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SBJ/August 1-7, 2011/NFL Special ReportPrint All
Before NFL owners reached a new labor agreement with the players last week, they made a key change in their system to aid teams in need that will result in wealthier clubs paying less to low-revenue ones, an important element of the new collective-bargaining agreement that is expected to be ratified this week.
The significant shift underscores how the deal that brought an end to the league’s first work stoppage in more than two decades fixes some of the core concerns the NFL had with the old labor pact, although not as quickly as the owners might have liked.
Over the course of the new deal, the owners could draw around $3.6 billion to $4.8 billion more in revenue. That is based on the extra three to four percentage points of revenue that will swing their way, spread over the roughly $120 billion the league is expected to generate over the next decade. The league further expects a majority of that intake to flow from national revenue streams, like media, which gets divided evenly among the 32 teams, as opposed to the growth coming from locally derived club revenue, which is what has fueled revenue disparity between the franchises.
For the start of the new deal, however, the 3 percent to 4 percent gain by owners is spread over slightly more than $9.5 billion in league revenue, which results in an extra $285 million to $380 million. That is not enough to fully fix the league’s main issue that too much had been paid to the players, resulting in slowing investment in the future of the game and financial disparity among the clubs.
“You are talking about low single-digit percentage gains. I would say that was a little bit more marginal that I would have expected,” said Neil Begley, an analyst with Moody’s Investor Service who tracks debt tied to the NFL.
What the league is banking on is an explosion in revenue to at least $120 billion, and as much as $140 billion, to come in over the contract’s 10 years. By the last years of the deal, annual revenue could more than double the current amount.
“Three to 4 percent of $9 billion is a lot less than 3 to 4 percent of $20 billion,” said Marc Ganis, a sports consultant with close ties to the NFL.
A league source said the deal motivates the NFL even more to generate national revenue, which should help ease the strains between low-revenue and high-revenue clubs.
The league is moving right away to ease tensions over the subsidy system, which is the league’s supplemental revenue sharing, that previously had transferred about $100 million annually to low-revenue teams.
Beginning this year, the league is capping at $3.5 million the amount that any single club must pay into the system, whereas under the old formula, top teams could pay millions more than that. In addition, in that old system, the top 15 teams in revenue paid out to the lower-revenue teams. It’s unknown how many teams will give and receive because of different formulas now.
Top teams will now be assessed not on their overall revenue, but on their amount of locally derived revenue. Teams’ eligibility also will be loosened a bit, with those clubs for whom player compensation consumes 63 percent of their revenue now being eligible. Previously, that requirement was 65 percent.
It’s possible then the amount paid out to needy clubs could rise, but high-revenue clubs won’t have to fund it all themselves because new revenue now will come from greater access to club-seat fees. In the coming years, waivers that have allowed many teams to keep the visitors’ share of club-seat revenue will expire. That money now will be banked in a revenue-sharing pool.
The NFL anticipates, though, that as national revenue rises, fewer clubs will need extra help.
The fact that supplemental revenue sharing is even necessary underscores that the owners did not get everything they wanted in the new labor agreement. Players won significant victories in the negotiation, like a higher salary floor and more cash spending, as well as health and safety measures. The NFL Players Association also had been deeply concerned about capturing its share of the explosion of media dollars expected in coming years. One reason it walked away from the table on March 11 was because the league’s proposal that day could have cut off their chance to enjoy that growth.
Now, the players will get 55 percent of media revenue, which is treated as a unique stream of revenue.
“National revenues have the least costs associated with the them,” said Mark Murphy, Green Bay Packers president, explaining why the league would share this money more generously.
Players will get less of high-cost revenue, such as local, club-raised revenue and NFL Ventures revenue, which comes from areas like NFL Network and licensing and merchandise. Players take 40 percent of club revenue and 45 percent of NFL Ventures revenue in the new deal, which mandates that players must average at least 47 percent of all revenue during the decade.
In the last year of the old contract, the figure was less than 51 percent.
The league had originally wanted a large cost credit to deflect investments, but the players rejected that approach, at least without access to the league’s financials.
“We didn’t directly get cost recognition, but through the sharing of different percentages, we were able to take into account what we incurred,” Murphy said.
