View topic - Interesting take on the CBA situation

[thesteelhammer Profile]

Interesting take on the CBA situation. Gotta like that he gives Rooney some Props.
http://www.profootballweekly.com/PFW/Commentary/Columns/2008/harkush2304.htm

No reason to give back
Players should stand firm in next CBA negotiations
By Hub Arkush
July 1, 2008

I hope you understand that all the NFL owners have really done is to shorten the term of their labor agreement. The players and owners will now operate under the current Collective Bargaining Agreement through 2010, with the 2010 season being uncapped and more restrictive on free agents if no new agreement can be reached before then. Armageddon this is not.

When NFL Players Association executive director Gene Upshaw stepped to the microphone at his annual press conference before Super Bowl XLII and stated his belief that the owners were spoiling for a fight, and his intentions to give them all they could handle becoming the primary focus of the moment, it was clear to all of us who’ve been here before it was, “Game on.”

The owners had until early November to decide whether they wanted to opt out of the agreement, but they decided not to wait because they were ticked that Upshaw had taken the high ground from them. Upshaw had suggested as strongly as he could that if the labor peace — which has been the hallmark of the NFL’s runaway status as the No. 1 sport in America — was to be shattered, it would be the owners’ fault. The message in this decision by the owners is that it’s the greedy players who are threatening to destroy the game, not the poor owners, who are being forced to share far too much of their profits with the players who generate them.

Why opt out at all? I found the following explanation posted at NFL.com:

“The NFL earns very substantial revenues. But the clubs are obligated by the CBA to spend substantially more than half their revenues — almost $4.5 billion this year alone — on player costs. In addition, as we have explained to the union, the clubs must spend significant and growing amounts on stadium construction, operations and improvements to respond to the interests and demands of our fans. The current labor agreement does not adequately recognize the costs of generating the revenues of which the players receive the largest share; nor does the agreement recognize that those costs have increased substantially — and at an ever increasing rate — in recent years during a difficult economic climate in our country. As a result, under the terms of the current agreement, the clubs’ incentive to invest in the game is threatened.

“There are substantial other elements of the deal that simply are not working. For example, as interpreted by the courts, the current CBA effectively prohibits the clubs from recouping bonuses paid to players who subsequently breach their player contacts or refuse to perform. That is simply irrational and unfair to both fans and players who honor their contracts. Also irrational is that in the current system some rookies are able to secure contracts that pay them more than top proven veterans.”

I always get angry, rightly or wrongly, when people look me in the eye and call me stupid. The owners’ claim they need to build stadiums to “respond to the interests and demands of our fans” makes me angry. Owners build stadiums to line their own pockets, and no stadium in the history of sports has been built out of concern for the fans.

There is a simple answer for the owners’ concern over their inability to recoup “bonuses paid to players who subsequently breach their player contracts or refuse to perform.” And yes, they’re again calling us all stupid. All the owners have to do is guarantee the entire contract as long as the player is willing to perform, as baseball, basketball, hockey and almost every other industry in America does, and that whole problem goes away. The argument that the NFL’s standard player contract isn’t favorable enough for the owners is ludicrous.

The owners’ concern over rookie contracts being too expensive is valid and was confirmed by the new president of the NFLPA, Kevin Mawae. Don’t be fooled by Upshaw’s immediate dissent. He knows where the give-and-take will be, but you can’t expect him to give something up before he’s been offered anything in return.

The problem with the current CBA is about one thing and one thing only. In a situation almost unheard of in a free and open economy, an industry where each and every one of the 32 businesses operating is making a profit, these 32 owners don’t believe they’re making enough.

Here’s a stat I’d love to see. Was there an owner in the league in 2007 who didn’t make more in profits than the game’s highest-paid player made, based on that player’s salary-cap value?

These current owners seem to believe they are the game. The truth is, with the possible exceptions of a Dan Rooney or an Al Davis, not one of them has contributed a single thing to the game, and all they do is take. The players, on the other hand, are, in fact, the game. Without them there is no multibillion-dollar industry.

I have no idea what shape the negotiations will take or what the flash points will be, but this much is clear: It will all turn on how much of the revenue the players are entitled to and how big the owners’ profits should be. The rest is all just smoke. And based on the simple facts of what each party brings to the table, I can’t imagine how anyone could expect the players to give back a thing.

[GodfatherofSoul Profile]

Pro sports like football, with organized unions, are the only place in the entertainment market where the talent gets its fair share. In every other venue, the talent gets screwed while some fat cat collects the checks with marginal contribution. The 60%-players/40%-owners split seems perfect to me. Owners don't like it? See how well another strike year works out for them. Then find out how much their "management and marketing value" is REALLY worth.

[Nashsteeler Profile]

Valid point about the stadiums. I find it hard to believe that owners would even try and come up with the argument that they build new stadiums for the fans. Ludicrous.

[Stillustronic Profile]

It's also a valid point that few stadiums are actually paid for during their service life.

The NFL stadium fund is depleted now. The players contribute zero funds to stadium costs. The fans are now absorbing more of this cost than ever before.

[gutofsteel Profile]

Well, that and the taxpayers are the ones being raked over the coals for stadium expenses.

Player get a good chunk of change. In every industry, it's the guy at the top taking the risk who get the big payday. Although, if you look at the movie/tv industry, which is arguably a fair comparable, the actors take the majority of the profits. The industry now makes more of its money on distribution, which is really something independent of the actors talent. Basically, studios are now getting a middle man fee, and they compete with only the internet.

