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Understanding the current labor agreement issues

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  • Understanding the current labor agreement issues

    In recent weeks reading through discussions and articles it has become clear that a lot of people don't have any idea whatsoever on how the business side of the NFL works. This is why I decided to put together this guide.

    As a precursor let me outline a couple of things, this isn't exactly light reading and second, it won't be the easiest thing in the world to understand, though I'll do my best to make it as easy as possible.

    First I'll be outlining exactly who is involved in the labor talks and how decisions are made. Secondly I'll be explaining a few items involved with the salary cap and tactics some owners used to exploit its loopholes. Then I'll go through the most recent finance sharing agreement set down at the very, very last minute (after several deadlines had passed) before the beginning of the '06 season. Finally I'll go through the major issues currently preventing labor peace in the NFL and what possible outcomes we as fans can expect if a labor agreement is or isn't met.

    The Main Players:
    • NFL Team owners
    • NFL Players Association
    • NFL Players union
    • Gene Upshaw NFLPA leader
    • Kevin Mawae / Troy Vincent union leaders, past and present
    • NFL Commissioner
    • Dan Snyder, Jerry Jones, Al Davis, - Vocal Team owners
    • Roger Goodell Commissioner
    • Paul Tagliabue – Past Commissioner
    • Michael Vick
    • Judge Doty

    Salary Cap:
    • The NFL uses what’s known as a “hard cap”
    • There are stringent guidelines for a maximum and minimum payroll which no team can violate
    • Established in 1994 after long standing issues
    • The salary cap changes from year to year based on NFL revenue & last year’s cap figures (known as triggers)
    • The salary cap has increased every year to date
    • Guaranteed money in contracts are prorated (proportioned) over the term of the contract e.g. $30 million dollar bonus will cost a team 5 million per year against the cap over 6 years.
    • If a player is cut, traded or retires before June 1st the team's cap suffers under the previous year’s cap. If they're cut, traded or retire after that date next year’s cap absorbs the hit.
    • E.g. A bonus was signed for 20 million in bonus money for a 4 year deal. 5 million contributes to the cap each year. IF in the second year of the contract that player is cut before June first 05 for example. That means that bonus remaining over the final two years (10 million in total), plus that year's assigned (5 million) cap hit contributes to the 04/05 cap year, the cap hit for example is 15million. If they're cut June 2 05, then the 05/06 season's cap takes a 10 million dollar hit and the 04/05 year only suffers a 5 mill hit.
    • This is why some teams cut players early, some later, to work the system to open up money.
    • If a player is cut before the start of a season their entire base salary disappears from the cap.
    • This is why you can at times see players who're a risk signing low guaranteed bonuses with high salaries and vice versa for dependable vets who sign at the minimum salary with better bonus.
    • Bonus money based on performance is classified in one of two ways. Likely To Be Earned and (LTBE) and Unlikely To Be Earned (UTBE). LTBE bonuses are counted toward the cap, whether they're reached or not and UTBE are not counted against the cap whether they're reached or not. However to stop this being exploited if a LTBE bonus is not reached in the 04/05 season but counts against the cap, the cap will be wound up slightly in 05/06 and the reverse is the same for UTBE
    • Due to the above conditions many fan-favorite veterans were being cut for cheaper, younger (not necessarily more productive) players. To alter this veterans with no bonus money in contract will count approx 50% of their base salary against the cap.
    • The cap has meant that financial growth has been controllable. It also means that the league remains competitive (for the most part).

    For those capologists out there and people who just read my cap explanation this is the anorexic model. I could've written out a fleshed out sized explanation about 2000 words but a small basic knowledge is enough to understand the labor issue. If you really want me to explain the cap I've got a write up somewhere I can post.