There is one credit remaining, however, with the league able to lop off up to 1.5 percent of gross revenue for stadium investment. Private contribution to stadiums would be eligible as credits, Murphy said.
The league got some other significant concessions, as well. The players agreed to end federal judicial oversight of the labor relationships, a key demand of the owners. That means the owners have seen the last of their nemesis U.S. District Judge David Doty, who so frequently ruled for the players. Disputes now are to be heard by arbitrators agreed to by the two sides. The players also agreed to drop the antitrust lawsuit against the league (Brady v. NFL), as well as its lawsuit seeking billions of dollars in damages from the NFL for requiring broadcasters to pay fees even in a lockout.
NFL Commissioner Roger Goodell last week had informal conversations with TV network executives interested in a new eight-game Thursday night TV package.
Negotiations will heat up over the next two weeks, and TV network executives are expecting the future of the NFL Network to play a significant part in the talks, according to several sources. The league has hinted at the possibility of giving up management responsibilities — or even an ownership stake — in the network to the winning bidder of any new package.
Now those talks look to be back on the league’s front burner. Talks will start to get serious in the next month, and executives close to the situation believe a new package could be awarded by the end of September. It’s not known how the new Thursday night package would affect NBC’s season-opening Thursday night game.
But it’s the potential venture with NFL Network that’s causing the most intrigue. NFL Network’s distribution has grown to about 57 million homes at a reported cost of 81 cents a subscriber a month, according to SNL Financial. But the network still has not cut deals with three of the country’s five biggest cable operators (Time Warner Cable, Charter and Cablevision) and no breakthroughs appear to be on the horizon.
The two front-runners for the new eight-game package, Turner and Comcast, have cut media deals with other leagues that have included league-owned media assets.
Turner pioneered the strategy in 2007, when — as part of a broader media deal — it took over management of the NBA’s digital properties, including NBA TV. Comcast cut a similar deal in April with the NHL, agreeing to build a new studio for NHL Network and eventually taking over the league’s national sales efforts.
This is not the first time the NFL has talked with media partners about taking equity in the channel. In 2009, the league had meetings with ESPN and Fox, offering both an ownership stake in the network as part of a larger media deal. Both sets of talks ended weeks after they started, sources said.
In addition to Comcast and Turner, Fox and ESPN also are expected to engage the NFL on the new package.
The league is negotiating a separate renewal with ESPN for “Monday Night Football” worth nearly $2 billion a year that also is expected to close within the next few months.
Some agents and other industry insiders were considering the possibility last week that it might be better, under the new rookie pay system, for top college football players to be selected in the second round of the NFL’s annual draft instead of the first round.
As analysts were assessing who were the winners and losers in the new 10-year labor agreement between the league and the players, there was no question where first-round draft picks fell.
The mandatory contract length for drafted rookies in rounds 2 through 7 under the new deal is four years, as it is for players selected in round 1. However, while players drafted in rounds 2 through 7 of the next 10 drafts will be free agents after four years, clubs will have the option to re-sign first-round picks at a preset amount. The club option on the first 10 picks will be the average of the top 10 salaries at that player’s position. For players picked in the first round, but outside the top 10, the club option will be the average of the third through 25th-highest paid players among veterans at the player’s position.
Because players in rounds 2 through 7 will be unrestricted free agents sooner in their careers, they could make more than first-rounders who perform and are tied to the club for an additional year.
“They took away the big payday for the first-rounders on the front end,” said one agent. “And you are taking away the leverage for the players on the back end because the clubs can use the fourth- and fifth-year numbers as the basis for a new deal.”
Peter Ruocco, NFL senior vice president of labor relations, disagreed with that analysis, noting that the fifth-year option would pay rookies what veterans are being paid, which is more than what rookies made under the old system. “I think it sets up for a very fair negotiation,” Ruocco said. “If you are a quarterback and successful, your number in year five could be $13 million.”
The contract of St. Louis Rams quarterback Sam Bradford, top pick in the 2010 draft, was the subject of much public and media discussion during the labor talks. His six-year, $78 million deal provided for a reported $50 million guaranteed. By comparison, this year’s No. 1 pick, Cam Newton, would draw $22 million over four years, plus a potential option year salary of $14.3 million — though there is no limit on the amount of guaranteed money a player may seek or receive.
