NFL Economics 101
This month, we will be taking a dive into the economics of the NFL as I will try to explain how the business of football is currently set up under our CBA. This is not a defense of the CBA or even of our overall economic system, but rather a straightforward explanation for frequently asked questions about how our current system works. I feel this is important, given that the business of football is resuming some level of normalcy.
How is revenue defined?
- This has been a major area of contention in CBA negotiations between our union leadership and the NFL owners. In short, when bargaining for a system in which the players get a share of defined revenues, we want to include as many revenue streams into the total revenue pie as possible and the clubs want to include less.
- Generally speaking, the 2020 CBA – building off the 2011 CBA – defines revenues (“All Revenues” or “AR”) as everything football related in three general categories: television/broadcast, sponsorships and local revenues. Some examples of this are: all television deals, ticket sales, concessions, league sponsorships, local media deals and yes, even gambling revenues are included as part of our share of revenue.
- All of these categories are included in the cap calculation and our union audits those revenues both at the NFL and club level every year to make sure every penny is counted towards our percentage.
- Non-football related revenues are not part of this pie and do not count towards the cap – think, for example, concerts at NFL stadiums.
- Also, the way we defined revenue changed in 2011. Before 2011, NFL owners could deduct expenses from the players’ revenue share. In 2011, players negotiated to eliminate those expense deductions, shifting from essentially a net/profit share to a gross revenue share system.
What percent revenue do players get?
- In our current CBA, we receive a minimum of 48% of AR every year.
- Based on the incremental increase in the dollar amounts of the already announced new media deals (“Media Kicker”), our percentage of AR will increase above 48%. The exact amount of this increase will be determined when the league’s remaining media negotiations are completed.
- For comparison, in the 2011 CBA, players were guaranteed an average of 47% of revenues for the duration of that deal, and not on an annual basis.
How does that 48% share of AR get broken up?
- Player costs are made up of the salary cap and our player benefits.
- As of the 2020 CBA, the salary cap is calculated as follows: we estimate AR for the upcoming season, take approximately 48% of estimated AR for that season, subtract estimated player benefits, and divide by 32 teams.
- A few important things that we sometimes forget when we talk about the salary cap:
- In 2011, our union negotiated minimum cash spending for the first time. Before then, teams could manipulate their spending through “cap spending” by adding in bonus money that was never going to be earned by players. For example, teams could add a multimillion-dollar bonus to a kicker’s contract for leading his team in tackles to meet cap spending minimums. Player leadership in 2011 decided to negotiate for cash spending minimums to force teams to spend real money.
- Teams can spend more than the cap, in cash, during a given season. It is important to understand that cash spending can exceed the salary cap and in the past decade, teams who spent above the cap have also tended to be the most competitive as well.
- Benefits are a significant player cost that are forgotten when we talk about what players negotiated for in our CBA. For example, in the most recent year not impacted by COVID-19, our benefits were $40M per club.
- The public focuses heavily on solely the cap number; but when you add the $40M in benefits, now each club has a total player cost number of about $228M (in the 2019-2020 season). Those benefits are extremely important to our membership because they include things like healthcare, pensions, 401K, player performance, severance and of course, all of our former player benefits.
Why did the salary cap go down this year?
- Almost every business in America was in a revenue decline once the country – and the world – shut down because of the pandemic. It was up to us as a union to make tough decisions for how to pay players as much as possible while also accepting that there was going to be a temporary hit to the amount of money available to everyone. We stood on the principle that every player should get paid in full in the 2020 season, given the risk that we were taking by playing in a pandemic.
- The NFL owners initially wanted players to take a 35% escrow (i.e. set aside our salaries to help fund the season). Our player leadership stood together and were able to negotiate an agreement that got our players 100% of their salaries paid last year and this year for all successfully completed games
- In order for us to achieve that, we made a decision as a group of players to defer some benefits into the future and spread out those revenue losses over three seasons instead of just one season as the CBA had provided for. That way, no one group of players would take the full brunt of COVID’s financial impact.
Why did the NFL announce the new media deals after the decrease in the cap was set before this season?
- We knew going into our 2020 collective bargaining that massive television and media contracts were going to be negotiated, and we were given estimates of what those media deals might be.
- It doesn’t matter when a deal is announced. It matters when new revenue starts coming into the business and counting towards our share.
- The money from these new media deals will start pouring in for the 2022 and 2023 seasons. That is when the actual impact of those new deals will be felt; not at the time of their announcement.
- Again, we have a revenue sharing system. What that means is we actually WANT the NFL to bring in more revenue, because that is how players make more money – particularly in this case with the media kicker.
- It is odd to me how, whenever a new revenue deal is announced, the reaction from some is that players got screwed. It’s exactly the opposite: the bigger the pie of revenue, the bigger our share becomes.
There are a lot of the questions out there about the business of football, which is frequently misunderstood. One can make an argument that as players we deserve a bigger piece of the pie than we are getting. But as is the case with any issue in any negotiation, it is a not a question of what we deserve; it is a question of what we as players are willing to do to attain our goals.