    Revenue Sharing
    Unshared Money
    • Old stadiums were more or less built for the people, new stadiums are built for making money
    • New stadiums lease corporate boxes to big business for big bucks
    • More corporate seats, more $$$$
    • Creation of “team only” merchandise and stadium leasing creates money
    • Stadiums have been leased for concerts, weddings, conventions etc
    • Some sell hotdogs, dog collars, plates, toothbrushes with their logo on it etc

    Shared Money:
    • Two thirds of the money in the NFL comes from TV deals
    • All teams receive an equal share of the TV money.
    • Licensed merchandise such as jerseys also provide money
    • “Gate” money is essentially ticket sales. This is split 60/40 between home and visiting teams
    • This means teams love having games against teams popular across the country, playing against someone like Peyton Manning or Steve Smith is good for the home team financially.
    • Some teams try to package these tickets, if you want to see Peyton Manning against your home team, you've got to buy a ticket to see Jon Kitna as well
    • This helps to drive up revenue

    Key Points
    TV contracts and now video game contracts have escalation clauses so from year to year e.g. ESPN has to pay more money to continue to show the Monday night games than the year previous.

    Of all this money a predefined % becomes the salary cap.

    Slightly More Advanced Revenue Sharing

    Revenue sharing between the owners and the players involves a certain percentage of money made by NFL teams being placed into the salary cap to pay players wages. Essentially the division of the money made by a team will decide how much money they can afford to pay the players.

    As the Collective Bargaining Agreements have altered the salary cap amounts so have they altered where the money goes. These agreements are generally accepted by the ownership of some teams and disliked by others, there’s almost never a consensus. Rich owners are happy they can afford to buy better players using money that would otherwise be spent elsewhere. Owners like Dan Snyder for example were happy with the increase in the monetary percentage going into the cap in the 2006 agreement, Due to the fact that the Redskins are almost never below the cap and strongly believe in building through Free Agency rather than the draft. In effect, he's now allowed to give money to players he's already wanting to give them but hasn't previously been allowed to.

    The second portion of revenue sharing involves the sharing of money between teams. Right now the highest earning 15 clubs essentially subsidize the less financially successful bottom 13. This format also requires the highest earning team to pay more than the 13th highest. These forms of agreement are designed to keep the league competitive. Arguing essentially that the Dallas Cowboys wouldn't make X amount of dollars every year if people didn't want to see them fight against other teams (or in recent times, trample). The league needs to be a 15 round, drag out, Rocky Balboa esque fight, not a 2nd round knockout, if it is to continue making money and expanding. What should be noted however is that not all owners feel this way. Jerry Jones for example advocating cutting non-performing owners like you would an underachieving player.

    The previous agreement:
    2006 was the last year in which labor strife seemed imminent. Essentially the NFLPA and their leader Gene Upshaw were demanding 60% of total revenue be given to the players. An increase from what was previously 55.5%. To put that into monetary terms from the year 2005 to 2009 the cap will have seen an increase in 43% (approx), from 85.5 to 123 million dollars.

    It was at this time that the most recent revenue sharing agreement between clubs was also agreed to. Some of this was difficult for owners to swallow. Not only were a lot of owners now having to give more money to players they did or didn't want to pay (remember the minimum salary cap exists as well), they were also having to pay other clubs their money. Understandably, though the deal went through, in large part due to dramatic impassioned speeches from Paul Tagliabue and Al Davis, there wasn't realistically a cohesive agreement. It was more of a “oh if it has to be that way” than a “yes” from most owners. This didn't exactly lay a good frame work for future negotiations.

    Current issues of contention
    Issue 1:
    Recently Judge Doty (a major contributor the last era of labour peace), working out of Minnesota ruled in the favor of Michael Vick and the Players Association in regards to bonus money Vick had earned whilst playing for the Atlanta falcons. The Falcons and the league were attempting to re-coup some of the bonus money paid to Vick during his time with the Falcons. Due to the fact that Vick had been paid the money before any legal issues had arisen the general legal consensus was that Vick should be allowed to keep the money. As I understand it, the counter argument was that Vick's illegal activities were ongoing whilst he was receiving this bonus money.

