World's Most Boring Thread: The CBA

[ThunderDan]

I will point out one problem with your numbers though TD, and it's that they're a bit of a straw man argument (not entirely - they are relevant)

The issue at hand is the claim that EXPENSES have risen faster than expected. The owners are saying that they can not make a reasonable profit with that portion of the revenue. That claim, of course, is unverifiable, and should be given little or no credence, since owners will not divulge what their expenses are...!

The way I see it is, that is only relevant if the owners and players were co-owners. If you want to have collaborative talks the owners have to show all streams of income and expenses that they are responsible for. Without that it will be an adversarial process and things may not get done.

[sharpe1027]

I have never ever heard an owner of a business that I work with say well my compensation only went down 9% of total revenue when his take home pay is cut 18%.

I think this hits the nail on the head.

The owners argue that the amount that the player's percentage would go down is to be offset by growth in revenue, but they offer no such adjustment of the player's percentage upward were the revenue to go down.

The owners benefit from a flexible salary structure that adjusts with the revenue. This reduces their risk/exposure considerably because if revenue is flat or decreasing, then the player's cut automatically goes down. The players sacrifice salary security to share in the growth of total revenue. At least that's how I would view it.

This is why I feel that the owner's argument is intellectually dishonest.

[ThunderDan]

The issue at hand is the claim that EXPENSES have risen faster than expected. The owners are saying that they can not make a reasonable profit with that portion of the revenue. That claim, of course, is unverifiable, and should be given little or no credence, since owners will not divulge what their expenses are...!

I have been thinking about this a little more and had to respond.

The largest expense to the owners is players salaries. The players are a part (the largest part to me the fan) of the product. The owners have effectively capped their expense as a % of income.

The reality is the owners get 100% of the revenue. The can argue they have to pay 59.6% to the players but if they didn't pay them who are they going to put on the field.

At our firm we don't say the owners only gets 65% of the revenue because the other 35% has to pay the employees that generate the work product.

[get louder at lambeau]

League rejects union offer to keep cap in place
Posted by Mike Florio on February 26, 2010 4:58 PM ET
Once upon a time, the NFLPA couldn't wait for the salary cap to go away. Since then, however, the union apparently has become acquainted with some of the niceties of the labor deal regarding the consequences of the evaporation of the per-team spending limit.

For starters, no cap means no floor. Then there's the increase in years of service for unrestricted free agency from four to six, and that pesky "Final Eight Plan," which makes it very hard for the last eight teams standing to participate in the market -- and damn near impossible for the final four to sign unrestricted free agents.

So now the union is desperate to keep the cap. Albert Breer of the Boston Globe reports that the union made one last pitch to extend the rules that have applied from 2006 through 2009 into 2010. Per Breer, the league rejected the proposal on Thursday.

As a result, the first uncapped year since 1993 will begin next Friday at midnight.

It's not known what the union offered in exchange for the continuation of the salary cap. But it means that there's still a chance -- slim as it might be -- that the two sides will get a deal done before the clock strikes twelve on March 5, since the union could decide to take the best deal that's on the table in order to keep a cap -- and a floor -- in place.

http://profootballtalk.nbcsports.com/2010/02/26/league-rejects-union-offer-to-keep-cap-in-place/

[retailguy]

Revenues next year are projected to decrease, if that happens to be the case the players net "take" would be less (and could be far less) than the 18% they are claiming.

Where did you hear that revenues are expected to decrease?

Even owners aren't making that claim. They are claiming costs (related to financing and new stadium costs) have risen faster than they projected. I have seen nothing about a revenue decline, even if you account for inflation.

It was in an interview with Goodell, I think. Super Bowl weekend, perhaps? He was all over the place. I've gone back and looked for it, but I cannot find it.

I can find a lot of references that the NFL is being impacted by this economy, but none that reference lower revenues. So maybe I heard it wrong? Not sure, I thought it was pretty clear... but maybe not?

