World's Most Boring Thread: The CBA

[pbmax]

There were two (OK, three) reasons to read the early incarnation of PFT.

1. Contract analysis.

2. Legal wranglings.

3. Rumors.

The newer version of his site is less boorish, breaks down fewer contracts and still has no feel for the actual game matchups or X and Os.

But this post is why its worth scrolling through all the Seinfeld references. He explains why the 18% cut is not exactly an 18% cut. But he also tells you why 59.6% of Total Revenues is not really anywhere close to 59%.

The full, unabridged story on the "18 percent pay cut" claim

Posted by Mike Florio on February 24, 2010 11:16 PM ET
We recently pointed out one of the three areas in which the NFLPA is taking liberties with the facts of the current labor dispute, regarding the ongoing payments the league would receive under the television contracts even if there's a work stoppage in 2011.

Another factual inaccuracy articulated during the NFLPA pre-Super Bowl press conference on February 4 relates to the extent to which the league has proposed reducing the money currently devoted to labor costs. On that day, Executive Director De Smith harped on the allegation that the league wants the players to take an "18 percent pay cut." At one point, Smith characterized the reduction as $340,000 per player, calculated based on the literal notion of an 18 percent pay cut.

In a conference call that convened after the Smith press conference, NFL general counsel Jeff Pash said that "[t]hese kinds of figures are misrepresentations of what our proposal is." Pash then explained that the league has requested an 18 percent credit against the revenue base. In other words, the league wants to shrink the total pie by 18 percent before applying the 59.6-cents-on-the-dollar formula for determining the players' total compensation.

As Pash pointed out at the time, the actual reduction is closer to nine percent. But 18 percent sounds a lot better for the players than nine.

On Wednesday, the league posted a evasive and overly simplistic response to the allegation that the league wants the players to take an 18 percent pay cut at NFLLabor.com: "Those numbers that Mr. Smith used at his Super Bowl press conference are inaccurate. No current player needs to take a pay-cut as a result of our proposal. Our goal is to generate a pool of resources in order to have continued investment and continued growth. This will lead to higher salaries and higher benefits for players."

Also on Wednesday, Patriots owner Robert Kraft provided a more meaningful reiteration of Pash's point.

"We're asking for cost recognition because we want to be able to go out and take risks and build the business," Kraft said, per Tom Curran of Comcast Sports Net New England. "That 60 percent, some people interpreted it going from 60 percent to 42. But it's 18 off 100 percent. I think there's a misunderstanding there."

Kraft is being kind; it's not a misunderstanding but a deliberate misrepresentation. No one is asking the players to cut their pay by 18 percent. In fact, there might ultimately be no reduction at all, if the pie continues to grow as it has over the past 15 years.

Kraft also recognizes that things are going well. "We have the greatest sport going in America," he said. "Both sides have to be smart enough to continue to build a partnership."

Actually, that's one of the best things we've heard in weeks.

Meanwhile, and in fairness to the union, the current system already provides for an off-the-top reduction. So the union isn't currently getting 59.6 cents on the dollar. As two union sources explained it to me recently, the $8 billion in total revenue is subject to an initial $1 billion reduction for cost credits. Once 59.6 percent is taken from the remaining $7 billion, the players' share is $4.2 billion -- roughly 52 percent of the total revenue. (As we understand it, the pre-2006 salary-cap formula based on designated gross revenues resulted in roughly 51.7 percent of all revenue being paid to the players. If that's accurate, the players are only getting 0.3 percent more under a CBA with which the owners claim they can't live.)

Under the league's current proposal, the $7 billion would be cut by 18 percent, or $1.26 billion, before application of the 59.6-cent formula. This would result in the players getting $3.42 billion, which equates to 42.7 percent of the total revenue.

So under the current proposal it would be a nine-percent drop, from 51.7 percent to 42.7 percent. But that's based on an 18-percent cut in the revenue pool, and it's widely believed that the 18-percent number is negotiable. If the league ultimately would agree to a 10 percent reduction of the revenue pool, the players' total take would be 46.9 percent of the total revenue.

