NFL Union Leader Paints Bleak Picture of Future

[pbmax]

I disagree.

If you could buy a franchise for $400 million. Lose $4-5 million a year in operations and sell the franchis 10 years later for $750 million you have made a hell of a lot of money. On top of that you have ordinary losses to offset income at ~35% for that level of income and sell the franchise for a gain and pay 15% cap gain tax.

Net effect neglicting time value of money:
$400 M Out to Buy
$50 M in losses (tax savings of $18 M) -> $32 Million Out
Sell for $750 M (Money in Pocket)
$350 M gain taxes are $52 Million Out

750 - 400 - 32 -52 = $266 M (more than the $400 M to start) in pocket after 10 years. 66% return on investment after taxes. Pretty hard to beat that right now in any market.

So for the financial risk, headache and bypass of other investment opportunities, the owners' return is about what his franchise QB will make, and the QB is given guarantees whereas the owner is not.

Those numbers are pretty arbitrary (not even Peyton is going to get 10 years at 26 million and see it all), but the QB guarantees in this range are only for a franchise QB and would only be for a portion of the overall contract.

But there is another point. That model only works if you pay cash. If you borrow money, you need cash to pay the amortization on your debt.

[ThunderDan]

I disagree.

If you could buy a franchise for $400 million. Lose $4-5 million a year in operations and sell the franchis 10 years later for $750 million you have made a hell of a lot of money. On top of that you have ordinary losses to offset income at ~35% for that level of income and sell the franchise for a gain and pay 15% cap gain tax.

Net effect neglicting time value of money:
$400 M Out to Buy
$50 M in losses (tax savings of $18 M) -> $32 Million Out
Sell for $750 M (Money in Pocket)
$350 M gain taxes are $52 Million Out

750 - 400 - 32 -52 = $266 M (more than the $400 M to start) in pocket after 10 years. 66% return on investment after taxes. Pretty hard to beat that right now in any market.

Your numbers are arbitrary. Also, they fail to take into account the comparative value in other fields when they sell their businesses.

Jerry Jones bought the Cowboys and the stadium for $140 M in 1989.
Z Wilf paid $600 million for the Vikings in 2005.

I would argue that the Cowboys team is worth more than the Vikings.

$140 M in 1989
$850 M in 2005?

That would be a $710 M appreciation in 16 years.

[Patler]

I disagree.

If you could buy a franchise for $400 million. Lose $4-5 million a year in operations and sell the franchis 10 years later for $750 million you have made a hell of a lot of money. On top of that you have ordinary losses to offset income at ~35% for that level of income and sell the franchise for a gain and pay 15% cap gain tax.

Net effect neglicting time value of money:
$400 M Out to Buy
$50 M in losses (tax savings of $18 M) -> $32 Million Out
Sell for $750 M (Money in Pocket)
$350 M gain taxes are $52 Million Out

750 - 400 - 32 -52 = $266 M (more than the $400 M to start) in pocket after 10 years. 66% return on investment after taxes. Pretty hard to beat that right now in any market.

So for the financial risk, headache and bypass of other investment opportunities, the owners' return is about what his franchise QB will make, and the QB is given guarantees whereas the owner is not.

Those numbers are pretty arbitrary (not even Peyton is going to get 10 years at 26 million and see it all), but the QB guarantees in this range are only for a franchise QB and would only be for a portion of the overall contract.

But there is another point. That model only works if you pay cash. If you borrow money, you need cash to pay the amortization on your debt.

Mannings too old, but Favre got a $100 million contract 10 year ago and has collected every bit of its value, one way or another. I would not at all be surprised to see young QBs, like Rodgers or others, earn $250 million over the next 10 years.

But, lets look at the hypothetical investment another way:

$400 million invested at a 5% annual return, compounded annually, after 10 years would have a value of $651 milion. Not an outstanding investment by any means.