The new rookie system takes a lot of the creativity out of negotiating contracts because agents are not allowed to negotiate nearly as many terms as before. Option bonuses, option exercise fees, voidable years and nonvoidable years are prohibited, according to a document the NFLPA distributed to agents last week. Additionally, agents cannot negotiate incentive clauses for things like making the Pro Bowl, being rookie of the year, leading the league in touchdown passes or posting other, individual-player achievements. “A performance incentive must be based only on a specific numerical playtime amount,” states the document the NFLPA distributed.
“The previous system had loopholes in it that people were able to exploit, and this is a closed system,” Ruocco said.
In commenting on the new system, agents asked for anonymity because they did not want make public statements that may be viewed as critical of the NFLPA. Most agents were not happy about the new system, but not all.
“It’s about time,” said one NFL player agent who has not represented top players selected in the draft. “Fifty million dollars is ridiculous for a rookie contract.”
NFL players could actually be better off under a new economic system in which they are paid a percentage of all revenue than they would have been had they kept the old system in place, player representatives said last week.
Said the Ravens’ Domonique Foxworth: “I think it’s a great deal for both sides.”
Additionally, under the settlement agreement that is to serve as the basis of the new, collective-bargaining agreement, players get a guarantee that owners will spend 99 percent of the 47 percent of revenue in cash on players, a certainty they never had before.
That is not to say that players won this negotiation. The NFL asked for and received concessions from players, including what owners wanted on the length of the deal: 10 years, with no opt out. Players also agreed to continue to allow owners to take a cost credit of 1.5 percent of revenue for new stadium construction. But in addition to new work rules that players say will improve their quality of life and hopefully lengthen their careers, there were financial aspects to the deal that made it palatable to players.
“I think it’s a great deal for both sides and I think it is the best deal we could have gotten,” said Foxworth, a cornerback for the Baltimore Ravens.
Under the old system, the owners took expense credits off the top of the revenue pie before calculating the salary cap. Under the new system, players get a straight percentage of revenue.
“If you want to look at it as 50 percent versus 47 percent you can, but it is far more nuanced than that,” said Pete Kendall, a former NFLPA leader who served as a consultant to the association during the negotiations for a new deal.
One of the things that is attractive about the new deal to players is that it removes the risk of rising costs of running NFL clubs from players. Under the old deal, NFL clubs could deduct certain costs as cost credits away from the shared revenue. Those deductions have been steadily trending upward, from $500 million in 2006, the year the now-expired CBA was signed, to $1.1 billion in 2009, the last capped year of the old CBA.
“The thing that grew the fastest wasn’t player salaries; it was club deductions,” Kendall said. Those rising deductions, Kendall added, are one reason that the percentage of revenue that went to players under the old deal dropped from 52 percent in 2006 to 50 percent in 2009.
Kendall and Foxworth agreed that although players did get things in the deal that they liked, they made concessions as well.
The players went into the negotiation saying they would not give back to the owners unless they opened their books and showed players their audited financials. That was the something the owners refused to do throughout the negotiations, but players were willing to change the split of revenue after owners showed them that players received about 53 percent of incremental revenue in the last CBA. The players were willing to flip the split in favor of the owners in order to have labor peace.
In March, before the NFLPA decertified and the league locked out players, the players and owners were talking about a pegged-cap system in which owners would get the majority of new revenue, about 55 percent. That deal fell apart when the owners took the “true up” — the mechanism that would have allowed players to share in the future growth of revenue — off the table, players said.
Kendall acknowledged that the percentage switch in the new deal of 5 percent or 6 percent to the owners was similar to what both parties were talking about in March, but the one huge difference is that under the all-revenue model that is the basis of this deal, players will be able to participate in the future growth of the league. Foxworth echoed that the deal they accepted was better than the one they rejected in March.
“No, the March deal was not attractive at all,” he said. “Had we accepted the March deal, [NFLPA Executive Director] De [Smith] would not have had a job for the rest of this year and neither would I.”
The NFL lockout began on March 12, shortly after the NFL Players Association decertified and funded a players’ antitrust lawsuit against the league. It ended at 10 a.m. ET July 26. Here are some of the key points during the 4 1/2-month labor standoff.
