NFL New Collective Bargaining Agreement? Is It Fair? You Decide

The latest reports indicate that there is a potential proposal for the NFL owners and the players to split the revenues approximately 49 percent for the players and 51 percent for the owners.

Lets look at some basic numbers and you can judge for yourself if the proposal is fair.

First, lets just assume the players split is 50 percent to make the math easier.  In doing the math, lets use the following basic assumptions: 

1. Current and Future Revenue
   • Current central revenue: US $9 billion
   • Expected 2016 central revenue: US $18 billion (as reported by ESPN on June 22, 2011)
2. Team and Players
   • 32 NFL teams
   • 55 players on each team (I know its really 53, but lets use round numbers)
   • Total players on NFL rosters:  approximately 1,760
3. Other Costs to Owners
   • Tough to estimate but lets again choose a round and conservative figure of US $100 million per team in all other costs
   • These include coaches, facilities, travel and other non-player costs to put product on field

The Players Perspective

So the players want more than half of all revenue to be paid to them.  What other industries have this high of a personnel cost?  Not many.  Investment banks are at these levels but that requires a ton of capital and we all know how well that ended in 2008!

In no other industry except perhaps for Hollywood acting is the individual employee so closely linked with the product than in major sports.  In fact, in the NFL, and in other sports to a lesser degree, the players are the product.

Therefore, it does not surprise me for the players union to argue for as much as they can, but when you look at the numbers does it pass the red-face test?

• 50 percent of $9 billion means that $4.5 billion goes to the players in the form of total compensation.

• This means that each team’s payroll will be $140 million, and with 55 players, that each player on average will receive 2.6 million.

While this figure sounds high to the average fan it is lower than other sports. However, due to structural factors, it will always be low for the NFL primarily because of two factors:

• The NFL has many more players than any other sport

• When you look at a NFL roster’s payroll this average does not really reflect reality with perhaps 10 or 15 players getting big money and the rest of the roster getting under $1 million

Lets not forget that with the expected growth in revenue over just the next four years that these player figures will grow substantially:

• Team Payroll: $280 million

• Average per player: $5.2 million

When you consider this is just a few years away, the players are very well compensated.

Even with the above numbers the players should insist that the minimum payroll be set at or close to the above figures.  One of the attributes (see conclusion below) that makes the NFL perhaps the best sporting league in the world and a unique business enterprise is the hard salary cap.  Setting a very high minimum payroll at or near the above figures will ensure that the players do get the benefit of the growth in equal proportion to the owners. 

While important, I will not get into free agency, rookie pools and other such items, as this is more about splitting the pie and not setting the size of the pie.

The Owners Perspective

It is interesting that the debate is framed as the money going to the owners or the players.  In fact, it doesn’t go directly to the owners but rather goes to fund all other costs of an NFL team and then if there is surplus it goes as profit to the owners.

• 50 percent of $9 billion means that $4.5 billion goes to the NFL franchises

• This represents total revenue before player costs of $280 million ($9 billion divided by 32) and revenue after payroll costs of $140 million  ($4.5 billion divided by 32) leaves another $140 million to cover other costs and profit.

• Assuming $100 million of other costs (and I believe this figure to be higher than reality) this leaves about 40 million of profit per franchise. 

If revenue doubles to $280 million and the $100 million stays constant over next four years this profit goes up to $180 million.  So according to my analysis, the average NFL owner is making a profit of between $40 million and $180 million over the next four years.  

While none of these owners bought NFL teams to get rich (they in fact bought them because they were already rich and wanted it more for ego) they will claim that the NFL must be as viable as a business.  This is a legitimate claim especially for small-market franchises.

As a business lets look at the return the NFL owners are getting on their investment:

• The average NFL franchise is valued at approximately $1 billion according to Forbes magazine

• The current $40 million of profit represents a  four percent pretax yield to the owners on a value of $1 billion. 

• In 2016 this could go up to $180 million and represents an 18 percent pretax yield.

While you could argue with some of the assumptions above, the reality is that these figures don’t include several other forms of team-specific revenue that brings even further value to the owners and doesn’t include the increased return from any leverage (although this is limited in the NFL except for stadiums).

Further, many of these owners paid much less than the $1 billion figure and therefore are getting even higher return on their investment.

The Debate:

So do you think that the owners are getting a fair share of the pie when they get to own a NFL franchise plus are enjoying a four to 18 percent pre-tax return on their money?  (I would take the return on my portfolio any day without any of the other perks.)

or...

Are the Players getting a fair share of the pie when the average salary in the NFL is $2.6 million and will go to more than $5 million over next four years? 

Please vote in the poll in this article and express your views.

Conclusion

The NFL is a unique sports league in that it only has 16 games a year and despite having 32 teams, can therefore have national TV contracts.  Further, the revenue sharing and hard salary cap with a high minimum distributes that centralized wealth evenly across markets. 

I hope this latest deal gets agreed because in a national economy where wage growth is non-existent, and we all have more debt than we are comfortable paying, not having our Sunday football because players making $5 million per year and owners worth more than $1 billion can’t agree on splitting a multi-billion dollar pie would sour the pubic on the NFL for years.

Mr. Goodell—it is your job to get this done.  Don’t screw up a good thing.