[retailguy]

At our firm we don't say the owners only gets 65% of the revenue because the other 35% has to pay the employees that generate the work product.

Dan, when I read this I had to respond. I know what you meant by this, and don't disagree with the point you were trying to make, but don't think you saw the point you weren't trying to make....

Inadvertently, perhaps (if your numbers were correct), you told us that your firm has lower percentage payroll costs than the NFL, so holding everything else constant, your CPA firm is much more profitable than the average NFL team (when looking at percentages).

This debate is largely predisposed by which argument you agree with. If you side with the players and the NFLPA, you are screaming about an "18%" reduction. If you are predisposed to agree with the NFL and the owners, you are talking about "9%".

I don't know about you, Dan, but what I observed in my firm was that few businesses were successful with a payroll percentage as high as the NFL. Most business struggled heavily if they got above 45% in total loaded payroll. Most that were over 50% lost money and eventually either fixed it, or went out of business. Of course there were limited exceptions, but those were few and far between.

Our industry is being outsourced to India, and Kuala Lumpur. Why? Because labor is cheaper. Because firms like yours can lower payroll costs and benefits and make more money. I wonder, some days, if there will be any work left for a US based CPA.

I was approached about 7 years ago now, two years before I sold my half of the firm, to outsource to India. I could have made almost as much money, outsourcing all my returns to India, as I did then by only hiring 4 part time tax people. My partner and I did the vast majority of the 2,200 returns ourselves and hired temporary help during the tax season. We did all the returns outside of tax season. I would have only reduced the profitability of the firm by about 3% and done zero returns, or very close to it...

That won't work with the NFL. I don't think the Indians and the Malaysians can put out a quality NFL product. So from that sense the Union has a bit more power than the average union. The owners need the players for a good quality product that people will watch.

That being said, I think the NFLPA made many mistakes that they'll now pay for. The biggest was the refusal to do anything about the rookie salary inflation. I don't think we'd be here today if they had agreed to address this problem.

At the end of the day, US business judges profitability in percentages. The CPA's working for the NFL and the teams probably see that the owners could make more money owning a chain of Starbucks or McDonalds than they do running NFL teams. I recognize that when you look at $'s, the profit is obscene, however, on a percentage basis, other industries (including your firm Dan) are much more profitable.

An adjustment to the CBA is inevitable. It's going to happen. The NFLPA is likely to have a few pounds of flesh taken out of it's backside, but it remains to be seen how far the owners will actually push. Reality says that the players are overpaid, and the percentages have to be reduced.

We'll see what happens, I guess.

[pbmax]

RG, the business model for NFL teams does not look like small service industry businesses. Yours or the ones Dan is looking at. I would bet that compared to industries of similar size and revenue, football teams are marked by high labor costs and low capital costs. The second one is a sheer guess. There are franchises that own their own stadium, but even now that is the exception.

The year before Unrestricted Free Agency and the cap were negotiated into the CBA, the NFL spent just under 70% of revenues on player costs. I have never been able to identify this, but I believe that would be 70% of designated revenue (designated for the cap), not the total league revenue. So in essence, the league traded free agency and a salary floor for a lower and more fixed labor cost structure.

Only nine votes would have killed the current CBA in 2006, but it passed with only two objections. Publicly, I think it was categorized as unanimous, but I have read that Buffalo and Oakland initially voted against it.

Owners have cited two reasons for opting out. Changing cost structure (in several cases related to stadiums) and the economy, specifically the cost of financing. I have also seen loss of investment value listed as well. Each are legitimate, none has been documented fully except for the Packers.

I don't think you need to take sides for owners or players to think the next logical question is how much have the costs gone up, and how much of that is structural and not temporary. Those are questions I need answered before I take a side.

[pbmax]

To just finish the thought, I think there are two forces at work here and neither is malicious, but both probably mean that the league will not be able to operate like it has been. And the dynamic is not whether you side with management or labor.

