Canal Street Chronicles. It does not necessarily reflect the views of CSC and its staff or editors.

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