■ April 6: Oral arguments over the players’ motion to enjoin the lockout occur in Minnesota federal court, before Judge Susan Richard Nelson.
■ April 11: Nelson orders the two sides into mediation, presided over by Magistrate Judge Arthur Boylan.
■ April 27: Nelson turns down the stay motion.
■ April 28 - April 29 (midday): These are perhaps the most crucial, and least appreciated, days of the entire lockout — or, as it happens, the non-lockout days. The players threaten the league with a contempt of court motion if the league year does not begin immediately, but the NFL, certain it will get a stay on appeal, moves slowly. It allows players into team facilities but not to practice. Most importantly, it does not start free agency. Players’ counsel was confident if free agency started, a stay would not stop it. All of this takes place as the 2011 NFL draft begins the night of the 28th and continues on the 29th.
■ April 29: The NFL at midday gets its interim stay from the 8th U.S. Circuit Court of Appeals, putting the lockout back on.
■ May 16: Not only does the NFL get a full stay from the 8th Circuit, but it also gets a ringing denouncement of Nelson from the majority in the opinion. The decision is seen as a major legal victory for the NFL and one that likely pushes the players to the table, realizing the lockout would not be lifted.
■ June 1: In what would be the first in a series of “secret meetings,” the NFL and players renew talks. The meetings, staged over the next six weeks in different locations, would strike gold, breaking down the barrier of trust issues between the two sides.
■ June 3: The widely anticipated oral arguments before the 8th Circuit in St. Louis over whether to lift the lockout suddenly become second fiddle with the now-not-so-secret talks ongoing. Still, in the hearing, the court warns the parties that neither side might like its decision if they didn’t settle.
■ July 8: The 8th Circuit releases its decision, and as predicted, the decision delivers something to both sides. The owners get the lockout, the players can continue with the antitrust lawsuit, and the players can petition to Nelson to hold a hearing on whether rookies and free agents should be exempt from the lockout. The decision muddies the waters for the day, but it is quickly forgotten as talks between the two sides continue.
■ July 21: The owners vote 31-0 (with Oakland abstaining) in favor of what would be a new labor agreement and would also settle all outstanding litigation and end the lockout. Immediately following, many players lambast the NFL for the vote, viewing it as a power play to force the players to make a decision. Players meet via conference call but take no formal action by day’s end.
■ July 25: The players vote in favor of the deal that would end all litigation against the league, bring forth a new CBA and end the lockout.
■ July 26: The sides notify Nelson that the antitrust lawsuit has been settled.
■ Thursday, Aug. 4: Player ratification of the new CBA is expected by this date.
— Compiled by Daniel Kaplan
“The impact was big. On Twitter, you saw all aspects and all points of view, and we were able to communicate directly with a lot of different types of people. The media coverage [on social media] for this was a little bit of everything. Things were fair, unfair, accurate, inaccurate. But there’s no doubt it’s a very powerful outlet. You saw traditional media in many cases beaten by what was happening in social media.”
“It enabled both sides to get their message out more effectively and directly to their constituencies, rather than have to communicate through the filtered lens of the media — for better and worse. It allowed for more real-time communication but probably a lot more clutter. Also, in a sport that prides itself on going strong 365 days a year, the absence of shoulder programming would have been a much bigger problem but for social media. Despite being short on compelling content, teams were able to use Facebook and Twitter to engage their fans throughout the lockout.”
“It was maddening. The fans got taken for a real roller-coaster ride. The situation changed so much and was so fluid, and frankly, a lot of stuff you saw on Twitter was simply wrong, or turned out to not be true. A lot of timetables you saw out there didn’t happen. That’s why I refused to get involved [with reporting the story] until the very end. ... It was like covering a boxing match where people are writing about every punch. It was really hard for the players and coaches, too, because every time you saw a timetable out there, they would start to prepare, and then it didn’t happen.”
“The good was that there was an ongoing open dialogue about what was happening, a forum where anyone who had an involvement or an interest in what was happening could go to express a view or monitor the views being expressed. The bad was that those instant snapshots didn’t always provide the proper context to get the overall picture of what was happening. The best recent example, to me, came on the night the owners approved the deal during their meeting in Atlanta. In the hours that followed, there became a great focus in the coverage by some media outlets on the negative comments made by some players, some of them expressed on Twitter. That produced a tone in the coverage that something was seriously wrong in terms of the two sides being able to move toward completing the deal. The truth was that nothing was seriously wrong, and that became evident starting Friday and throughout the weekend.”