First, lower revenue clubs did not like the new percentage of revenue in the 2006 CBA and only agreed to it if revenue sharing was supplemented by the sharing of certain local revenue. High income clubs disliked the new sharing idea entirely. And there is logic in their self-interest.

Clubs like Dallas, Washington and New England bought their teams with a significant amount of debt. They also have spent their own money (and borrowed even more) to improve or replace their stadiums. To finance that debt, they have had to turn their franchises into cash cows. In order to realize the maximum return on their efforts, they have concentrated on increasing local revenues that they do not need to share with other clubs. Better ROI.

Just as the Packers did not want to spend the bulk of the improvement money on seating at Lambeau (because each ticket sold would send 40% of the money to another team), highly leveraged franchises wanted to find new revenue streams that would return the maximum amount of revenue to the team itself. That meant stadium naming rights, scoreboard advertisements, admission fees to training camp, and the official beverage of the Dallas Cowboys.

The two groups never settled their differences on supplemental revenue sharing. So they went in the other direction, instead of finding a way to fund the new costs, find a way to reduce it. My belief is that the current economy and the cost of financing are real costs and effects, but their effect is temporary and were not a consideration when the league failed to find a suitable solution to local revenue sharing.

The real conflict is how will future franchises be sold and purchased. If only the marquee teams will be bought in a highly leveraged manner, then the league probably faces no great challenge longer term. But if more and more franchises are purchased with high debt loads (contrasted to Pittsburgh, Cincinnati, and Buffalo that are owned within a family or Green Bay - all franchises with a low debt load) then the conflict will grow.

Essentially, it will change the character of the ownership of NFL teams. Fewer families, more groups, more debt and more debt service. That will mean a search for new revenue closer to the Redskins than the Bengals or Bills. Some league owners are said to be apoplectic that Mike Brown did not sell naming rights to his stadium when he had the chance. But he is collecting supplemental revenue checks for the right to honor his father.

For the players, long term the hunt for new revenue will help them. But in the short term, the leveraged owners are asking the players to subsidize the smaller clubs in place of supplemental revenue sharing.

[pbmax]

At the end of the day, US business judges profitability in percentages. The CPA's working for the NFL and the teams probably see that the owners could make more money owning a chain of Starbucks or McDonalds than they do running NFL teams. I recognize that when you look at $'s, the profit is obscene, however, on a percentage basis, other industries (including your firm Dan) are much more profitable.

How can you make this judgement when you have none of the figures except the Packers? Does the Forbes estimation even cover the profit?

[sharpe1027]

This debate is largely predisposed by which argument you agree with. If you side with the players and the NFLPA, you are screaming about an "18%" reduction. If you are predisposed to agree with the NFL and the owners, you are talking about "9%".

RG, I think the point that keeps getting missed is that the 18% and 9% are one in the same. You can't have one without the other. That's what Florio didn't seem to understand. As other's have pointed out, just about everyone of us would use the 18% if we were talking about or own salary. I mean, that's how much change it means to us individually. Another way to look at it is that the 9% is just a number used in the formula that determines the salaries, it doesn't accurately represent the change in salaries. So for Florio to suggest that 9% is the correct number to use when discussing the change in player's salary strikes me as pretty misplaced.

As I mentioned above, I also don't agree with the argument that a possible increase in revenue justifies shifting more of the money to the owners. Why should the owners benefit more from revenue increases than the players?

As to your other point, I don't think there has been much discussion about what the proper percentage should be up until now. we were mostly trying to get a handle on what the proposal was or was not. I would think that you are correct that the NFL percentage of pay to their employees is a pretty high percentage compared to many other business models. That being said, the players are the entire reason there is even anything for the owners to "own."

It is an interesting question. I don't know what the right number is, but I don't have a problem with more of it going to the players than would in a typical business model.

