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Volume 21 No. 1
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‘Floor’ for NFL player pay reaches $142M

NFL player compensation for the 2012 season will consume a greater percentage of revenue than described in the collective-bargaining agreement because the calculated figure came in low enough that it triggered a provision requiring a player cost amount of $142.4 million per club.

Without the provision, the cap could have been as low as $113 million instead of the $120.6 million at which it was set, sources said, though others said the cap would have been about $115 million. There is also nearly $22 million in player benefits per club.

A combination of factors, such as softness in local revenue and expense deductions and credits in the eight-month-old CBA, served to drive down what the salary cap would have been without the floor.

Under a section titled “floors,” the CBA states, “If, in the 2012 or 2013 League Year, the Player Cost Amount … is less than $142.4 million per Club, then the Player Cost Amount shall be increased to $142.4 million per Club.”

That is what happened with the 2012 cap, which the league and NFL Players Association spent weeks setting. Under the CBA, the maximum percentage of revenue that players can receive in 2012 is 48 percent, but that is before revenue deductions and cost credits reduce the figure by a few percentage points. Conservatively, presuming the league generates $9.6 billion in revenue in 2012 (a $200 million increase from 2011), and if the players’ share were 46 percent of revenue after deductions and credits, that would deliver an amount of $138 million. Subtracting from that amount the $22 million for benefits, the cap would come in at $116 million.

The $142.4 million salary and benefits floor exists for 2012 and 2013, according to the CBA, meaning there could be potential for fall off in future years unless revenue rises faster. In 2014, the league’s new media contracts kick in and will drive the cap higher, but the upside could be stifled to some degree if local revenue remains sluggish.

The owners argued that the new 10-year CBA was necessary to create wider profit margins that would enable the league to invest in new stadiums and other businesses, things that in turn would deliver more cash to the players. The players had been getting more than 50 percent of revenue.

It’s early in that process. For example, 2014, the first year without a floor ($142.4 million was also the pre-set amount of team player costs in 2011) will see not just the new media deals sending revenue higher, but also likely a new stadium in Santa Clara, Calif., for the San Francisco 49ers. That one stadium could deliver new revenue in the low eight figures into the pool of money shared with players. The league also expects digital initiatives to generate more money, and, if the economy improves, more clubs could increase ticket prices. Many have kept prices flat in recent years.

Commissioner Roger Goodell several years ago set a league revenue goal of $25 billion by 2027.

Sources said there was no direct link between the NFL cap talks with the NFLPA and the penalties the league meted out to the Dallas Cowboys and Washington Redskins last week for front-loading contracts in 2010. The league had told teams not to do that in the last year of the old CBA, an uncapped year, due to worries that clubs would be trying to reduce their costs when a cap returned. If a player signed a multiyear deal in 2010 and the team paid most of it that season, when there was no cap, the club would then have smaller cap hits in future years than if the salary had been spread out over many years.

Notably, in its comment about the front-loading sanctions, the league said the CBA envisioned low cap figures in the first few years of the agreement.

“The Management Council Executive Committee [the NFL’s labor group] determined that the contract practices of a small number of clubs during the 2010 league year created an unacceptable risk to future competitive balance, particularly in light of the relatively modest salary cap growth projected for the new agreement’s early years,” the league said.

Several media reports last week said the cap would have been less than $120.6 million, but the union, in return for agreeing to strip the Cowboys and Redskins of cap space and redistribute it to other teams, got a higher figure. Such an agreement, however, likely would have been unnecessary for the union, as the $142.4 million amount was already guaranteed in the CBA. It is possible the union wanted a cap figure at least as high as last year, but that debate would have been about the proper mix of benefits and salaries, and not about actually artificially increasing the amount teams could spend on players.

The NFLPA did not reply for comment.

The cap of $120.6 million represents only a maximum, and teams are free to spend as far under that level as they wish in 2012. In the first two years of the CBA, there are no minimum club spending requirements, though the league must average cash spending equivalent to 99 percent of the cap. Signing bonuses, which teams amortize, do count in their entirety toward the league average.

Teams also do not have to meet minimum spending requirements in individual seasons in the last eight years of the deal, but they must average spending 89 percent of the cap over the 2013 to 2016 seasons, and again over the 2017 to 2020 period.