“Twitter showed both owners and players the depth of the public’s ire that proved to both sides that a lost preseason, much less lost regular-season games, was not tolerable. As for the media, Twitter meant never turning off your smartphone or trimming your nails to type a quick note on the talks.”
— Compiled by Eric Fisher
After a lockout-induced hiatus, the fantasy football industry roared back to life last week and is now eyeing another increase in user participation and revenue.
During the four-month NFL lockout, few fantasy football operators made any significant efforts to sign up users. Many print magazines, such as the influential Fantasy Football Index and ESPN’s special fantasy preview edition, did not go to press due to the uncertain situation, forgoing newsstand sales and advertising revenue.
But with a new collective-bargaining agreement now in line, fantasy sites last week were reporting major spikes in traffic and registration. CBSSports.com generated its biggest fantasy product sales day of the year on July 25, with sales of league and draft kits more than 10 times the level of the prior week. ESPN reported a fivefold increase in fantasy league sign-ups immediately after the labor agreement was reached.
Overall, industry executives believe the 32 million people estimated in June by the Fantasy Sports Trade Association to be playing fantasy sports, primarily football, may prove to be a conservative number.
“The fantasy industry has been steadily growing at about 10 percent a year for a while, and we should definitely hit that again this year and then some. And really, with this offseason so frenetic and compressed, I believe you actually create even more fan interest. It’s easier for the casual fan to get involved now,” said Greg Ambrosius, general manager of consumer fantasy games for Stats LLC and founder of the National Fantasy Football Championship. “Everybody was simply waiting for assurance the season was going to happen, and now that it is, they’ve coming flooding back.”
Gross revenue from fantasy football in the United States and Canada is estimated at more than $1 billion per year. The variety of fantasy entities that could have been further affected by a lengthy NFL work stoppage includes operators of both paid and free leagues, fantasy content publishers, high-stakes event producers, fantasy product vendors, and even bars and restaurants that cater heavily to fantasy players.
With NFL team rosters now in a state of heavy flux, many executives said the need for quality fantasy content has never been as acute. And with fantasy preview print magazines largely absent, electronic draft kits will be the key piece of content most fantasy operators will sell to help fans prepare for their drafts.
“Every bit of information is going to be crucial, not only during this sprint to opening day, but into the season,” said Jason Waram, ESPN Digital Media’s vice president of fantasy games and social media. “We’re already seeing big spikes in our editorial traffic around fantasy.”
Advertising sales around fantasy football are also seeing a quick rebound, many executives said.
“A lot of deals were simply in a holding pattern,” said Jason Kint, CBSSports.com senior vice president and general manager. “But the sponsors were simply like the fans: Now that there’s a season, things are happening fast and the market is moving very quickly.”
Since the end of winter, the thought of no football this fall has caused a chill of despair to enter into the hearts of all fans, regardless of the colors they bleed. “Business as usual” is not going to cut it.
As a former NFL team executive, I would like to lend some advice to all NFL personnel as they kick off a new collective-bargaining agreement and the 2011 season. It’s the perfect opportunity to rebuild relationships with fans and clients and to solidify their fandom.
If NFL teams do only one thing to give back to the fans, this should be it. It would be very easy to come out of the lockout claiming that the new CBA cost the teams more than they bargained for — their reasoning for why prices have to be raised. Don’t do it; it’s bogus. Even if it’s true, do not place the burden on your consumers this season. Show them that you appreciate their patience and dedication with a price freeze. If you need more revenue to foot the bill, open up the casino category. That should immediately help with expenses.
2. Have a fan appreciation experience during season kickoff
I am not just talking about calling the first game Fan Appreciation Day. It’s much more detailed than that. You have to provide fans and season-ticket holders with true value, so get creative with the experience you create. Have fun with it: Involve players, create special content, give away real items, provide real value. Let the real people who pay your salaries know that you mean business. At the concession stands, offer $1 sodas, and price other items at a real savings. Your cost of a fountain drink including a cup is less than 75 cents, so pass the savings on to your customers and show them that you appreciate them.