[sharpe1027]

The real conflict is how will future franchises be sold and purchased. If only the marquee teams will be bought in a highly leveraged manner, then the league probably faces no great challenge longer term. But if more and more franchises are purchased with high debt loads (contrasted to Pittsburgh, Cincinnati, and Buffalo that are owned within a family or Green Bay - all franchises with a low debt load) then the conflict will grow.

Maybe, but the revenue associated with marquee teams may just mean that investors will speculate more and leverage beyond what even the best teams can afford. If you want an example of this phenomenon, you can look to the 'other' sport called football. Manchester United is one of the highest grossing teams in any sport for the premier league in English soccer. Yet, they team is lost money in 2008 because a group of investors borrowed so much to purchase the team that they cannot afford the interest payments. Despite being (arguably) the most successful team, they are only just getting into the black.

http://www.guardian.co.uk/football/2010/jan/20/manchester-united-glazers-debt-ronaldo

[retailguy]

RG, I think the point that keeps getting missed is that the 18% and 9% are one in the same. You can't have one without the other. That's what Florio didn't seem to understand. As other's have pointed out, just about everyone of us would use the 18% if we were talking about or own salary. I mean, that's how much change it means to us individually. Another way to look at it is that the 9% is just a number used in the formula that determines the salaries, it doesn't accurately represent the change in salaries. So for Florio to suggest that 9% is the correct number to use when discussing the change in player's salary strikes me as pretty misplaced.

Sharpe, others have told you that you don't "grasp" the full argument and I don't want to get into that discussion, but your point above seems to indicate that you think individual salaries are going to decrease. I don't read that anywhere.

What is going to change, and slow, is ever increasing salaries, and probably the salary floor. I don't see anyone talking about changing current contracts. Will there be less money for raises? Sure. Show me an industry where that is not the case. Again, it's the way the world works.

9% and 18% are really not the same thing. Looking at them globally, you can make that argument, but individual paychecks? Not a chance. A smaller salary cap pool doesn't mean smaller salaries, as much as it means smaller raises. Who can realistically argue with smaller raises? Who is not currently experiencing smaller raises, regardless of how much money the employer is making?

As I mentioned above, I also don't agree with the argument that a possible increase in revenue justifies shifting more of the money to the owners. Why should the owners benefit more from revenue increases than the players?

Risk. This is the way business works. If you don't like it, then open a business. Or don't. But don't bitch about "fairness". Players have much less investment, and much less risk than the owners do. At the end of the day, if there are profits, the owners should get to keep them, and the players should be compensated for performing their job. Players don't own the team.

As to your other point, I don't think there has been much discussion about what the proper percentage should be up until now. we were mostly trying to get a handle on what the proposal was or was not. I would think that you are correct that the NFL percentage of pay to their employees is a pretty high percentage compared to many other business models. That being said, the players are the entire reason there is even anything for the owners to "own."

Quite honestly, it isn't anyones business what the proper percentage is. And we can't get a "handle" on the proposal because we're getting "bullshit" from both sides.

This discussion is largely about who can argue the best. I largely stopped participating when I knew you and others weren't "listening". And I promise you, when this post is finished I'm done again. The question I'll leave you with is "Where is Smidgeon?" Why did he stop posting? I think it was because we weren't getting a "handle" on anything, but merely arguing right/wrong. Smidgeon was not wrong, and he grasped and explained the concepts better than most here, including me, did.

It is an interesting question. I don't know what the right number is, but I don't have a problem with more of it going to the players than would in a typical business model.

And I do have a problem with that. Because I know how hard it is to run a successful business. I also know how different the "perceptions" of my employees were to what was real.

The owners should be able to pay whatever they want. And if the product suffers because of their bad decisions then they should (and will) bear the brunt of that. This is why, ultimately, I did not outsource to India when I had the chance. It was the right call for me, but, the other way would have worked too. My business, my choice. My choice, my responsibility. If it's good, I get rich. If it's bad, I go bankrupt. My employees shared in that, but, they didn't have the risk, so they didn't get the reward.