But something else to consider: profits for NFL teams are like a dividend. These teams are worth a billion dollars, and a fair market return on that would be around $70-$80M, which is far more than most owners are making. However, the value of the franchises has been going up significantly (average like 19% a year for many years). So they are getting their return, it's just in equity (with no real liquidity to realize some of that gain) and not cash. So the owners cry of unfair does ring a bit hollow.

Perhaps the next crafty owner will discover smart business is to carve out equity as part of player compensation (complete with buyback agreements). So, if Ben wants a $30M SB and the franchise is worth $800M, factor in a growth factor and give Ben 2% of the team. The player ends up in the same position, with upside if the team and league continue to do well, and the owner gains liquidity (pocketing that $30M in cash to Ben in exchange for a piece of the team). If the value of the franchise declines, the owner comes out ahead. If it continues doing well, Ben makes out. If it does really well, the pre-agreed upon buyout probably benefits the owner getting it back at a discount from fair value. In that scenario, Ben makes more than the $30M but the owner still has a net gain because the whole pie got bigger.

If the owners really need to get more cash, they can sell a piece of their team. I think valuation have, or are close to, peaking so if I were an owner I'd be looking to sell some of that equity. Sell 10% of your team and you've got $100M (or more, there would be a growth premium attached) and what do you have to complain about?

Even the movie business, by the way, has a significant portion of salary tied to success of the project (for the mega stars). To me, that's the model that really makes sense in the NFL going forward.

Equity is one type of pay-for-performance. The problem is there is very little pay for performance in sports, and there arguably should be. If a CEO does a poor job, his options are worth far less and his comp goes down considerably as a result.

[thesteelhammer Profile]

Equity would also be a way to lose control of your team, should an owner ever give up more than a 51% share. Certainly don't see the Rooney's ever doing that.

[gutofsteel Profile]

True...But where did I ever even imply you'd risk losing control?!? Giving up 50% would be something in the neighborhood of $400M, and actually a decent amount higher. You'd be talking like 5 years of payroll, if not more.

I'm just saying that cash strapped owners could part with 5-10% of the equity in these deals and their liquidity problem is solved. At least that's how the real world works. NFL owners want their cake and to eat it, too.

[GodfatherofSoul Profile]

True...But where did I ever even imply you'd risk losing control?!? Giving up 50% would be something in the neighborhood of $400M, and actually a decent amount higher. You'd be talking like 5 years of payroll, if not more.

I'm just saying that cash strapped owners could part with 5-10% of the equity in these deals and their liquidity problem is solved. At least that's how the real world works. NFL owners want their cake and to eat it, too.

But, the owners aren't giving up 50% of ANYTHING if I'm interpreting you correctly. They're paying salaries that amount to a certain percentage of revenue. That's like profit sharing, not employee ownership.

[gutofsteel Profile]

No, I'm saying they COULD give some equity to free up some additional cash flow. Their problem is the franchises don't throw off much cash, with most of it going to salaries. So, instead of cash they give a few players some equity and it's effectively selling a piece of the team for liquidity. You've got a franchise worth $800M and if you sell part of it you take care of your cash flow problem (and a few teams have done this, although not to players in place of cash).

[gumband Profile]

Not buying the movie analogy...a movie can be done anywhere...studio, anywhere on the planet or for that matter thinking outside the box...space...so the stadium is part of the problem...also the value have gone up substantially simply on supply 'n' demand...however markets don't simply go up...but the young seems to assume sooo...distribution is part of your equation as well....so there's the real risk...if I spend so much on the movie project there's a break even nut...then the sky is the limit (less percentages that have been worked into deals)....sports are tied into merchandise..ditto movies (a wash)...then pretty much tied up into stadium revenue and the TV contracts...in other words there's much more limitation on sports (bringing in revenue in a given year) than a movie...so if my cash is tied up in in the paper value of the team as an owner, sell it...let teams move to anywhere (not just the United States {let's think big here folks})...you have 32 teams if the players are greedy (the nutshell of the mortgage situation) so be it for the owners...and vice-a-versa

[gutofsteel Profile]

No, you miss the point about the movie.

It's the talent as much as anything. Big names are big draws and give a movie an excellent chance for success, just as Peyton Manning and other players are big draws. That puts the leverage with the talent, rather than the business owner. And you see this on tv and in movies. That's the parallel. Yeah, it's a different business, but it's similar in that the talent takes the lionshare of the revenue. So you've seen more and more profit sharing with the talent in the movie business, and equity is a form of profit sharing.

And precisely because I know markets do not always go up, giving some equity should be preferable to the owners because if the value of the team goes down, they've effectively paid less to the players (alternatively, they sold a piece of the team at its peak value). It takes care of both business risk and the liquidity issue, which is why it would make sense. Or you can just go find an investor to take a minority stake. Either way.

[thesteelhammer Profile]

Sounds like the Rooney's are having enough equity issues without giving players any.

Steelers | Rooneys looking to restructure team ownership
Mon, 7 Jul 2008 20:03:21 -0700

The Associated Press reports Pittsburgh Steelers chairman Don Rooney and team president Art Rooney II are looking to buy other family members' shares to ensure the Steelers will continue to be owned by the Rooneys. Some of the Rooney's four brothers want to focus their business efforts on racetracks and other non-football interests, which would be inconsistent with the NFL's gambling policy. However, other family members apparently want to gauge if their shares would be worth more money if the club was sold outside the family. Art Rooney II said the matter should have no affect on the team or the fans.

http://www.kffl.com/hotw/nfl#489722