3. Meet with all sponsors individually and update them on revelations
Set up meetings immediately with your sponsors and tell them about the new CBA. Keep them in the loop and inform them of any changes that may affect how they do business. It’s important to communicate to them and make sure they understand all the nuances of the new agreement. The more honest you are with them, the more they will feel like part of the process and true partners.
4. Offer all sponsors bonus inventory to help market their brands
I do not care how sold out you think you are. Every team has inventory that it can provide to its clients. Be thoughtful about your clients’ brands and their goals, and give them some inventory that fits their needs to show them you appreciate their business and understanding.
Titans players hand-deliver tickets to season-ticket holders.
This is a great opportunity to enter into social media and to interact in a strategic way with your fans. This means every owner, player and executive. Just make sure you have a well thought out strategy before you jump in. Show the fans that you are real and that you care about them and their needs.
6. Give extra perks and benefits to season-ticket holders
One day of appreciation is not enough for season-ticket holders, club seat members and suite holders. Do nice things all season. Bring select folks down to the field for pregame warm-ups, and I do not mean just the high-priced VIPs. There are many highly paid business executives at teams; earn your pay and create something of unique value that the fans will love. Do not just fall into the rut of the same old cookie-cutter promotions.
7. Players should commit to signing autographs after games for the season
Players should not be excused from showing the love to fans and paying customers. Many do this anyway, but all players should have to spend some time after games signing autographs and meeting fans with smiles and the respect they deserve. Players need to invest time with the real people who pay their salaries. If they do, it will not only be good for business, but it also will benefit the players and the image of the league.
These tips are not the lost secrets of success. It’s not as much about knowing what to do as it is about actually doing it. If you are at the league or a team and are a true custodian of your brand, devise a plan to win back the hearts and minds of the fans. Let them know you care and mean business. It can help the despair they felt over the lockout fade and make them less hesitant to spend more money on your sport and its products. n
Lou Imbriano (email@example.com), former CMO of the New England Patriots and COO of the New England Revolution, is CEO of TrinityOne Sports (Trinity1.com), and author of “Winning the Customer.” Follow him on Twitter @LouImbriano.
The impact of the NFL’s new labor deal is reverberating across other sports, as experts look for lessons to be learned from the four-month lockout.
In the NBA, where the league’s work stoppage rolls into its second month, it’s football’s new revenue-sharing structure that is drawing close scrutiny.
Bartelstein also was impressed by the sense of urgency in the NFL talks.
“There was a real effort by the NFL to get a deal done, and that’s not happening in the NBA right now,” Bartelstein said.
Former NHL Players’ Association attorney Ian Pulver, who now represents NHL players, said that having key NFL stars taking an early public role in the union’s antitrust litigation against the league and being involved in labor negotiations was a pivotal tactic.
“Having [quarterbacks] Tom Brady and Peyton Manning involved is a lesson to the NBA players that the Kobe Bryants should be front and center,” Pulver said. “It is essential that NBA owners know that they are prepared.”
The chief negotiators in MLB’s ongoing labor talks, MLB Executive Vice President Rob Manfred and MLB Players Association Executive Director Michael Weiner, were both away last week and unavailable for comment. At last month’s All-Star Game in Arizona, both executives said the other sports’ labor situations did not necessarily have a direct impact upon their negotiations. Weiner, however, acknowledged that “the broader context is unavoidable,” adding, “The opportunity [to maintain labor peace] is something both sides recognize.”
MLB and the union are negotiating a new deal to build upon their current five-year pact, which expires in December. Unlike football or basketball, neither side in baseball is seeking major givebacks or dramatic alterations to the current economic structure.
Clark Griffith, a Minneapolis attorney and formerly a Minnesota Twins executive and member of the MLB labor negotiating committee, said the NFL Players Association’s legal defeat in seeking to use antitrust laws to end the lockout likely killed that option for other sports unions. Rather, current and future negotiations will almost certainly stay within the confines of established labor law, he said.
“The NFL players basically did the heavy lifting in all four [major U.S.] sports on that one,” Griffith said. “What this means coming out of the NFL deal is that the players in the other sports very, very likely will not look to go that antitrust route.”
Outside observers said the historic 10-year term of the NFL deal also could have an impact on the other labor negotiations.