Leading to a lockout? NFL vs NFLPA collective bargaining negotiation

Guest post. This post is part of series of posts written by my sport management students and is cross-posted on the UMass Center for Spectator Sport Research blog. The authors of this post are Lilah Brown, Dan Hatman, Oleg Kamenetsky, Miha Kline, Ariel Weisman.

To put the current negotiations in perspective you need to look at the last 20 years.  The Reggie White vs NFL antitrust case led to NFL players gaining free agency, while the owners gained a salary cap and floor.  The salary floor was based on the players having access to 58% of broadcasting and attendance revenue.  Subsequent renegotiations of the CBA led to increases in minimum salaries and increased contributions to pensions and 401K’s.  In 2006, the owners’ in-fighting over revenue sharing allowed the NFLPA to gain tremendous leverage in the negotiation.  This led to the players gaining access to 59.5% of ALL football revenues.  In 2008, the owners opted out of the CBA saying that the 2006 agreement increased salaries to the point that the owners felt they were not making the same profits.

The owners said after opting out that they wanted to renegotiate the CBA with an 18% revenue exemption that the players would not have access to. The NFLPA expressed concerns over justifying this cut, when NFL teams average $31 million in profit.

The NFLPA has said publicly that they have no intention of accepting an 18% pay cut and are preparing for a lockout in 2011. To protect the players, the NFLPA has saved $200 million as a lockout fund by increasing dues by $5,000 per player and the players signing over their royalties from group licensing rights to the NFLPA.  From this fund, the NFLPA hopes to pay each player $60,000 in 2011 if a lockout occurs.  The NFLPA has made their perspectives public, hoping fans and lawmakers put pressure on the owners to lower their demands.  One such strategy is to remind the public that the NFL is a non-profit and does not pay taxes on its $8 billion of revenue.  Another move has been to highlight the NFL’s reluctance to open its books to the NFLPA or the public in order to prove that they are actually hurting financially.

The NFL owners have countered many of these points.  The NFL argued that their non-profit status should remain as they do not collect the $8 billion in revenues, but rather pass those profits on to the 32 teams, who in turn, pay taxes on that money.  Furthermore, several NFL owners have made multi-million dollar investments into new stadiums to grow revenues for both owners and players.  The owners want players to contribute to these projects and share in their risk.  The NFL also clarified the 18% cut.  This would not be a straight 18% reduction in player salaries, but rather the NFL would take 18% of the total pie, before revenue sharing, to cover operating expenses. The remaining 82% would be shared with 60% going to the players and 40% going to the owners. The players would end up only seeing around 5% less than they currently do and the owners argue that this 18% ($1.4 billion) would be used to grow league revenues, allowing for higher player salaries in the future.

As fans, we see this as an argument between millionaires and billionaires but this potential lockout also impacts local government (less tax revenue), corporate sponsors (less funding), stadium development (suspended), NFL employees in both the league and team offices, coaches, transportation groups, and stadium & media employees (unemployment).

Scheduled sponsorship revenue for the 2011-2012 season

Revenue Source	Value (in millions)
Visa	$30
AB InBev	$50
Verizon	$187.5
EA Sports	$30
Reebok	$30
Other sponsorship discounts	$125
Preseason	$500
Potential league-wide losses	$952.5

How quantitative easing affects Canadian sports teams

There is a lot of talk this week about the Federal Reserve's plans to stimulate lending through quantitative easing.  I suggest seeing here, here, or here for explanations, but in short, this is the Federal Reserve creating $600 billion and using it to buy Treasury notes (i.e., debt that was previously issued by the US government) from banks. Doing so gives the banks money, which they (in theory) will lend out, thereby stimulating the economy. So how will this affect the sport world?

If things go as planned, the sport industry will benefit just like other businesses will benefit. If lending increases, businesses make more widgets, jobs are created, unemployment dips, and consumer spending increases... teams will benefit by getting more of the discretionary dollar. Theoretically, all US teams will benefit equally in respect to the recovery pace of the markets in which the teams operate. But for leagues with teams in Canada, and those teams have an advantage.

One of goals of quantitative easing is to stave off deflation and get inflation back to 2% or so. If it's "too successful," however, adding $600 billion to the money supply could lead to rampant inflation. Either way, QE is likely to weaken the US dollar against foreign currencies, perhaps by as much as 20%. This isn't necessary a bad thing - a weak dollar means cheaper US exports, which means more goods produced in the US, which means more jobs and more (relative) wealth for Americans.

Canada, to the surprise of some Americans, actually is a different country with its own Canadian currency. Canadian teams pay their players in US dollar salaries to be competitive with the majority of teams in the league, and average player payroll makes up about 60% of expenses across the major sports.  So although the largest team expense is in US dollars, most of Canadian teams' revenues are in Canadian dollars (local gate revenues, sponsorship from Canadian companies, local media rights, etc).  For sports like hockey, where teams are extremely dependent on gate revenues, the exchange rate is an even bigger problem.

When the loonie increases in value compared the US dollar, the buying power of Canadians teams increases. For most of the last 60 years, the Canadian teams have been at a disadvantage because of the relative weakness of their currency; as recently as 1/18/2002, the loonie was worth only US$0.62.  This means that in order to cover a player's US$3m salary, the Chicago Blackhawks have to bring in US$3,000,000 in revenue, but the Vancouver Canucks must bring in CAN$4,838,710.

Since 2007,  there has been greater parity between the two currencies, with the loonie lately flirting with a 1:1 exchange rate.  This has helped level the playing field (yeah, a sports metaphor in a sport article) for Canadian clubs. If the latest QE efforts lead to a further weakening US dollar, it could mean greater on-field and financial success for Canadian teams.

[edited for clarification of terminology used]

So it's come to this - Fees for tailgating

One of the things I teach my sport marketing students is to look for new sources of revenue. If you are able to provide the consumer with something "extra" and extract additional income through doing so, you're on your way toward doing your job very well.  But there are times when my instructor/practitioner sides come in conflict with my personal views as a consumer.

Today's source of internal dissonance: a company is charging fans $5 to walk through the tailgating parking lot at Cleveland Browns games (HT: @emhuddell).

On the one hand, these individuals ARE using the services provided by the parking lot company. Failing to charge them passes the cost onto someone else, creating a negative externality. Why should those parking in the lot have to pay extra so that adequate services can be provided to accommodate all the freeloaders?

On the other hand, this just feels wrong. When you are a host of tailgate, you understand the situation is not financially fair. You buy food & drinks. You spent hundreds or thousands of dollars in gear. You spend all week preparing the food. You get up early to get to the parking lot. You pay a parking fee that covers the services used by you and your guests.

Attendees at a tailgate are guests of the host. You don't charge visitors to come to a party at your home (well, except the $5/cup college parties), and you wouldn't charge them to come to your tailgate. Hosting a tailgate party isn't about making money, it's about having fun with your family and friends.

If this company needs to recoup their costs, it should do so by charging the tailgate hosts. This is a situation where social norms should trump market norms. While it's not financially "fair" for tailgate hosts to pay more, it is a social expectation.

I should note my personal biases here: I love tailgating. My wife and I have hosted tailgates for many sports, including football (DI and DIII), lacrosse, and curling. Our wedding registry was half tailgating paraphernalia. Based on my experience, I feel competent to judge the mores that guide the tailgating social world. If anyone thinks otherwise, let's argue about for several hours in the parking lot some weekend.