    Irrespective of this case in point it essentially sets down through the legal principle of tort law that just because a player breaks the law or breaches a code of conduct does not mean that a team will be able to recoup money spent or invested in that player. A ruling which expectedly frustrated some front offices (especially those in Cincinnati LOLOLOL)

    Issue 2:
    Many of the owners claim that as of the new revenue sharing agreement between themselves and the players their profits have fallen significantly from as much as 10% down to as little as 4%. Which for those of you without calculators can be in the vicinity of 40-45 million dollars per annum. The owners essentially want to back out of this agreement signed in 2006 which some owners think they were pressured into by the impossible time line they faced to get a deal done. In order to back out of the current agreement it would literally have to be torn up and re-started from scratch.

    As a side note, it’s not as if Owners want this money to build a mound of and roll around on. This is generally put into marketing so that an organization can make more non-shared revenue. Some of the money goes into facilities and a large portion of it goes into coaching staff salaries (not counted toward the cap). Money outside of the salary cap plays a huge part in how much money goes into the salaries of players and goes into the success of teams as a business. Now instead of being able to build luxury boxes, higher that new scout and coach, team’s might only be able to build that box, so their team in turn suffers. These are simple examples, but they make my point.

    Issue 3:
    The NFL Owners recently decreased the power of NFL teams to borrow funds for any reason from a debt limit of $150million down to $120million. This means that $960 million dollars formerly available to the NFL owners is no longer there. Ipso facto that means less numerical value for that increase in shared revenue from 55.5 to 60%. i.e. 60% of 0 is still zero. If a team used to use that extra 30 million in player salary and now decides it simply can't divert funds from elsewhere despite increasing in % the numerical value of the cap may not change at all, or may even decrease. Remember 30million might put them to 100 millions, 55% = 55 millions, 60% of 70 million for example is 42 million.

    This issue basically stems from any money the owners decide they don't want to have or the NFL decides they can't have is money that potentially won't end up in players pockets. This upsets the players. They believe this is a form of collusion and have filed legal complaints detailing that this agreement to limit borrowing also limits the players bonus money and salary. Essentially the players are saying the owners have self imposed a financial cap within the salary cap circumventing the agreement in place.

    Furthermore, should there be an uncapped year (currently this is the status) in 2011 this cap on borrowing money will limit the money free agents can make. Sure there might not be a restriction on the amount of money a team can spend, there simply won't be money there to spend. This could be a move designed to force players to accept an agreement they don't want.

    What the owners see is that as a result of the previous agreement they've lost around 40 million dollars they can use to expand their brand and make more money as a whole. Instead this is going into players salaries. While the players see 2011 as a potential bonanza they don't realize that by that point the ownership of teams won't be able to shell out the money they'll be wanting. What they fail to realize is that the 1993 increase (final uncapped year) of salaries taking 69% of total money is going to be next to impossible to reach this time around.

    Problem 4:
    The owners don't like the way they're sharing money between the NFL teams. High earning franchise owners are unhappy that their ability to make money within a market is then to the benefit of dysfunctional organizations. On a personality level, most of the newer breed of owners are former cut-throat businessmen who've never heard the word “share” when it came to their profits, let alone with their direct competitors. The low earning organizations are plain and simply unhappy as any money they are receiving is making it hard for them to expand due to the new salary cap and players demands.

    Getting a consensus vote for half the voters to lose a piece of their pie isn't going to happen any time soon either. So they find a place to agree on where to find more money, take it back from the salaries.

    Problem 5:
    Every year rookies sign contracts larger than their counterparts the year before. Contracts like Jake Long signed at the beginning of the year to make him the highest paid lineman in the NFL is ridiculous. Recently the rookie salaries were highlighted as a major issue within the players union as its money that prevents veterans from being resigned or receiving larger contracts.

    A bigger issue is that if a rookie is receiving money as a franchise player when they won't contribute as franchise pillars for at least 2 seasons it’s difficult to justify such a large part of the cap going to waste.

    The establishment of a rookie cap to prevent over spending in this area has been proposed.

    Possible Outcomes:

    All Hell Breaks Loose:
    The worst of the worst happens. The NFL Owners tear up the current agreement and lockout the players union in a pay dispute. The players union is dismantled and the lockout becomes ineffective. The older often injured vets, someone like Joe Horn for example would become virtually unsignable. remember there's now no provisions for injury cover, so most of this would be settled out of the NFL's agreements costing a lot teams millions of dollars.

