Revenue share, not long-argued cost credit, served to sink talks

The NFL and the players union during their unsuccessful collective-bargaining negotiations earlier this month significantly narrowed their differences on the highly publicized cost credit the league wanted, but a greater issue emerged that helped crater the labor talks: how much each side would capture of future revenue growth.

The league for the first time since the 1993 CBA proposed unlinking the salary cap from overall revenue. Instead, it would have set the cap at a fixed amount each year.

Brees
Photo by: AP IMAGES
Drew Brees said the owners’ final proposal was a $1.66B credit over four years.
While the union decertified and the league proceeded to lock out the players, the proposals that were discussed before the talks broke down could still form the basis for any future negotiating.

“They were trying to make salary a fixed cost and, in the past, it had been a percentage of revenues,” said Pete Kendall, a former NFL player who is advising the NFL Players Association and was present at the majority of bargaining sessions held over the past two years. “In the past, if revenues went up, the salaries went up.”

The league’s proposal was a problem for the union because it wanted to share, as it had in the past, in the benefits of future growth.

“When you talk about making salaries a fixed cost, when, in terms of the previous CBA, they had always been variable costs, that is quite a big change,” Kendall said. “The players would not participate in the growth of the game beyond whatever the agreed-to pegged capped numbers were.”

The league’s position was twofold, sources said: The union in its own proposal offered no downside protection to the league if revenue declined; and if the players were unwilling to shoulder substantially more costs, then why should they be entitled to all the growth those costs helped generate?

Ironically, the major point of disagreement for more than a year, the more-than $1 billion annual cost credit the league demanded, had been chiseled down to what was considered a relatively manageable sum. According to New Orleans Saints quarterback Drew Brees on a conference call last week, the owners’ last proposal was a $1.66 billion credit over four years, or an average of $415 million per year that would be taken out of the general pool of revenue.

Brees was at the negotiating sessions held in Washington, D.C., in the final days before talks broke off.

Under the old cap, the players would have received almost 60 percent of that or $249 million, making it a $7.8 million per club cut. The union had already proposed a four-year, $550 million credit, or $2.6 million per club annually, so the difference was $5.2 million per club. On a cap of $141 million, as the league proposed for the 2011 season, that’s a 3.7 percent difference.

But for the players, what they were winning back on the credit was being given away in the rights to future growth.

For example, Moody’s Investors Service last week projected that NFL media fees would double by decade’s end, to $8 billion annually. The conservative escalators the NFL proposed in the cap would not have kept up with that kind of growth.

“The players believe the revenues would grow beyond 4 percent in 2011 and 2012, and certainly that the game would grow beyond 2.5 percent in 2013 and 2014,” said Kendall, referring to the growth escalators the NFL had proposed.

By 2014, the cap would have reached $160 million, according to the league’s proposal. But for a league that has professed wanting revenue to grow to $25 billion by 2025 (it was $9.1 billion last year), incremental increases in the cap were not enough for the players.

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