[retailguy]

At the end of the day, US business judges profitability in percentages. The CPA's working for the NFL and the teams probably see that the owners could make more money owning a chain of Starbucks or McDonalds than they do running NFL teams. I recognize that when you look at $'s, the profit is obscene, however, on a percentage basis, other industries (including your firm Dan) are much more profitable.

How can you make this judgement when you have none of the figures except the Packers? Does the Forbes estimation even cover the profit?

tens of thousands of tax returns over a 15 year period. When you look in totality, business is not that "different". There is only so much money for things and the percentages are remarkably similar across industry, and not that different, small or large.

If a business is approximating 60% salaries, or even 50% salaries, then other areas have to be cut back. Marketing would be an easy one. I bet it is a struggle to increase marketing and awareness. No rule says that the owner should have to forgo profit to invest. It would be perfectly reasonable to lay people off or reduce salaries to grow. It's done all the time. And will continue to be done all the time.

Owners shouldn't have to open their books, but if they did, you might be surprised. Look closely at the Packers annual returns. Figure out the percentage of operating expenses. Look at another service business. Will things be different? Sure. But more will be the same than will be different. The numbers are larger, but math is math.

[sharpe1027]

Sharpe, others have told you that you don't "grasp" the full argument and I don't want to get into that discussion, but your point above seems to indicate that you think individual salaries are going to decrease. I don't read that anywhere.

Not at all. I am saying that relative to the current CBA, the total salary available for players would go down. No more, no less. I agree completely that it would be stupid to try to predict individual salaries and while others have tried to make that argument, I've worked hard to stay away from that particular argument. I feel, as I think you do, that the relevant question is how much change there would be relative to the current CBA.

What is going to change, and slow, is ever increasing salaries, and probably the salary floor. I don't see anyone talking about changing current contracts. Will there be less money for raises? Sure. Show me an industry where that is not the case. Again, it's the way the world works.

Well, the thing here isn't whether or not there will be less money for raises, it is about who gets the money that is available. Assuming that the revenue goes up, down or sideways, the players would argue that it should be shared along lines of the current CBA and not redistributed more towards the owners.

9% and 18% are really not the same thing. Looking at them globally, you can make that argument, but individual paychecks? Not a chance. A smaller salary cap pool doesn't mean smaller salaries, as much as it means smaller raises. Who can realistically argue with smaller raises? Who is not currently experiencing smaller raises, regardless of how much money the employer is making?

Why are you talking about individual paychecks? I might be missing something, but that strikes me as a straw man argument. I can't honestly say what anyone's particular pay check would be. What I can say is where the overall money is going to end up in a global sense. So, they are pretty much the same thing in the manner that I meant them (didn't mean to imply otherwise).

Risk. This is the way business works. If you don't like it, then open a business. Or don't. But don't bitch about "fairness". Players have much less investment, and much less risk than the owners do. At the end of the day, if there are profits, the owners should get to keep them, and the players should be compensated for performing their job. Players don't own the team.

Well, they agreed to the one percentage before and now they are trying to change it. Clearly the owners want to make more money. They own the team, but that doesn't necessarily justify anything. Nobody is saying the owner's don't get profits. The question is just whether or not the amount they want to pay the players is fair. There has to be a line somewhere. You can't just use blanket statements. Clearly there are differing opinions about where the line should be. I admit that I don't know the answer, but you talk like you think you do. Maybe you know something I don't?

Quite honestly, it isn't anyones business what the proper percentage is. And we can't get a "handle" on the proposal because we're getting "bullshit" from both sides.

When both sides start throwing numbers out into media, I feel like they invite analysis by the public. It is not like we are prying into personal records of a private business. We are commenting on both sides attempts at a PR battle. If you won't want to discuss it, then don't.

This discussion is largely about who can argue the best. I largely stopped participating when I knew you and others weren't "listening". And I promise you, when this post is finished I'm done again. The question I'll leave you with is "Where is Smidgeon?" Why did he stop posting? I think it was because we weren't getting a "handle" on anything, but merely arguing right/wrong. Smidgeon was not wrong, and he grasped and explained the concepts better than most here, including me, did.