    Players who were looking for that monster contract will be surprised to find that there isn't one out there for them as most front offices simply won't have the finances to break the bank on a few guys.

    The Players will likely strike at the end of the 2010 season and the owners will refuse to give into their demands in a show of strength and solidarity. Anti-trust law suits will be filed and there will be no NFL in the 2011-2012 season. Placing the draft in jeopardy. Financially the league may find this very difficult to recover from and we'd see a downturn in the quality of football for at least 3 or more seasons.

    Best case scenario
    The players and owners realize they only stand to lose by walking away hard-headed from the negotiating table. The NFL establishes a rookie salary cap, thereby removing a lot of the financial stress being placed on the salary cap. The players agree to stalling the expansion of the cap % for a few years to allow teams to clear some debt, make some profit and expand the organization, this will be done under the provision that the owners show good faith and remove their imposed restrictions on borrowing money.

    Keep in mind this will mean the numerical amount of the cap will continue to increase, though not too quickly so that it places stress on the owners as it has done now.

    Everything else is kept as it was. This will still keep some owners unhappy as to the fact that they cannot recoup some lost money, but it will essentially open up more money in numerical terms to the veteran players, currently unhappy with the salary cap as it is. The rookie cap will free up more money still to go to veterans and will allow a period of peace and an increase in player salary whilst the owners prepare for the cap to continue to increase.

    Essentially this is a proposition that will prevent owners from having to spend more of their profit % on player salaries while they continue to make a profit. The players after more $ will see it as a result of the rookie cap being put in place and the owners making more money through expansion. It will also free up time for negotiation so that issues such as recouping money from players who violate the law, inter club revenue sharing and other smaller issues can be discussed.

    In simple terms the dollar value of the percentage received by the players increases through the aforementioned maneuvers for a few years. Players and owners will see more benefit than in an uncapped year and labour strife. Everybody wins in the short term which will allow time to negotiate for a better deal for both sides over the long term.

    That’s it, hopefully everyone now understands.
    Last edited by BlindSite; 06-01-2008, 02:00 AM.

  • #2
    Sorry about the bullet points / font it won't transfer from word to the forums for some reason, if a mod knows how to fix it for me, please can they do so.


    • #3
      that was a good read, thanks


      • #4
        No worries.


        • #5
          Here's a good little Q&A, too...

          When does the CBA expire, should there be no extension to the agreement?
          After the 2010 NFL season.

          Will there be a college draft in 2011?

          What is the “Final League Year” in the current agreement?
          The “Final League Year” is the term used in the CBA to refer to the last year of the agreement. Without a further extension of the CBA, the “Final League Year” would be the 2010 League Year.
          What are the differences between the “Final League Year” and any other “League Year?”
          The principal differences are that in the “Final League Year,” there is no salary cap and there are substantial additional restrictions on player free agency.

          Now that 2009 is the last capped year, are there rules that impact player contract negotiations and a club’s salary cap planning?
          Yes. Here are the key differences:
          After the last game of the 2008 regular season, signing bonus proration is reduced from a maximum of six years to a maximum of five years.
          In 2009, there is no June 1 rule for signing bonus acceleration. If a player is removed from the roster or his contract is assigned via waivers or trade at any time in the 2009 League Year, any unamortized signing bonus will be immediately included in Team Salary. There is no year-end netting of incentives in 2009. Not-likely-to-be-earned incentives are charged to team salary immediately when earned, and likely-to-be-earned incentives are deducted when they are no longer possible to earn.
          Guaranteed salary from 2010 and beyond is reallocated to capped years unless the entire 2009 salary is guaranteed.
          Fifty percent of guaranteed salary in any League Year beyond 2012 is reallocated to capped years.
          The 30% increase rule restricts salary increases from 2009 to 2010. For example, a player with a $500,000 salary in 2009 would be limited to annual salary increases of $150,000 ($500,000 x 30 percent) beginning in 2010.
          A team can include only three veteran team incentives in a player contract covering 2009 and beyond. These incentives must also be coupled with a play-time requirement. Previously, clubs were limited to eight team incentives and no play-time requirement.

