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Franchise tag economics

2012 February 29
by Dennis Coates

The NFL is approaching the deadline after which players become free agents, and are able to negotiate with other teams. The salary cap puts teams in the position of having to decide which of their free agent players to let go and which to try to retain. Clubs also can choose to designate one of their free agents as a franchise player, which means that player stays with that club for another season and is paid the average of the top five salaries from the previous five seasons for players at his position. (This rule has been changed under the collective bargaining agreement signed last summer, having previously been the top five salaries at the player’s position in the previous year.) Of course the franchise tag idea is rather unusual and particular to sports labor markets.

Nonetheless, at least for a sports economist, interesting economic issues abound with regard to the franchise tag. For example, how does a club decide to use the tag and on which player to apply it? The name “franchise player” suggests a superstar will be tagged, so that the franchise can keep its marquee players. One thinks of this as the football version of the NBA’s rules allowing clubs to violate the salary cap to keep their own free agents (the Larry Bird exception). Yet scanning the lists of players franchised over time one is likely to come away doubting the rule is applied this way. Many of the tagged players are linemen, for example, and not generally considered the face of the franchise. The tag has been applied to punters and kickers. Moreover, some clubs rarely or never use the tag they have (one would have to believe a player is in the top five in all of the NFL at his position to do this, so it isn’t surprising that some clubs don’t use it).

A second set of issues surrounds the reaction of the player to being tagged. One possible response is to pout, hold out, and shirk on the field. Certainly the hold out route is fairly frequent and common wisdom is that some players have underperformed after being franchised. It is not unusual for the press to discuss negotiations getting ugly when a player is franchised. Players naturally want a multi-year contract with a big pay day, especially so for players at positions with high injury risk and relatively short careers. Clubs, on the other hand, need to field a full team subject to a strict salary cap and want to economize on player costs wherever possible to do so.

A second possible player response is to take the tag as motivation to perform exceptionally well in the following season to show one deserves a big contract and to make oneself more attractive to other clubs. Of course, the club may respond by tagging that player again, a not-infrequent occurrence. Indeed, the CBA includes provision for franchising a player three times, though that is a rare occurrence.

NFL fans will surely discuss, argue, and lament decisions made by their favorite clubs over the next few weeks. As a fan and a sports economist, I look forward to the next season to unfold providing us with evidence on how the new crop of franchised players have responded to being tagged.

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