[Patler]

Many take the position that it is the players who made the league, almost as if the owners were just along for the ride. I disagree. The players also needed the rich owners who could risk financial losses without going bankrupt, etc. I seriously doubt that a league full of teams like the Packers would ever have grown the way it did. Owners took risks before the rewards were big, and it paid off.

The owners need the players, absolutely. But the players also need the league to be in the hands of the wealthier movers and shakers of society. They really need each other.

[ThunderDan]

I disagree.

If you could buy a franchise for $400 million. Lose $4-5 million a year in operations and sell the franchis 10 years later for $750 million you have made a hell of a lot of money. On top of that you have ordinary losses to offset income at ~35% for that level of income and sell the franchise for a gain and pay 15% cap gain tax.

Net effect neglicting time value of money:
$400 M Out to Buy
$50 M in losses (tax savings of $18 M) -> $32 Million Out
Sell for $750 M (Money in Pocket)
$350 M gain taxes are $52 Million Out

750 - 400 - 32 -52 = $266 M (more than the $400 M to start) in pocket after 10 years. 66% return on investment after taxes. Pretty hard to beat that right now in any market.

So for the financial risk, headache and bypass of other investment opportunities, the owners' return is about what his franchise QB will make, and the QB is given guarantees whereas the owner is not.

Those numbers are pretty arbitrary (not even Peyton is going to get 10 years at 26 million and see it all), but the QB guarantees in this range are only for a franchise QB and would only be for a portion of the overall contract.

But there is another point. That model only works if you pay cash. If you borrow money, you need cash to pay the amortization on your debt.

Mannings too old, but Favre got a $100 million contract 10 year ago and has collected every bit of its value, one way or another. I would not at all be surprised to see young QBs, like Rodgers or others, earn $250 million over the next 10 years.

But, lets look at the hypothetical investment another way:

$400 million invested at a 5% annual return, compounded annually, after 10 years would have a value of $651 milion. Not an outstanding investment by any means.

If you could tell me how to make 5% a year for the last 10 years you should have been a financial planner.

Also you haven't figured in taxes or that the S&P over the last 10 years has given a negative return.

[Patler]

If you could tell me how to make 5% a year for the last 10 years you should have been a financial planner.

Also you haven't figured in taxes or that the S&P over the last 10 years has given a negative return.

So you have a lost decade to deal with right now, to emphasize a point about 0% returns. Had we had this conversation a few years ago, 5% would have looked paltry. Either is an oddity, not a "normal" 10 year period. Depending on whether you accept the geometric or arithmetic average calculations, the annual rate of return investing in stocks over the last 150 years or so is generally agreed to be between 7% and 8.5%. Buying a football team is a long term investment, more like a lifetime of investing. You can pick a small window to look much better or much worse if you want to.

We have also had unprecedented growth in the NFL revenues for the last 15-20 years or so. I suspect it will slow, and could even retrench a bit.

I wasn't proposing an equal investment return, just showing that your hypothetical growth of $400 million to $750 million in 10 years is not so great. Just a 5% return gets you to $650 million. 6% compounded monthly gets you to $730. If I had $400 million to invest, I would look for better potential returns than that.

[Smidgeon]

I disagree.

If you could buy a franchise for $400 million. Lose $4-5 million a year in operations and sell the franchis 10 years later for $750 million you have made a hell of a lot of money. On top of that you have ordinary losses to offset income at ~35% for that level of income and sell the franchise for a gain and pay 15% cap gain tax.

Net effect neglicting time value of money:
$400 M Out to Buy
$50 M in losses (tax savings of $18 M) -> $32 Million Out
Sell for $750 M (Money in Pocket)
$350 M gain taxes are $52 Million Out

750 - 400 - 32 -52 = $266 M (more than the $400 M to start) in pocket after 10 years. 66% return on investment after taxes. Pretty hard to beat that right now in any market.

So for the financial risk, headache and bypass of other investment opportunities, the owners' return is about what his franchise QB will make, and the QB is given guarantees whereas the owner is not.