          Are current player benefits affected in the uncapped year?
          Player benefits are expected to decline in the uncapped year. The union agreed that in the uncapped year clubs would be relieved of their obligation to fund numerous benefit programs. Examples include second career savings (401K), player annuity, severance pay and tuition assistance. The total league-wide contributions to such plans in 2009, the last capped year, are expected to be in excess of $225 million, or more than $7 million per club.

          What are the categories of free agents?
          Players are either “restricted” or “unrestricted” free agents. Within these categories there are also “transition” and “franchise” players.

          What determines an unrestricted free agent in the uncapped year?
          In capped seasons (2008 and 2009), a player whose contract has expired becomes an unrestricted free agent if he has four or more accrued seasons. In the uncapped year (2010), a player whose contract has expired becomes an unrestricted free agent only if he has six or more accrued seasons. An unrestricted free agent is free to sign with any club with no compensation owed to his old club.

          What determines whether a player is a restricted free agent in the “Final League Year?”
          In capped seasons (2008 and 2009), a player whose contract expires becomes a restricted free agent if he has three accrued seasons. In the uncapped year (2010), a player whose contract expires becomes a restricted free agent if he has three, four or five accrued seasons. The rights of restricted free agents remain unchanged in the uncapped year.

          What constitutes an “accrued season?”
          Six or more regular-season games on a club’s active/inactive, reserved-injured or physically unable to perform lists.
          In addition to the right to designate a Franchise (or Transition) Player each capped year, can clubs designate additional players in the uncapped year?
          Yes, one additional player can be tagged. In capped years (2008 and 2009), a club may designate a Franchise Player or a Transition Player. In the uncapped year (2010), a club may designate one additional Transition Player. A Transition Player must be offered a minimum of the average of the top 10 salaries of the prior season at the player’s position or 120 percent of the player’s previous year’s salary, whichever is greater. A Transition Player designation gives the club a first-refusal right to match within seven days an offer sheet given to the player by another club after his contract expires. If the club matches, it retains the player. If it does not match, it receives no compensation.

          What determines a Franchise Player?
          A club can designate one franchise player in any given year. The type of franchise player depends on the amount of the old club’s offer. An “exclusive” franchise player – not free to sign with another club – must be offered a minimum of the average of the top five salaries at the player’s position for the current year as of a predetermined date (April 18, in 2008), or 120 percent of the player’s previous year’s salary, or the average of the top five salaries at his position as of the end of last season – whichever of the three is greatest. If the player is offered a minimum of the average of the top five salaries of last season at his position, or 120 percent of the player’s previous year’s salary, he becomes a “non-exclusive” franchise player and can negotiate with other clubs. His old club can match a new club’s offer, or receive two first-round draft choices if it decides not to match the new club’s offer.

          What is the Final Eight Plan?
          During the uncapped year, the eight clubs that make the divisional playoffs in the previous season have additional restrictions that limit their ability to sign Unrestricted Free Agents from other clubs. In general, the four clubs participating in the Championship Games are limited in the number of free agents that they may sign; the limit is determined by the number of their own free agents signing with other clubs. For the four clubs that lose in the Divisional playoffs, in addition to having the ability to sign free agents based on the number of their own free agents signing with other clubs, they may also sign players based on specific financial parameters.

          Is there an Entering Player Pool in the uncapped year?
          There may be. The CBA provides that the league has the unilateral right to make that determination in an uncapped year.
          Is there a Minimum Team Salary in the uncapped year?
          There is no Minimum Team Salary in the uncapped year. The Minimum Team Salary in 2008 is $100,224,000, meaning each team is required to spend $100 million this year on player costs (not including benefits). The team salary cap in 2008 is $116 million.

          Are there individual player minimum salaries in the uncapped year?
          Yes, but they rise at a rate somewhat slower than player minimum salaries rise in capped years.


          • #6
            Interesting article some of the labor negotians show Upshaws passion and at times bull headedness which makes it understandable as to why some players want him gone


            • #7
              Great write up. Surpisingly concise for a topic that is anything but. I understood the whole thing prior to this, but your post adds some extra tid-bits for me.

