Making sense of the financial divide between the two sides
For most of the past two years, the financial divide between the NFL and the players association consisted of the NFL wanting to double its current off-the-top expense credit from $1 billion per year to $2 billion annually, with the players continuing to get 59.6 percent of everything beyond the first $2 billion.
At one point earlier this year, the players offered to take 50 cents of every dollar earned, without regard to expense credits or anything else that would be deducted before getting out the carving knife. The proposal represented a lower percentage of total dollars than the players have received in each year since 2002.
We’re told that the discussions eventually began to focus on the team-per-team salary cap numbers, via a process that the parties referred to as “pegging the cap.” A twist on the proposal based on taking a percentage of all dollars, negotiating a specific per-year cap figure sidesteps the issue of removing certain types of expenses before cutting up the remaining money, which in turn gives the players one less reason to be suspicious regarding the league’s accounting of credited expenses under the off-the-top formula.
The summary of the league’s proposal contains scant details regarding the financial proposal, pointing out only that the owners agreed to the union’s proposed cap number of $161 million for 2014. (Which, of course, implies that there are details about the financial proposal that the league decided didn’t fit within the whole “players bad/owners good” P.R. spin.)
The stumbling block came much earlier than 2014. We’re told that, for 2011, the NFL had offered a per-team cap of $131 million and the players had asked for $151 million. The $20 million cap represented the $640 million difference that existed before Friday.
But there was more. Under a mechanism known as a “true-up,” the two sides were negotiating any additional payments made based on financial performance of the league in comparison to a league projection of four-percent revenue growth in 2011, four-percent growth in 2012, 2.5-percent growth in 2013 (a seemingly low amount given that new TV deals will kick in that year), and 2.5-percent growth in 2013.
Bear with us here because this gets complicated. (OK, it gets more complicated.) The players reasonably wanted more money, if the actual performance exceeds the league’s projection that gave rise to the proposed cap numbers. As we understand it, the owners would have retained the next 1.5 percent above the annual projection, and the two sides were negotiating the amount of the split over and above that amount.
For example, if the league were to have revenue growth of 10 percent in a year during which the projection was four percent, the next 1.5 percent would have gone to the owners and the remaining 4.5 percent would have been shared between the two parties.
On Friday, the league offered to “split the difference” between $131 million and $151 million, with a figure of $141 million. We’re told, however, that the Friday offer omitted any additional money based on whether the league exceeds its projected revenue growth.
So the league didn’t really offer to “split the difference.” The league went to the midpoint of the $20 million gap, cutting the total difference from $640 million per year to $320 million. But with no offer to provide the players with any portion of the revenue that exceeds the projected growth, the offer was something closer to the league’s prior position than the players’ prior proposal.
The players’ characterization of the issues that prevented a deal address this point, explaining that the “NFL demanded 100% of all revenues which went above unrealistically low projections for the first four years.”
As of right now, then, the parties have a gap of $320 million ($10 million per team per year) plus whatever the league earns over and above its projections. And it’s not an insignificant amount. If the league earned $9 billion in 2010, revenue growth of four percent pushes that number to $9.36 billion. Revenue growth of 10 percent would move the number to $9.9 billion.
That’s a difference of $540 million above the league’s projection, which under the players’ interpretation of the league’s offer would make the actual gap between the two sides $860 million for 2011.
We’ll ask NFL general counsel Jeff Pash about this and other issues during his Monday visit to PFT Live. Though we’d prefer 10 hours instead of 10 minutes, we’ll take whatever we can get.
UPDATE: The $141 million cap number offered by the league includes salary and benefits. As Howard Balzer of 101espn.com and The Sports Xchange points out, this is less than the $149.3 million salary-and-benefits number from 2009, but more than the $138.3 million number from 2008.