Might be true. IDK. I re-read my posts, and frankly I don't see them as all that offensive. The worst thing I said had to do with my perception of Smidgeon's reason for posting was more about the argument than the main point. I admit I was a little skeptical of his arguments since the argument kept shifting away from whether or not Florio was wrong. To me his arguments kept bringing up semantics that didn't have anything to do with the main point. I don't think I was the only one to notice this. Still, maybe I am just a big asshole. I guess it is what it is.

And I do have a problem with that. Because I know how hard it is to run a successful business. I also know how different the "perceptions" of my employees were to what was real.

All I said was that the NFL might be a different model than a CPA firm and that I would be OK with that. I think you are reading too much into what I said.

The owners should be able to pay whatever they want. And if the product suffers because of their bad decisions then they should (and will) bear the brunt of that. This is why, ultimately, I did not outsource to India when I had the chance. It was the right call for me, but, the other way would have worked too. My business, my choice. My choice, my responsibility. If it's good, I get rich. If it's bad, I go bankrupt. My employees shared in that, but, they didn't have the risk, so they didn't get the reward.

True, but also remember that the NFL is a monopoly that has a legal exception that few other business have. It is not like the players have any other option. If it was a true free market the then there would be competition for the player's services and the owners and players could both be sure that they are getting fair market value.

I didn't mean to get you all up in arms RG. I was agreeing in part and trying to point out a few observations. I don't mind that you don't agree 100%, but I don't think there is a need to get all bent out of shape...but, again, I may just post like an asshole and not fully appreciate it. If so, you can keep calling me out on it.

[pbmax]

At the end of the day, US business judges profitability in percentages. The CPA's working for the NFL and the teams probably see that the owners could make more money owning a chain of Starbucks or McDonalds than they do running NFL teams. I recognize that when you look at $'s, the profit is obscene, however, on a percentage basis, other industries (including your firm Dan) are much more profitable.

How can you make this judgement when you have none of the figures except the Packers? Does the Forbes estimation even cover the profit?

tens of thousands of tax returns over a 15 year period. When you look in totality, business is not that "different". There is only so much money for things and the percentages are remarkably similar across industry, and not that different, small or large.

If a business is approximating 60% salaries, or even 50% salaries, then other areas have to be cut back. Marketing would be an easy one. I bet it is a struggle to increase marketing and awareness. No rule says that the owner should have to forgo profit to invest. It would be perfectly reasonable to lay people off or reduce salaries to grow. It's done all the time. And will continue to be done all the time.

Owners shouldn't have to open their books, but if they did, you might be surprised. Look closely at the Packers annual returns. Figure out the percentage of operating expenses. Look at another service business. Will things be different? Sure. But more will be the same than will be different. The numbers are larger, but math is math.

I agree that numbers are numbers and the Packers profit number from the 09 books was low compared to previous years and as a return percent.

But it took a record dive of investment instruments for that number to plummet that low and they were still profitable.

As a percentage of total revenue (the entire ball of wax, not for cap purposes) the NFL spends between 50 and 52% on players. I can only guess at the number after other employees are figured in, but I would imagine its under 60%.

For an entity in the entertainment industry, that doesn't seem far out of line. And we haven't even spoken about the appreciation of the value of the franchise. Its been a long time since business classes, but that payroll figure does not portend the end of a business model to me. It has been higher and the league has thrived. In fact there is some evidence that baseball might be at its most profitable and its payroll number is in the same ballpark. No one talks about this because baseball is supposed to be three days away from disappearing forever, but oh well.

What would change it would be the need for franchises to spend on stadiums. The need for local revenue and the need for both revenue growth and cash means that some teams will need to keep finding new ways to separate money from its customers. That change of the business model may affect the player's take, not the percentage as it stands now.