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July 13, 2020
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‘Share the pain’? The NFL and NFLPA could be headed toward another showdown

We’ve spent a lot of time discussing the logistics of getting an NFL season off the ground in the pandemic era, but one of the most important discussions between the league and its players hasn’t happened yet. It revolves around (surprise!) money, because even if there is a 2020 season, owners are confronting the likelihood of lost revenue.

Canceled games, rescheduled games, games in either empty or partially filled stadiums — all of those possibilities point to revenue losses for the league, even as it retains its optimism that the season will start on time. How significant those losses will be remains unknown, but the expectation is that they will be hard to swallow.

Which is why the league believes, as one ownership source put it recently, “If revenues are going to be drastically reduced because of the pandemic, there’s going to have to be a negotiation about how to share the pain. And that’s not going to be an easy discussion.”

Your first thought upon hearing that might well be of the current ugly dispute between Major League Baseball and its players over compensation for their yet-to-be-scheduled season. Back-and-forth proposals that quickly become public with each side seemingly dug in to their stances have raised concerns that baseball might tank its entire season over economic issues.

And sure, it may well be that a similarly ugly situation looms ahead for the NFL. But the economic structure of the NFL differs from that of MLB in ways that benefit the owners and ways that give NFL players significant leverage. Patrick Rishe, who directs the sports business program at Washington University in St. Louis, estimated that gameday spending on tickets and other items accounts for roughly one-third of NFL revenue, which means that playing games without fans would hurt but would still be worth it for the league. There’s no chance that any “share the pain” discussion in the NFL would threaten the start of the 2020 season — just the 2021 salary cap. The question of whether such a conversation even needs to be had depends on which side you ask.

“There is not going to be a conversation,” a source on the players’ side said, “about reducing our shares of revenue.”

The NFLPA held a conference call Tuesday evening with its executive board. A source said the issue of the owners wanting to discuss potential revenue implications came up in the call, but that the players agreed they were prioritizing safe-return-to-work issues at the moment and not prepared to discuss financial ones.

The NFL’s owners and players are locked in to a collectively bargained revenue-sharing agreement. According to the league’s CBA, which was ratified in March and runs through 2030, the salary cap is calculated annually by a formula directly tied to league revenues. A certain collectively bargained percentage of those revenues is designated for player costs. There are factors, such as TV revenue increases and stadium credits, that can alter the overall revenue calculations in either direction, but the CBA mandates that the players’ share of all league revenue not fall below 47% in 2020 or 48% in 2021 and beyond. The NFL Players Association (NFLPA) and the NFL review the revenue projections every year and settle on a salary cap figure.

So what happens if, as we expect is likely in 2020, actual revenues fall short of the projections? There are “true-up” provisions in the CBA that account for this. As an ultrasimplistic example: If the league projected $16 billion in revenue for 2020 and the actual revenue turned out to be $14 billion, that $2 billion gets taken out of the 2021 projections when determining the 2021 salary cap.

It stands to reason, then, that significant revenue losses in 2020 would lead to a reduction in the 2021 salary cap — possibly a big one. This year’s cap is $198.2 million per team. If the NFL had to play an entire season without fans, sources estimate the cap could drop into the $170 million range. (It goes without saying that canceled games probably would drive that number down much more.) That’s not as significant a historical setback as it might sound — the cap was $167 million in 2017 and $177.2 million in 2018.

Both sides expect any 2020 revenue losses to be a one-time blip, with the 2022 cap potentially rising well over its current level once the league renegotiates its TV deals. But since the cap has risen by at least $10 million every year since 2013, any reduction (or even flattening) of the cap would impact the way teams do business.

The uncertain financial landscape is already doing that. As of Tuesday, only two of the league’s 32 first-round draft picks had signed their contracts. If that sounds like a small number, that’s because it is. According to research by ESPN Stats & Information, 20 of the first-rounders in 2019 had signed by June 2 of last year, and on average 19.4 first-rounders have signed by June 2 over the past five years.

That doesn’t mean that teams are in danger of not signing its first-round pick. All 32 will sign, and their contracts are slotted into specific values depending on where they were picked. But the lack of big-money draft pick signings this year is absolutely tied to concerns about short-term cash flow and potential revenue loss.

Agents who represent first-round picks say they believe teams are waiting for clarity on their finances before doing the deals. For example, No. 1 pick Joe Burrow‘s contract with the Cincinnati Bengals will include a signing bonus of roughly $24 million. If you were operating in an uncertain short-term financial landscape and you had a choice between writing a $24 million check right now or waiting a couple of months to do it, might you not decide to wait? No one’s missing any practice time right now anyway.

So the owners are already being hesitant with their spending, and the feared revenue losses haven’t even happened yet. What they will seek, when they approach the NFLPA for this “share the pain” conversation, is a plan, or a series of plans for dealing with the various eventualities. No one wants the salary cap to go down, they will say. What can we do to make sure it doesn’t?

That question won’t be easy to answer. And just 2½ months after a bitter CBA negotiation that came down to a close player vote just as the pandemic was tightening its grip, the owners might not find the players overly eager to help them out. NFL.com published a story Tuesday that suggested the owners might approach the players about salary cuts for 2020. But sources on the players’ side suggest that’s a non-starter, and the structure of NFL player contracts varies so widely, it would be impossible to do it equitably. Example: The contracts of Drew Brees, Philip Rivers, Tom Brady and Derek Carr all average $25 million a year. But because of the way their bonuses were paid out, their 2020 salaries are $2 million, $13 million, $15 million and $18.9 million, respectively. If the players agreed to, for example, 5% pay cuts, that would cost Brees $100,000 and Carr $945,000. It doesn’t make a lot of sense.

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Dan Graziano reports on the news that the NFL has asked its teams to hold training camps at their respective facilities instead of traveling.

There might be devices that allow for some degree of compromise and flexibility. The final salary cap number usually changes at the last minute each year due to a negotiation over performance-based pay, for example, and it’s possible the union could agree to forgo that in 2021, which could puff up the cap by a couple of million dollars or so. The two sides could negotiate something around teams’ minimum cash spending floors, perhaps making short-term adjustments in exchange for assurances of long-term corrections. There are some who believe that any new agreements the league might make with its TV network partners over the next year or two could be front-loaded as a means of offsetting short-term revenue losses (though those negotiations would be between only the league and the networks, with the players not involved).

In short, expect the NFL to approach its players in the coming weeks or months about ways to deal with potential pandemic-related revenue losses and an effort to save the 2021 salary cap. But as of now, the two sides don’t even necessarily agree that such a conversation needs to take place. That could make for some testy talks, even as the 2020 NFL season continues to race closer to reality.

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