SBJ/August 15-21, 2011/Labor and Agents

Exceptions for big-ticket projects shave NFL players' annual share

The NFL can shave hundreds of millions of dollars from the annual revenue it shares with players under terms of the new collective-bargaining agreement, according to an analysis of the document. The players agreed to the reductions because the money is tied to high-cost but big-reward projects, such as stadium construction and other league or team businesses.

The new CBA, finalized on Aug. 4, also makes it more difficult for the NFL Players Association to challenge the league’s business judgment, something the union did successfully earlier this year when a judge ruled the NFL violated the old labor deal by requiring broadcasters to pay their fees even in a lockout.

BUD FORCE
The Dallas Cowboys’ merchandise company is one item in the agreement that thins the money pool from which players get their cut.
The new labor pact does not have $1 billion taken off the top of revenue for expenses — like the expired one did. It also, however, is not as clean a division of revenue as has been widely believed. The old deal took the $1 billion off the top and then gave the players the remaining 60 percent of revenue. This deal has been billed as giving the players an average of 47 percent of all revenue over the next decade, with no expense adjustments.

But starting with the average of 47 percent of revenue, the league gets a credit of up to 1.5 percent for stadium expenses, which reduces the overall percentage take of the players. The pool of money the players get their cut from is also thinned for a range of items, including NFL Ventures business, the Dallas Cowboys’ merchandise company, the New York Jets’ and Giants’ personal seat license sales, and potentially a new stadium in Los Angeles (see chart).

“Each one is expected to have a return for the players many times over,” said Marc Ganis, a sports consultant with close ties to the NFL.

League officials declined to comment. The NFLPA did not respond for comment.

While it’s unclear exactly how much each of these measures will reduce the actual percentage share the players will get, league sources insist this is not a case of a fast one being pulled on the NFLPA because the idea is for these deductions and credits to fuel revenue growth.
INSIDE THE CBA:
CREDITS AND DEDUCTIONS


It’s been widely noted that as part of the new CBA, NFL players will get an average of 47 percent of the NFL’s more than $9.5 billion in rapidly growing annual revenue. But there are a host of credits and deductions — designed to increase revenue for both sides — that will serve to lower that percentage. The following are many of those points that are included in the new CBA but were not in the old deal.

DESCRIPTION / EXPLANATION

   Stadium credit / The league can take 1.5 percent in stadium credits annually for expenses to build new stadiums, lowering the total percentage share by this much.
   Further stadium credits / The league can deduct naming-rights and premium-seat revenue if that money contributes to building a stadium. If this revenue pushes the overall percentage decrease for a given year beyond 1.5 percent, the league will have to prove that the incremental credits will more than double the return to the players.
   Dallas Cowboys merchandising / The Cowboys are the only team in the league to distribute their own merchandise. Under the new CBA, the team’s wholesale merchandise revenue, projected to be $80 million this year, is excluded from the revenue pool shared with the players. However, royalties paid on Cowboys merchandise do continue to be shared with the players.
   N.Y. Jets/N.Y. Giants PSL sales / The NFLPA several years ago had already agreed to deductions from league revenue for several team PSLs that contributed to building stadiums. Because the Jets and Giants are still selling PSLs, this needed to be factored into the new agreement. According to the CBA, PSL sales from the two teams this year are expected to total $43 million.
   Increase in complimentary ticket exclusion / Under the old deal, the league could exclude a certain number of comp tickets for use by sponsors and others, with those tickets not counting toward general revenue. Either 1,700 tickets per preseason and regular-season game could be excluded, or it could be 1,250 tickets for regular-season games and 3,500 tickets for preseason games. Now, those thresholds rise to 2,215 for each regular-season game and 5,000 for preseason games.
   Surrounding stadium real estate / Revenue derived from real estate development opportunities in conjunction with or related to any stadium lease or land-purchase agreement is excluded from sharing. An example might be revenue from Patriot Place, the commercial real estate development adjacent to Gillette Stadium, which has not been shared with the players, though questions were raised from the players side periodically regarding whether it should be.
   NFL Ventures / The league can take up to $60 million of deductions in 2012, with NFLPA approval, for new business startup costs. The league also can go to the NFLPA with three new businesses annually and receive deductions for revenue from those three businesses. The idea is that the NFLPA only signs on if convinced the business will deliver substantial revenue to the players.
   TV revenue for stadiums / This provision allows the NFL, with NFLPA approval, to divert national TV money for stadium projects. While this could be used for any new stadium, its most notable use could be in helping to bring the NFL back to Los Angeles.

— Compiled from the NFL collective-bargaining agreement and SportsBusiness Journal sources

“The stadium credits are a 1.5 [percent] … deduction from the … [47 percent] player share,” one league source said. “The other items are indeed off the top, excluded from AR (all revenue), making the pot from which the player share is computed smaller.”

Part of the league’s concern with the old deal was it did not create incentives for the NFL to invest. If, for example, a new venture in its first year generated $10 million of revenue, that revenue had to be shared with the players irrespective of the costs. Now, the league can identify three NFL Ventures projects annually as being eligible for deductions. NFL Ventures pertains to NFL Network and licensing and merchandise business.

In 2012, according to the CBA, up to $60 million of deductions for the three selected projects can be taken from annual revenue shared with the players. A league source said the way this will work is the NFLPA would sign off on projects only if convinced the projects can be profitable for both sides.

No specific amounts are provided for after 2012.

Similarly, the league can propose further stadium credits beyond the 1.5 percent already factored in, this source said. However, the league will have to prove to the NFLPA that these extra credits will bring well north of a 100 percent return for the players.

The CBA also has a provision that the league can exclude investments in a new Los Angeles stadium from the stadium credit limit, though the NFLPA has to sign off on this extra allocation, too. A separate provision in the CBA allows the league, with union approval, to divert national TV revenue for stadium projects — a move that, a source said, would aid a new L.A. stadium.

Meanwhile, the league won language in the CBA that would likely prevent a repeat of the lockout insurance case that played out this year. A federal judge ruled March 1 that the league had violated the CBA by requiring broadcasters to pay their fees even in a lockout, rejecting arguments that the NFL had used its best business judgment.

“It made it a risk for every business decision a club might make,” a source said. The case was dropped as part of the new CBA agreement.

In his decision, the judge rejected the NFL’s argument that it had met the legal test of using “sound business judgment” in crafting the TV contracts with the lockout language. The new CBA inserts the replacement term “reasonable business judgment,” appearing to lower the threshold.

Now the CBA reads, “The parties … shall consider and give substantial weight to the reasonable business judgment of the NFL or the NFL Team but no deference will be applied where the NFL is alleged to have deferred or forgone revenues of $1 billion or more for the purpose of securing leverage in collective bargaining, in which case any finding of non-compliance shall require proof by a clear preponderance of the evidence.”

In the media fees case, the NFLPA alleged the league gave up about $700 million in TV money to win the guarantee of payments during a lockout. Under the new provision, that would not have been enough to send it to a system arbitrator.

The new CBA also eliminates the so-called “sham” language. The old contract said that if the union decertified after the expiration of the deal, the league could not declare it a sham, and then the players would have to wait six months to file an antitrust lawsuit. In the new deal, each side reserves its own legal rights.

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