Friday, March 05, 2010

Uncapped Season Begins in NFL 

Do you feel a bit more uninhibited this morning? In a free-wheeling mood? A lot of NFL front office types do, because as of 12:01am, the NFL entered territory unseen since Bill Clinton was in the White House: no salary cap.

The Collective Bargaining Agreement between the players union and the NFL expires next year. When the current CBA was signed, both sides realized that they could have trouble agreeing the next time, and added a clause to the CBA designed to encourage the players and owners to agree to a new CBA: if a new CBA was not signed by 2010, the final season under the current CBA would be played without a salary cap. So much for that idea.

As of today, no restriction on total payroll exists in the NFL. Teams can sign all the free agents they want, at any salary they want. I imagine Redskins owner Danny Snyder felt like it was Christmas Eve. The Redskins reportedly cut $17 million in 2010 salary obligations minutes before the free agency period began, suggesting someone in Ashburn is getting ready to make some moves. The NFL has a handy sortable list of all the restricted and unrestricted free agents, if you want to do some window shopping for your favorite team.

I am not expecting many wild spending sprees. While Snyder has a reputation for spending like a drunken sailor even with a salary cap in place,the lack of a CBA beyond this season makes a significant work stoppage, and the sharp reduction in revenues that comes with a work stoppage, a real possibility.  Uncertainty about the terms of the next CBA should also reduce the incentive for teams to offer free agents large long-term contracts.

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Wednesday, February 17, 2010

NFL Uncapped Year 

The NFLPA and the NFL are negotiating a new collective bargaining agreement. As you may know, the NFL decided that it would not extend the current CBA set to expire soon. A number of issues about the "uncapped year" arise, but they are for another day.

Today's issue is "How we arrived at this point in NFL labor" which just happens to be a post heading (dated February 10th) at NFL Labor News, the league's website dedicated to explaining the issues. The NFL tells us
"The principal issue is ensuring that the agreement is structured in a way that provides incentives for the clubs to invest, innovate and improve the game for the benefit of the fans over the long term."
I doubt the players would see that as the principal issue. Rather, I would guess the players would take the subtext of the following as the underlying issue:
"The NFL clubs earn very substantial revenues. But they also have very substantial expenses. The largest of these expenses is player compensation. The clubs have been obligated by the CBA to spend more than half their revenues on player salaries and benefits. In addition, the clubs must spend significant and growing amounts on stadium construction, operations and improvements to respond to the interests and demands of our fans."
In other words, the owners want a bigger slice of the revenues that professional football generates. Ownership views ALL the revenue as theirs, and only agreed to give a substantial portion of it to players because they were forced to do so. Like there would be any revenue without players. I wonder how many people pay to see the Cowboys because Jerry Jones is the owner? I am sure many Redskin fans would pay to get that franchise AWAY from Daniel Snyder.

The NFL view continues with:
The current labor agreement does not adequately recognize the costs of generating the revenues, the majority of which go to the players; nor does the agreement recognize that those costs have increased substantially — and at an ever increasing rate — in recent years.
Lest we forget, clubs do actually AGREE to player contracts. When Matthew Stafford signed his rookie contract with the Detroit Lions in 2009, worth $72 million with $41.7 million of it guaranteed, the ownership of the Lions had to sign too. The thing about contracts entered into voluntarily is that both sides can say no if the terms are not to their liking. Labor costs aren't rising all by themselves; the owners are influential participants in their increasing.

But more importantly, the logic is backwards. Players and owners negotiate a share of the revenues from the enterprise that will be paid to the players. If the revenues rise, then the dollars going to players rise too, but the percentage is fixed. Likewise, if revenues rise, the dollars going to the owners also rise but, again, the percentage is fixed. In other words, player compensation goes up because revenues go up. And the only ways player compensation goes up at an ever increasing rate are 1) if revenues do, 2) if the owners negotiated a contract that calls for the share of revenues going to players to rise each year by an ever increasing amount, or 3) both 1) and 2) hold. The CBA that the owners opted not to extend called for player shares of revenues net of benefits of 57.5% in 2008 and 2009, and player shares of 58% in 2010 and 2011. These figures mean the share going to player compensation is only rising at an ever increasing rate if revenues are doing so or if benefits are doing so. Perhaps it is benefits, on which I have no information, but I doubt that is the main issue.