Those numbers are pretty arbitrary (not even Peyton is going to get 10 years at 26 million and see it all), but the QB guarantees in this range are only for a franchise QB and would only be for a portion of the overall contract.

But there is another point. That model only works if you pay cash. If you borrow money, you need cash to pay the amortization on your debt.

Mannings too old, but Favre got a $100 million contract 10 year ago and has collected every bit of its value, one way or another. I would not at all be surprised to see young QBs, like Rodgers or others, earn $250 million over the next 10 years.

But, lets look at the hypothetical investment another way:

$400 million invested at a 5% annual return, compounded annually, after 10 years would have a value of $651 milion. Not an outstanding investment by any means.

If you could tell me how to make 5% a year for the last 10 years you should have been a financial planner.

Also you haven't figured in taxes or that the S&P over the last 10 years has given a negative return.

5% a year is nothing. Especially when you consider that in the last 50 years, T-rates have been above 4% in 535 of the 600 months and above 5% in 417 of the 600 months. Those are federally guaranteed rates. Even taking the common floor of a 4% rate and the poor floor of about 2.5-3% during 2009, it doesn't take anything special to pull in 5% a year. You weight your portfolio towards T-stocks and pull in an almost risk free consistent investment. On the other hand, the higher your target rate, the more risky it gets. But 5% is not hard at all, and it isn't that risky.

[Scott Campbell]

If you could tell me how to make 5% a year for the last 10 years you should have been a financial planner.

Also you haven't figured in taxes or that the S&P over the last 10 years has given a negative return.

So you have a lost decade to deal with right now, to emphasize a point about 0% returns. Had we had this conversation a few years ago, 5% would have looked paltry. Either is an oddity, not a "normal" 10 year period. Depending on whether you accept the geometric or arithmetic average calculations, the annual rate of return investing in stocks over the last 150 years or so is generally agreed to be between 7% and 8.5%. Buying a football team is a long term investment, more like a lifetime of investing. You can pick a small window to look much better or much worse if you want to.

We have also had unprecedented growth in the NFL revenues for the last 15-20 years or so. I suspect it will slow, and could even retrench a bit.

I wasn't proposing an equal investment return, just showing that your hypothetical growth of $400 million to $750 million in 10 years is not so great. Just a 5% return gets you to $650 million. 6% compounded monthly gets you to $730. If I had $400 million to invest, I would look for better potential returns than that.

Not only that, but the owner's equity position is constantly at risk. Yes, they've appreciated nicely over the life of the league. But so did housing. Until it didn't.

Players put no capital at risk.

[packrulz]

As NFL free agency begins, owners have edge over players

By Pete Dougherty • pdougher@greenbaypressgazette.com • February 7, 2010

The NFL Players Association’s otherwise favorable contract with the NFL from 2006 contained one hidden but major pitfall for the union.
The poison pill that was supposed to impose huge incentives on both sides to keep extending the collective-bargaining agreement turned out to be hemlock for the players only.

That’s why NFL owners exercised their right to opt out of the agreement last year, and why the league will operate under new rules when the free-agent market opens March 5 — rules that favor owners far more than players.

For one, players aren’t eligible for unrestricted free agency until they’ve been in the league for six years rather than the previous four years. That’s a big loss for performers in a young man’s game and takes 212 players off the open market this offseason.

Then there’s the loss of the salary cap, which was supposed to be poison for the owners. Teams can spend as much money as they want on players, which should drive up salaries.

But there’s also no salary floor, unlike past years, which means teams can spend as little as they want as well. In today’s weak financial climate, some clubs will be looking to cut costs drastically for the short term, and their biggest expense by far is players.

So that supposed poison pill looks pretty good to many owners now.

“In theory, the lack of a cap was as harsh a pill as anything the players have, creating a market for teams to buy up all the best players at any price,” said Andrew Brandt, the former Green Bay Packers vice president who blogs about the business side of the NFL for www.NationalFootballPost.com.

