Well-connected NFL observers and writers predict a work stoppage, although 11th hour settlements are not uncommon. When the talk of breakdown in the NFL’ s Collective Bargaining Agreement started with the owner opt-out in 2008, I wondered, why are the owners going down this road? Well, of course, it’ money, but why poison a seemingly productive well for chump change?
The expiring CBA pays players just under 60 percent of revenues. At first glance, that appears to be a great deal for owners. After all, labor’s share of total revenues (national income) across all industries is in the 70-75 percent range. On the low end, labor shares in the equipment-reliant agricultural sector can be below 40% and above 80% in labor intensive sectors. Pro sports, unless I’m missing something, appears highly labor intensive. Yes, there is brand name capital for teams and the league along with facilities (where they get major subsidies) and equipment, but 60% seems an outright bargain. Even further, owners pay out 60% of adjusted revenues, which lops off about $1 billion in an “expense credit” (See Sports Business Digest) right off the top. If this were included in revenues, then labor’s share falls down to 53% — a downright steal. Right. Maybe not.
Most glaring, the 70-75% national average includes all forms of compensation including benefits, not just wages and salaries. The national share for wages and salaries is about 55% — so the player deal immediately looks better. I don’t have specific data on what the NFL pays out for its health and pension plans (maybe some TSE writer or reader does). I will assume that the total compensation is about 1.3 times the salary figure (roughly reflecting the national ratio of total compensation (73%) divided by salary and wage payment (55%). With salaries at about $4.8 billion, this increases player compensation by about $1.5B or to about 70% of unadjusted revenues ($9B). Presumably, these benefits are the rationale for the expense credit adjustment to revenues.
Comparing NFL labor share to national shares requires further adjustments. Team compensation of non-players also counts as payment to “labor.” Coaches count as “labor” in this calculation as do front office personnel. Even part of the owner’s salary/profits must be imputed to “labor” for comparability (part goes to payment for capital and/or interest) I’ve seen a figure of $3.25 million for average head coach salary. Coordinators can make up to a million and other assistants less. If we supposed that coaches salaries, in total, sum to $8 million per team, we come up with about $250 million for the league. I’m going to double that amount to cover the GM, other operational personnel, and owner “labor” compensation. These adjustments — benefits and other “labor” expense — adds about $2B to the $4.8B player salary bill to arrive at $6.8B in labor compensation, which is 75% of the $9B in revenues (without any expense credit).
I’m not suggesting that this is the exact percentage, but it is a starting point to gain perspective on the current impasse. Increasing or decreasing the non-player adjustment by $100 million generates a range from 74-76%. It’s hard to see that the owners are coming out on the short end in a labor intensive industry with well under 80% of revenues likely going to labor. On the other hand, it’s not a big rip-off for players either for player-only share of overall revenue to be around 70%.
To me, these back-of-the-envelope calculations suggest that the dispute is a typical push by bargaining units to gain advantage over “rents” rather than a dispute over owners or players being grossly under- or over-compensated. If the health/pension benefits are closer to the $1.5B using the salary multiplier of 1.3 than they are to the current expense credit of $1B, then it’s easy to see why the owners are pushing this agenda. If owners can collectively gain $2500m on this front, each one pockets a non-chump change $8m more. On the other hand, if non-salary benefits currently paid out for layers are closer to $1B, then it’s easy to see the player beef with giving up more adjustments to revenues. Moreover, with the specter of adding 2 more games per season, the players view is that the additional health expenses to owners come with an increased health risk to the players, so why diminish their revenue percentage.
A few related links: Adjustments to national shares Cleveland Fed; STL Fed; Krueger; Gollin; Labor Share by Sector (now quite dated);
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