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SBJ/October 22-28, 2012/Leagues and Governing Bodies
Revenue sharing among NFL clubs plummets
Published October 22, 2012, Page 1
Previously, upward of $100 million was transferred annually to solve a financial disparity issue that the NFL wrestled with for well over a decade. In 2011, that figure plummeted to between $10 million and $15 million, multiple sources said.
The amount is a fraction of the billions of pooled national revenue that underpin the league’s success, but the reduction signifies that the angry debate between “high-revenue” and “low-revenue” teams may be over and, further, that the league got what it wanted from the newly enacted collective-bargaining agreement.
The steep financial concessions the league won from the players in labor negotiations last year has served in part to significantly diminish the need for robust revenue sharing among the clubs outside the money that is traditionally pooled, like national media and sponsorship dollars. By keeping a greater percentage of overall revenue beginning in 2011, the NFL was able to pad the bottom lines of teams that previously needed extra assistance, enabling owners of higher-revenue clubs to keep more of the money they brought in from their own sales successes.
Several NFL sources confirmed the lower figures but did not wish to be identified. The NFL declined to comment.
“This seems to be indicative that, at this early stage, this CBA is working as the owners intended it to work,” said Scott Rosner, a sports business professor at Wharton School.
The shift puts the NFL in stark contrast to other major U.S. sports leagues, especially the NBA and NHL, which recently have moved to increase revenue sharing among clubs to help struggling teams.
When the NFL signed the new CBA 14 months ago, the league had hoped toward the end of the 10-year deal that it might be able to phase out this form of sharing, which it terms “supplemental revenue sharing.” It might reach that goal far quicker if the 2011 figure is any indication, especially given the increased media money set to start flowing into the league from the latest round of TV deals, which take effect in 2014.
By the end of the old CBA, players were getting a low 50 percent share of all revenue. That ratio, in the current deal, is now in the mid 40 percent range.
In addition to the owners keeping that larger share of revenue, one team source pointed to another critical change in the new CBA as a factor in reducing the need for supplemental revenue sharing. While the players end up getting a mid 40 percent amount, how the NFL derives this money has changed, with percentages now being different based on source. The players, for example, get 55 percent of national TV money. By contrast, revenue deemed locally generated (coming largely from within its marketing radius) is shared with the players at a 40 percent rate.
When, under the prior deal, all revenue was shared equally, that sharing caused problems for lower-revenue teams. If, for example, the Dallas Cowboys were to sign a lucrative sponsorship, the Cowboys would keep their share of the revenue, but the players’ share had to be paid equally by the 32 clubs. So if the deal was worth $15 million, and for the sake of argument, half went to the players and the club kept half. But while the club kept $7.5 million, the other $7.5 million, the part that went to the players, was paid by all 32 teams
Now, the players’ local-revenue share is lower, so there’s less that other clubs need to pay on the players’ side of the shared-revenue deal. In that $15 million example, instead of $7.5 million shared with the players, it’s $6 million. That difference is having an appreciable impact reducing the need for extra assistance for some clubs.
Teams also did not have a minimum salary cap in 2011, nor for that matter do they have one this year. The league had to spend 99 percent to the cap on average, but individual teams had no requirement. That means teams that might have needed extra funds in the past to meet minimum salary cap requirements were not as stressed these past two years.
Minimum spending requirements for the salary cap return next year, though teams only have to average a minimum mark over a four-year span. In addition, local revenue is likely to grow more this year and next with full offseasons compared to the lockout-shortened 2011 offseason. That in turn could affect the current trajectory on the system of sharing revenue between clubs.