Though that's roughly five percent lower than the amount the players currently get, the pie will continue to grow. Since 1994, the per-team salary maximum has expanded from $34.6 million to $123 million. So that 46.9 percent cut will continue to yield bigger and bigger numbers as the league uses the 18 percent credit against the revenue pool to help position the sport to generate more and more revenue in the future.

To summarize, the union's assertion that the league wants the players to take an 18 percent pay cut is blatantly false. Still, the league wants the players to take a smaller piece of the pie. The league glosses over that fact by pointing to the reality that the pie will continue to inflate.

Got it? The test will be on Tuesday.

[get louder at lambeau]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

[pbmax]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

Good catch. Any responses yet?

[pbmax]

Well, he certainly didn't cover it in his "update".

While 9% describes the static figure the players percentage of revenue would drop by, it does not describe the actual amount of lost dollars, or "pay".

He's also getting hammered for his poor explanation that 9% is the key since revenues will continue to expand. I still like that the article tackled the issue head on and made the different explanations from each side plain, he clearly biffed the conclusion.

[retailguy]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

I think you might be confusing yourself by undercomplicating the math. Your viewpoint seems a bit myopic, it assumes that revenues remain constant from year to year, which is highly unlikely.

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.

I didn't find Florio's premis stupid, in fact, I got a great deal from it.

[get louder at lambeau]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

I think you might be confusing yourself by undercomplicating the math. Your viewpoint seems a bit myopic, it assumes that revenues remain constant from year to year, which is highly unlikely.

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.

I didn't find Florio's premis stupid, in fact, I got a great deal from it.

His premise is that Smith was lying by saying it would be an 18% reduction in their total slice of the pie, and he claimed it would be more like 9%. He is wrong. Totally. Completely. He fucked up the math and came to an incorrect conclusion.

Any expected rise in revenue is not material to the discussion at all. They are talking about percentages here, Retail. As in, a percentage of whatever the total revenue of any year may be, regardless of the total pie being larger or smaller in any given year.

Me myopic or you? Maybe you should know what you're talking about before you throw that term around.

[Smidgeon]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

I think you might be confusing yourself by undercomplicating the math. Your viewpoint seems a bit myopic, it assumes that revenues remain constant from year to year, which is highly unlikely.

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.

I didn't find Florio's premis stupid, in fact, I got a great deal from it.

His premise is that Smith was lying by saying it would be an 18% reduction in their total slice of the pie, and he claimed it would be more like 9%. He is wrong. Totally. Completely. He fucked up the math and came to an incorrect conclusion.

Any expected rise in revenue is not material to the discussion at all. They are talking about percentages here, Retail. As in, a percentage of whatever the total revenue of any year may be, regardless of the total pie being larger or smaller in any given year.

Me myopic or you? Maybe you should know what you're talking about before you throw that term around.

That's only 18.6% if you use the players wage as a starting point. If you look at it in terms of the overall amount (so instead of using 3.42 as the 100% mark--which you did by using it as the denominator in the equation--use the 8 billion that he referenced earlier as being 100%), it's a reduction of 9.75%: (4.2 / 8) - (3.42/8). What this means is that the players are getting 9.75% less of the overall pie. But the relative decrease is 18.6%. So while you're not wrong in that regard, you aren't right either in your overall point.

[retailguy]

Thanks Smideon for making the overall point in a much clearer concise manner. You are certainly not myopic.

[get louder at lambeau]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

I think you might be confusing yourself by undercomplicating the math. Your viewpoint seems a bit myopic, it assumes that revenues remain constant from year to year, which is highly unlikely.

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.

I didn't find Florio's premis stupid, in fact, I got a great deal from it.

His premise is that Smith was lying by saying it would be an 18% reduction in their total slice of the pie, and he claimed it would be more like 9%. He is wrong. Totally. Completely. He fucked up the math and came to an incorrect conclusion.