“However, the world has changed since 2006, both in the financial markets and the public appetite for financing stadiums.”

Though the sides have until the start of the new league year on March 5 to reach agreement on a new CBA, they’re so far apart that the uncapped rules almost certainly will be in place. Commissioner Roger Goodell admitted that publicly last week.

The true zero hour, then, won’t come until March 2011, when the CBA runs out. Negotiations often need a fast-approaching, hard deadline to produce a deal, but if that doesn’t happen in the next year, the league and its players will have three options in 2011: They can operate under the same rules as 2010; the players can strike; or the owners can lock out the players.

Judging by several steps the league and teams have taken, it’s all but certain the owners will lock out the players if it comes to that.

Over the past year, many teams have included clauses in their coaches’ contracts that include pay cuts of up to 50 percent and the right to terminate the deals with 60 days notice if there’s no football in 2011.

Also, recently extended TV deals mandate payment to the NFL regardless of whether there’s football. Brandt said the networks will get credits in return if that’s the case, but teams nevertheless will have a steady stream of income even if there are no gate receipts.

Finally, the owners have hired the attorney who was point man for the NHL’s lockout in 2004-05.

DeMaurice Smith, the NFLPA’s new executive director, said Thursday it’s a certainty there won’t be football in 2011 because of a lockout.

“On a scale of 1 to 10,” Smith said, “it’s a 14.”

The major issue is how much of gross revenues the players should be paid. Under the previous agreement, they received about 59 percent, but the owners want to reduce that significantly. They say the NFL’s profit on the approximately $8 billion-a-year business dropped by $220 million from 2005, mostly because of payments for new stadiums, while players’ salaries continued to rise.

Smith wants the owners to open their books to prove the financial hardship. The owners say that’s useless because other leagues that have done so endured work stoppages anyway. And around it goes.

Both sides have amped up their public-relations campaigns this week at the Super Bowl to sway public opinion and posture for negotiations. Goodell and Smith held separate press conferences, and Smith made the boldest declaration of the week when he said it will be “virtually impossible” for the players to bring back a salary cap now that there won’t be one in 2010.

Those are strong words meant to improve Smith’s leverage — aside from withholding the players’ services, an uncapped system is the players’ most valuable negotiating chip.

But public comments early in negotiations will mean little when talks get serious, and it’s still hard to imagine the owners agreeing to any system that doesn’t include some kind of salary restriction, whether it’s a salary cap or some sort of luxury tax.

“Every sport has some kind of limitations,” Brandt said, “and each team — even in baseball — has their own ‘cap,’ which is really a budget. Smith has drawn from the old Gene Upshaw line that, once a cap is gone ,it is virtually certain not to return, but he needs to be careful not to engage in ultimatums.”

For this offseason, conventional wisdom says the free-agent market will be even more overpriced than usual because of a diluted market. All the four- and five-year players who would have been unrestricted free agents in years past are restricted and in effect can be removed from the open market with a high restricted free-agent tender.

That lowers the already small odds that Packers general manager Ted Thompson — who disdains the high cost of signing other teams’ players — will be active in the open market. He figures, as usual, to sit out the bidding for the most coveted players and sift through the rest for relative bargains.

“It will be interesting to see what kind of market will develop,” Brandt said. “In theory, the scarcity of talent in the (unrestricted free-agent) pool will drive up prices. However, the talent pool in the (restricted free-agent) pool will be greater, and the unknown is how active teams will be in the RFA market.”

[Joemailman]

The economy will not recover for years and the union could not have picked a worse time for this, but when has that ever stopped them?

Unfortunately, the Owners picked this moment, not the Players.

Details, details. Indeed, if there is no football in 2011, it will be due to a lockout, not a strike. My biggest concern right now is that perhaps neither Goodell nor the NFLPA President are as competent as their predecessors. Upshaw and Tagliabue knew how to get things done.