This post is already getting too long. I commend the NFL Labor website to anyone interested in learning about the uncapped year and the issues at hand. Just remember this website is the NFL owners' view of the situation. Players surely will view it quite differently. As a football fan I can only hope that the two sides reach an agreement quickly and amicably so we fans don't have to go through a strike, lockout or canceled season.

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Wednesday, May 27, 2009

From the Archives: Judge Sotomayor's Decision in the Clarett Case 

In addition to her injunction which brought an end to the baseball strike of 1994 (on this, see Richard Sandomir's piece in the NYT today), Supreme Court nominee Sotomayor played a significant role in the recent Maurice Clarett case. Clarett, of course, was a college football star who was running out of chances in the NCAA, and sued the NFL to overturn the eligibility rules which precluded a sophomore from entering the draft.

Here's my commentary on Sotomayor's ruling at the time, along with a renewed link to the decision itself. TSE's old posts have lost their formatting over the years (nice one, blogger!) so I've copied the content in it's entirety below.

Tuesday, May 25, 2004
3-0 to the NFL

The NFL won its appeal in the Clarett case. Greg Skidmore at the Sports Law Blog finds the decision satisfactory. I find it both illuminating and evasive.

Judge Sotomayor's decision references a number of cases upholding the exemption of restrictions in collective bargaining agreements from antitrust, both in sports and elsewhere. The discussion is authoritative and informative. It notes that the exemption does not apply when the restriction imposes harm on business competitors who are not party to the contract. This is not the case here: the harm is imposed on an prospective employee who is not party to the contract.

The court points out that CBAs encompass numerous issues, and that selecting one clause for antitrust scrutiny may upset the balance of compromises among employers and employees. It is not obvious to me that this concern should protect an anticompetitive restriction - simply address the issues without violating the law! Nevertheless the sanctity and primacy of collective bargaining to this court is readily apparent in the decision, making it clear that an antitrust challenge faces heavy going. The decision clearly implies - and the 2nd circuit has said this before in reference to the NBA draft - that if the NFL wants to cap salaries, the union can offset the negative effect on their wages by limiting the wages paid to future players in subsequent drafts. Prospective players are clearly harmed by this, but the restriction passes muster under the 2nd court's interpretation of the law.

The decision is evasive on two major counts. First, apart from mentioning the NFL's claim that the rule protects young players from physical harm, the decision wastes nary a sentence on the issue. The reason is clear - since labor law trumps antitrust, there is no need to judge the reasonableness of the restraint. Second, in announcing this in unabashed terms, the court tiptoes around the real issue here:
In the context of this collective bargaining relationship, the NFL and its players union can agree that an employee will not be hired or considered for employment for nearly any reason whatsoever [emphasis added] so long as they do not violate federal laws such as those prohibiting unfair labor practices ... or discrimination.
That the restriction is discriminatory is obvious. But youth is apparently not a protected class, unlike minorities or the elderly. I find this odd.

Not all courts allow collective bargaining as much latitude as the 2nd circuit. In the Mackey case, the "Rozelle rule" on free agent compensation was struck down by the eighth circuit. Following Supreme Court precedent, one of the tests applied was whether the restriction "primarily affects only the parties to the collective bargaining relationship." This test clearly conflicts with the approach of the 2nd circuit to labor problems. The decision simply notes that the approaches disagree, and not surprisingly, the decision in Clarett sticks to the precedent adhered to in prior cases in their circuit. An appeal to the Supreme Court might establish which approach they prefer, and thus clarify matters.

I'm not as enamored with labor law as Judge Sotomayor, and I'm not as pleased with the decision as Skidmore. By resting so completely on its "labor law trumps antitrust" basis, the appeals court ducked the most interesting questions in the case. Nevertheless, the decision is clearly exposited and informative, so it will go on the reading list for my sports economics class.

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Tuesday, May 26, 2009

Sonia Sotomayor's Connection to Sports 

President Obama is apparently going to nominate Sonia Sotomayor to the Supreme Court. But, you rightly say, what is the Sports Economics angle in this story? Judge Sotomayor was the judge who issued an injunction that said MLB teams could not impose a collective bargaining agreement nor use replacement players to start the 1995 season, effectively ending the 1994-95 MLB strike.

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