Any expected rise in revenue is not material to the discussion at all. They are talking about percentages here, Retail. As in, a percentage of whatever the total revenue of any year may be, regardless of the total pie being larger or smaller in any given year.

Me myopic or you? Maybe you should know what you're talking about before you throw that term around.

That's only 18.6% if you use the players wage as a starting point. If you look at it in terms of the overall amount (so instead of using 3.42 as the 100% mark--which you did by using it as the denominator in the equation--use the 8 billion that he referenced earlier as being 100%), it's a reduction of 9.75%: (4.2 / 8) - (3.42/8). What this means is that the players are getting 9.75% less of the overall pie. But the relative decrease is 18.6%. So while you're not wrong in that regard, you aren't right either in your overall point.

That 9.75% number is not relevant here. THat's the problem.

The thing Florio is questioning is Smith saying the players would be taking an 18% pay cut. Which they would. The 9.75% is just a misleading way to look at it, as it has no bearing on the actual numbers, and is incorrect to apply here. That's like if I said that I was going to decrease your slice of the pie from 10% to 5% you'd only be getting a 5% decrease, where in reality it would be a 50% decrease for you. I am 100% right.

[get louder at lambeau]

Oops. Double posted.

[sharpe1027]

Did I get this right?

- Under the proposal the owner/player's ratio of the total revenue shifts by 9%.
- The players currently get about half of the total revenue, so 9% shift of the total results in an 18% reduction relative to what the players would receive under the current agreement. That is because the player receive only half of the total revenue, a shift of 9% of the total revenue is actually 18% of what they get. Example: Assume the league has 100 billion in revenue. If the players were to receive 50%, they would get 50 billion. Shift the percentage 9% and the players only get 41 billion. Thus, while 9 billion is only 9% of 100 billion, it is 18% of 50 billion.
- Whether or not the players actually receive a paycut depends upon whether or not the total revenue goes up, down or remains the same. Regardless, they would receive about 18% less of whatever the total revenue actually was.

So, the players really do make 18% less, relative to whatever the revenue comes in at.

[get louder at lambeau]

Did I get this right?

- Under the proposal the owner/player's ratio of the total revenue shifts by 9%.
- The players currently get about half of the total revenue, so 9% shift of the total results in an 18% reduction relative to what the players would receive under the current agreement. That is because the player receive only half of the total revenue, a shift of 9% of the total revenue is actually 18% of what they get. Example: Assume the league has 100 billion in revenue. If the players were to receive 50%, they would get 50 billion. Shift the percentage 9% and the players only get 41 billion. Thus, while 9 billion is only 9% of 100 billion, it is 18% of 50 billion.
- Whether or not the players actually receive a paycut depends upon whether or not the total revenue goes up, down or remains the same. Regardless, they would receive about 18% of whatever the total revenue actually was.

So, the players really do make 18% less, relative to whatever the revenue comes in at.

That is exactly right.

[Smidgeon]

I just commented on this story at PFT. Florio's confusing himself by overcomplicating the math. He says the players' take would go from $4.2 bil to $3.42 bil. Now divide the latter by the former- 81.4%- an 18.6% decrease. Ta da. His own numbers prove his whole premise is stupid.

I think you might be confusing yourself by undercomplicating the math. Your viewpoint seems a bit myopic, it assumes that revenues remain constant from year to year, which is highly unlikely.

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.

I didn't find Florio's premis stupid, in fact, I got a great deal from it.

His premise is that Smith was lying by saying it would be an 18% reduction in their total slice of the pie, and he claimed it would be more like 9%. He is wrong. Totally. Completely. He fucked up the math and came to an incorrect conclusion.

Any expected rise in revenue is not material to the discussion at all. They are talking about percentages here, Retail. As in, a percentage of whatever the total revenue of any year may be, regardless of the total pie being larger or smaller in any given year.

