SBJ/February 14 - 20, 2005/Finance

NFL open to sharing all local revenue

The NFL is willing to share all local and national revenue with its players, say union and league officials, marking a seismic shift in how America’s top sport operates.

Tagliabue
The league and the NFL Players Association, which are engaged in somewhat contentious collective-bargaining negotiations, still have a “long way to go,” as Commissioner Paul Tagliabue said in his state of the league address 10 days ago. The two sides will meet again Wednesday, and as of last week the league had not decided whether it would offer a formal proposal at that meeting.

The players now receive 64.75 percent of about 90 percent of all NFL revenue, but the NFLPA has proposed that they get about 65 percent of all league revenue. That would be an increase of about $325 million to the players, assuming that NFL revenue is $5 billion, or $390 million if NFL revenue is at $6 billion. League revenue is reportedly in that range.

But before the league allows the players to share in not just national revenue but all local income for the first time, it wants a cost formula to address the debt that many teams carry, often from building the stadiums that generate the revenue the union now seeks to share.

“We are open to exploring with the union the total-revenue concept as a means of calculating the [salary] cap, but we have not agreed to anything,” NFL spokesman Greg Aiello said. “As far as the cost and revenue-sharing issue … this continues to be our internal issue, and we have significant work to do to reach a consensus, as the commissioner said in his Super Bowl press conference.”

The league has tentatively scheduled a March 2 owners meeting in Florida to address the collective-bargaining agreement, as well as negotiations on the Sunday night/Monday night and possible Thursday night/Saturday night television packages. That is the date by which the union has said it would like to have a deal completed because free agency begins, making it the last possible day for an agreement to go into effect for the next NFL fiscal year.

If the league agrees to total revenue sharing, it likely would want to reduce the percentage of money the union receives, given that there would be a bigger pot. And since this figure is used to calculate the league’s salary cap, low-revenue teams will be looking for more subsidies from higher-revenue clubs if the cap rises. Ultimately, at least 24 owners would have to sign off on a new labor agreement.

Still, there is no doubt that the NFL has, conceptually at least, made a major philosophical break from the past.

“The business has grown in a direction people didn’t predict in 1993,” said one NFL team source, pointing to the first year of the current CBA. “The importance of [local revenue] has become much larger than it was back then. We now need a new revenue-sharing structure that accommodates that.”

That sounds a lot like what the union has been saying for many months. Until now, the league had never embraced any concept of total-revenue sharing. As teams have generated large amounts of cash from areas such as naming rights, luxury suites and club seats, however, the union had demanded a piece of that pie.

But the growing revenue presents a dual issue for the league to resolve. Not only do the players want their cut, but lower-revenue clubs are clamoring for subsidies to prevent runaway revenue disparity.

That is why any deal to share all money with the union would likely need an additional agreement among owners to have some enhanced form of subsidies flowing from richer teams to less wealthy franchises. Currently, $40 million flows from the top-tier clubs to the lower-ranked ones.

“Small-market owners will never agree to this new labor agreement without a matching revenue share that goes with it,” said one team source.

Players already share in a healthy portion of local revenue through tickets, and under a complicated formula devised in the original 1993 collective-bargaining agreement, they now get about 50 percent of other local money, sources said. That leaves only 10 percent of the league’s revenue out of the player pool.

Much of the remaining local revenue the players want access to did not exist in 1993 when the first CBA was crafted. Luxury suites, sponsorships and club-seat revenue were not major drivers of team economics as they are today.

At the same time, during the last decade many clubs borrowed millions of dollars to build stadiums to generate that revenue, and these teams have argued that the union also should share in the cost. What seems likely is that debt interest would be deducted from shared revenue, and the player pool would be somewhat reduced.

There may, however, be a fight over what types of debt can be deducted. Richard Berthelsen, the NFLPA general counsel, told a group of reporters after the union’s Super Bowl week press conference that he viewed interest incurred for buying a team differently than interest incurred for building a stadium. The first case generates no revenue; the second case does.

A league source said the NFL has grudgingly acceded to this distinction, but whether owners who took on large amounts of debt to buy teams will agree is unclear.

Another element that will be pulled into the negotiations is the league’s G-3 fund, which doles out grants to teams building new stadiums.

New Orleans Saints owner Tom Benson, chairman of the finance committee, said G-3 is now, for the first time, part of the labor negotiations because the grants may become an offset against a team deducting stadium interest.

G-3 can afford only a handful of new projects, so it may need to be renewed soon. As an aside, Benson added, if the program is revived, it would be in a different form because low-revenue clubs feel it is subsidizing higher-revenue teams, or the ones who tapped into it to help finance new stadiums.

The CBA expires in 2008, but the league’s policy has been to redo it far in advance. The last year of the deal is uncapped, meaning teams would be unlimited in how much they could spend on player salaries.

The union has said that it is willing to go to that uncapped year and that its players would never agree to another salary cap at that point.

If the league has agreed to share all revenue, it will want a longer extension than the previous four renewals, said Randy Vataha, a sports investment banker and former player.

For the kind of concession the league would make by sharing all revenue with the players, he said, the NFL is sure to ask for a six- to eight-year extension, rather than the usual three.

Staff writer Liz Mullen contributed to this story.

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