              The real issue, to me, seems to be the insane deals handed to the 1st round guys. The top 5-10 are completely outrageous. Since you did such a good job summarizing, maybe you can help me understand how Upshaw can argue - with a straight face - that the massive rookie signings push salaries up for all players?? lol.

              FA contracts increase each year along w/all the 'contract extensions', so it's not like rookie salaries are the only driving force in pay increases. Veteran guys are complaining about the unproven rookie becoming the highest paid at a position they have only played in college. Yet there's Gene claiming this practice is "ultimately good" for all players, so there should be no Rookie Cap????

              Sometimes you just want to shake people and ask if they ever had any common sense to begin with.
              Last edited by FlyingElvis; 06-05-2008, 12:03 PM. Reason: proper english, gov'nah!

              Sig img shamelessly stolen from teh interwebs


              • #8
                Upshaw I believe, is of the opinion that if a rookie offensive tackle for example can afford to be paid the best in the business than Jordan Gross when a FA eg will be given a bigger contract.

                Upshaw probably sees it as a good thing but fails to realize there's simply not the money or cap space to keep chucking $$$$ around like this. Either that or he does realize it and believes the owners will do whatever it takes to meet the financial need of running and stocking a team.

                Its a stupid issue really, and Upshaw would be wise to listen to what the people he's supposed to represent want and properly help them to fight for a rookie cap.


                • #9
         quite the long read there sir. you apparently know more and care more about whats going on that I, kudos to you.

                  i just wish football didnt have to be such a business though.....should the salary cap ever be lost, i think i will just rescind my love of the nfl. chaos and crazyness is all that we would have at that point....

                  oh well...


                  • #10
                    I'll read all this tonight. But nice effort.



                    • #11
                      Originally posted by BeerBaron View Post
             quite the long read there sir. you apparently know more and care more about whats going on that I, kudos to you.

                      i just wish football didnt have to be such a business though.....should the salary cap ever be lost, i think i will just rescind my love of the nfl. chaos and crazyness is all that we would have at that point....

                      oh well...
                      Dude...the salary cap has only been around for 15 years. The purpose of the cap was to curb players salaries, and, in that respect, it's failed miserably. The NFL can live exist with a cap.


                      • #12
                        Originally posted by yourfavestoner View Post
                        Dude...the salary cap has only been around for 15 years. The purpose of the cap was to curb players salaries, and, in that respect, it's failed miserably.
                        I think it was do that just fine up until last year or two when player salaries began to baloon out of control.


                        • #13
                          Originally posted by BeerBaron View Post
                 quite the long read there sir. you apparently know more and care more about whats going on that I, kudos to you.

                          i just wish football didnt have to be such a business though.....should the salary cap ever be lost, i think i will just rescind my love of the nfl. chaos and crazyness is all that we would have at that point....

                          oh well...
                          What do you mean - you don't think the MLB business model is working? :p

                          Originally posted by yourfavestoner View Post
                          Dude...the salary cap has only been around for 15 years. The purpose of the cap was to curb players salaries, and, in that respect, it's failed miserably. The NFL can live exist with a cap.
                          That was only part of it, though. The other factor that ultimately lead to it's approval (along w/revenue sharing) was the League's desire for the dreaded "parity." See previous quip about MLB. ;)

                          Sig img shamelessly stolen from teh interwebs


                          • #14
                            Originally posted by BeerBaron View Post
                   quite the long read there sir. you apparently know more and care more about whats going on that I, kudos to you.

                            i just wish football didnt have to be such a business though.....should the salary cap ever be lost, i think i will just rescind my love of the nfl. chaos and crazyness is all that we would have at that point....

                            oh well...
                            If football weren't such a business it'd be your summer flag football league.


                            • #15
                              Originally posted by TheGreatEscape View Post
                              If football weren't such a business it'd be your summer flag football league.
                              i know it has to be a little bit business but this all seems like crap to me.....the fact that we could lose aspects of the game we love over a few percentages of millions of dollars......ehh.....idk



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