Me myopic or you? Maybe you should know what you're talking about before you throw that term around.

That's only 18.6% if you use the players wage as a starting point. If you look at it in terms of the overall amount (so instead of using 3.42 as the 100% mark--which you did by using it as the denominator in the equation--use the 8 billion that he referenced earlier as being 100%), it's a reduction of 9.75%: (4.2 / 8) - (3.42/8). What this means is that the players are getting 9.75% less of the overall pie. But the relative decrease is 18.6%. So while you're not wrong in that regard, you aren't right either in your overall point.

That 9.75% number is not relevant here. THat's the problem.

The thing Florio is questioning is Smith saying the players would be taking an 18% pay cut. Which they would. The 9.75% is just a misleading way to look at it, as it has no bearing on the actual numbers, and is incorrect to apply here. That's like if I said that I was going to decrease your slice of the pie from 10% to 5% you'd only be getting a 5% decrease, where in reality it would be a 50% decrease for you. I am 100% right.

I would agree with you on that last point if there wasn't a yearly increase to player salaries.

We could also put it another way to demonstrate why which denominator used is so important.

In 2009, the salary cap was $128 million per team. That means a max of (128x32=4096) $4.096 billion allocated to player salaries alone. In 1994, the salary cap was $34.6 million per team. With 28 teams in 1994, the total amount to the players was (34.6*28=968.8) $969 million. If we use that as the denominator, the players have had a (4096/969=4.227) 422.7% increase in player salaries during the free agency era.

So while someone can look at the relative decrease of 18.6% the owners are asking, I can also look at the relative increase of 422.7% that the players have gained in the last (2009-1994=15) 15 years.

That's an increase of [422.6%^(1/15)=1.496] 49.6% per year for player salaries. An investment that returns 49.6% per year consistently for 15 years is unheard of. Cost of living increases are only 4% per year on average. Which means that the player pool has grown 45.6% per year over inflation.

So while 10%-5% is a 50% decrease, if there's a 50% raise that happens before that, 15%-10% is only a 33% decrease. That's why the 9.75% is relevant. It's because it takes into account the growth of the sport. In this case, the oversimplification (because I really don't want to calculate the correlation of the percentages) is that 45.6%-18.6% is still an increase of 27%. Yearly. Also, if I understand the argument right, it isn't that the owners want their 9% for profit. They want more money freed up to develop the sport, to fund stadiums, to increase brand and sport awareness--all which makes the NFL as a whole more profitable and continues the increased salaries the players receive.

[sharpe1027]

I would agree with you on that last point if there wasn't a yearly increase to player salaries.

We could also put it another way to demonstrate why which denominator used is so important.

In 2009, the salary cap was $128 million per team. That means a max of (128x32=4096) $4.096 billion allocated to player salaries alone. In 1994, the salary cap was $34.6 million per team. With 28 teams in 1994, the total amount to the players was (34.6*28=968.8) $969 million. If we use that as the denominator, the players have had a (4096/969=4.227) 422.7% increase in player salaries during the free agency era.

So while someone can look at the relative decrease of 18.6% the owners are asking, I can also look at the relative increase of 422.7% that the players have gained in the last (2009-1994=15) 15 years.

That's an increase of [422.6%^(1/15)=1.496] 49.6% per year for player salaries. An investment that returns 49.6% per year consistently for 15 years is unheard of. Cost of living increases are only 4% per year on average. Which means that the player pool has grown 45.6% per year over inflation.

So while 10%-5% is a 50% decrease, if there's a 50% raise that happens before that, 15%-10% is only a 33% decrease. That's why the 9.75% is relevant. It's because it takes into account the growth of the sport. In this case, the oversimplification (because I really don't want to calculate the correlation of the percentages) is that 45.6%-18.6% is still an increase of 27%. Yearly. Also, if I understand the argument right, it isn't that the owners want their 9% for profit. They want more money freed up to develop the sport, to fund stadiums, to increase brand and sport awareness--all which makes the NFL as a whole more profitable and continues the increased salaries the players receive.

I think the point is that most people would not look at it that way. You could just as easily predict a decrease in revenue and say that they going to take a paycut that is much larger than 18%, but what is the point? The reality is if the proposal goes through, whatever the players would have otherwise made is reduced by 18%. If I go into a business deal with a partner, I sure has hell would not allow him to change my percentage of the profits just because the end result was that I got more than year before. Nobody would find that fair.

As for the 9% not being for profit, I feel that's a little misleading. Don't the the owners already pay for that stuff (and have every incentive to do so)? Basically, the owners are asking the players to pay for that stuff so they don't have to, meaning the owners can reduce their personal investments in that stuff and make more profit. Also, why wouldn't it just be 4.5% from both sides then? Personally, I think it is more of a political gimmick than anything else.

[Smidgeon]

I would agree with you on that last point if there wasn't a yearly increase to player salaries.

We could also put it another way to demonstrate why which denominator used is so important.

In 2009, the salary cap was $128 million per team. That means a max of (128x32=4096) $4.096 billion allocated to player salaries alone. In 1994, the salary cap was $34.6 million per team. With 28 teams in 1994, the total amount to the players was (34.6*28=968.8) $969 million. If we use that as the denominator, the players have had a (4096/969=4.227) 422.7% increase in player salaries during the free agency era.

So while someone can look at the relative decrease of 18.6% the owners are asking, I can also look at the relative increase of 422.7% that the players have gained in the last (2009-1994=15) 15 years.

That's an increase of [422.6%^(1/15)=1.496] 49.6% per year for player salaries. An investment that returns 49.6% per year consistently for 15 years is unheard of. Cost of living increases are only 4% per year on average. Which means that the player pool has grown 45.6% per year over inflation.

So while 10%-5% is a 50% decrease, if there's a 50% raise that happens before that, 15%-10% is only a 33% decrease. That's why the 9.75% is relevant. It's because it takes into account the growth of the sport. In this case, the oversimplification (because I really don't want to calculate the correlation of the percentages) is that 45.6%-18.6% is still an increase of 27%. Yearly. Also, if I understand the argument right, it isn't that the owners want their 9% for profit. They want more money freed up to develop the sport, to fund stadiums, to increase brand and sport awareness--all which makes the NFL as a whole more profitable and continues the increased salaries the players receive.

I think the point is that most people would not look at it that way. You could just as easily predict a decrease in revenue and say that they going to take a paycut that is much larger than 18%, but what is the point? The reality is if the proposal goes through, whatever the players would have otherwise made is reduced by 18%. If I go into a business deal with a partner, I sure has hell would not allow him to change my percentage of the profits just because the end result was that I got more than year before. Nobody would find that fair.

As for the 9% not being for profit, I feel that's a little misleading. Don't the the owners already pay for that stuff (and have every incentive to do so)? Basically, the owners are asking the players to pay for that stuff so they don't have to, meaning the owners can reduce their personal investments in that stuff and make more profit. Also, why wouldn't it just be 4.5% from both sides then? Personally, I think it is more of a political gimmick than anything else.

My point was simply to point out that there's mathematically far more to this than just 9% versus 18%. Anyone who says one or the other is oversimplifying. I don't care who gets what slice of the pie. I just want to be able to follow my team instead of being stuck watching NASCAR because there is no football on.

As for the 4.5% versus 9%, the owners are asking for 18% being reallocated to costs and 9% being shouldered by each side. As to the politics of it, I don't know. But to the purpose of costs, the argument is that cost allocations that used to be shouldered primarily by a third party (stadiums that were publicly funded) are now being shouldered primarily by the owners and investors.

So the argument for 18% being reallocated to the cost share is basically like a company reallocating more money to research and development because that company feels like there's a combination of a recent fading out of outside money coming into R&D and that an increase of funds contributed to R&D will grow the company much more dramatically than any other avenue.