The Negotiations of the 2011 NFL Lockout

MSM 9019-Emmanuel College

Joshua Rosenbaum

December 14, 2011

The National Football League (NFL) with the highest revenue, income, and value is considered the leader in the American professional sports business. The last NFL work stoppage occurred in 1987 and the NFL has continued to gain in popularity since while the three other major sports have all experienced work stoppages since that time. The 1987 work stoppage resulted in the players striking for twenty-four days and replacement players being used. After this strike and union decertification the NFL entered a new era of collective bargaining between the NFL owners and athletes in 1993. Both parties agreed to enter into a new collective bargaining agreement outlining the wage scale and rights of both parties involved. This agreement had been extended five times since 1993 but it was May 20, 2008 where the NFL owners voted unanimously to opt of their collective bargaining agreement, which without action would expire March 3, 2011. There were several issues that caused the lockout, but for the owners the largest issue involved the revenue. The issue of revenue was a difficult one for the National Football League Players Association (NFLPA) to address since 31 out of the 32 teams were private entities and did not have to show the union their books. However, one team the Green Bay Packers are publically owned and therefore the union was able to get a general idea of the revenue stream and the finances of the NFL in general. The owners were the ones that opted out of the collective bargaining agreement and it was not a matter if the players were going to have to give back some of the leagues revenue they received but how much. The player’s union was wise in taking a hard stance with the revenue and salaries the players sought, but it was the issues of player’s safety, retirement benefits, the rookie pay scale, number of games played in a season and free agency where they would be able to make their biggest gains. A big factor leading up to the lockout was the large amount of time between when the owners opted out of the collective bargaining agreement in May 2008 and when it would expire in March 2011. This gave both sides plenty of time to define the issues and prepare for what could be a long lockout. With the NFL being a nine billion dollar industry the owners and players would not be the only ones affected. Besides the large television contracts, the companies that have spent millions to advertize on these networks, the vendors around the 32 NFL stadiums and the fans themselves were amongst the biggest bystanders of this negotiation. It was the deals with all of its television contracts and the pure economics of the NFL that the owners thought would give them a huge advantage over the players. An article in the Economist points out that the NFL stands in sharp contrast to the troubles of America’s three other main sports leagues being baseball, basketball and hockey. “As a business, American football has been beating its rivals handily for years. It has the highest revenues of the four and has the firmest grip on its labor costs, which have grown only 9% a year since 1990, compared with 12-16% growth in the other three leagues. The average football team has a market value of 3.9 to 4.4 times revenue, compared with ratios of 2.2 to 3.0 for the other leagues” (The Economist 4/27/06). The formula for how the owners and the league are able to do this is simple. The team owners share roughly 70% of their revenues with each other and they stick to a strict salary cap that limits the amount each team can spend on players’ salaries. The TV contracts that the league secures by pitting all major networks against one another is a big part of this revenue bringing in almost four billion a year. Prior to the CBA expiring there was a lot of maneuvering on how this money would be handled if a lock out were to occur. The NFL had negotiated with TV networks ABC and ESPN that the NFL would get to keep the four billion in revenue created from these contracts regardless of whether they played or not in 2011. The NFLPA alleged that the NFL improperly negotiated below value television contacts in exchange for structuring a deal that would pay the league $4 billion in 2011 knowing that a lockout was possible and therefore not getting the most revenue possible in other seasons when the income would be shared with the players. According to the associated press, “Special Master Stephen Burbank on Tuesday, February 1st sided with the players that the league is required to maximize revenue for the mutual benefit of both sides. The NFLPA was asking for 60 million in damages, but was awarded $6.9 million. Most importantly, the Special Master did not grant the Union’s request for an injunction, thus allowing the NFL to keep $4B from the TV contract deals with the networks in 2011”. What appeared to be a big victory for NFL owners in securing $4 billion for the 2011 season and giving it great stability to survive a lengthy lockout would be reversed about a month later. On March 1st, 2011, U.S. District Judge David Doty rules that owners won’t get the $4 billion in previously guaranteed television revenue in a lockout. According to cbssports.com news wire, “in his 28-page ruling, Doty criticized special master Stephen Burbank for legal errors and erroneously concluding earlier this month that the NFL can act like a self interested conglomerate when in fact it is bound by legal agreements to make deals that benefit both the league and player. Doty went on to say, ‘record shows that the NFL undertook contract renegotiations to advance its own interests and harm the interests of the players,’ wrote the judge, who has overseen NFL labor issues since he presided over the 1993 decision that cleared the way for the current free agency system” (cbssports.com wire 3/2/11). While Judge Doty’s decision was an important one for the player’s union, it had more to do in setting up the negotiating rather then what was going to be negotiated in the new CBA. This proved that the owners had a premeditated plan for more then two years that they were going to lockout the players and use the network contracts to help them do so. While the $4 billion represented a loan to the league that would need to be repaid with interest, $421 million of the total would have been guaranteed to the league without repayment. This would not be the first time that the sides were in court to help mediate and make rulings on these labor issues. Like the owners, the players were also anticipating a lockout and were taking the necessary steps to prepare as such. It was in September of 2010 where the New Orleans Saints voted and gave their unanimous consent to the unions president, DeMaurice Smith to decertify the unit if he deemed fit. All other NFL teams soon followed suit with this decision. This did not necessarily mean the union would decertify, it just gave the players what they considered a bargaining chip in case it came down to this. According to Mark Maske of the Washington Post, “the move would expose the owners to a potential antitrust lawsuit by the players. The owners still could lock them out, experts say, but the risks for them would increase because the lockout could be added to any antitrust claim filed by the players” (Maske 12/14/10). This came to fruition on March 12, 2011 when Tom Brady and several high profile players filed an antitrust lawsuit in Minnesota’s Eight Circuit Court seeking an injunction against the lockout. The anti-trust suit known as Brady et al vs. National Football League et al, attacked the league’s policies on the draft, salary cap and free-agent restrictions such as franchise-player tags. With an anti-trust lawsuit, there is no guarantee of whether the players will be successful or not or almost as important, how long the process could take. The judge overseeing the process plays a large role in this and many thought with the house having a Republican majority who are often against unions, the players may not have the edge in this legal battle. While negotiations would continue between the sides during this anti-trust lawsuit, it became obvious that no side could be guaranteed victory in relying on this measure. The following demonstrates a brief timeline of how the case played out in the court system: On April 6, 2011, Judge Susan Nelson hears arguments. April 11, 2011, Nelson appoints Magistrate Judge Arthur Moylan to oversee court-ordered negotiations. April 20, 2011, Boylan suspends bargaining until May 16th. April 25, 2011, Nelson rules for players lifting lockout. April 27, 2011, owners request stay on ruling while forming appeal, stay is denied. April 29, 2011, lockout resumes during the NFL draft after Eight Circuit Court of Appeals grants request for temporary stay. May 16, 2011, Mediation with Boylan resumes. Eighth Circuit Court of Appeals issues a full stay on Nelson’s injunction. June 3, 2011, the NFLPA and NFL argue lockout in front of Court of Appeals. Court rules that resolution will come in due course and negotiations resume. July 8, 2011, the Eighth Circuit Court of Appeals rules that the lockout is legal hurting the current negotiations currently going on for the players. The court’s ruling, decisions going back and forth and uncertainty of the process ensured that both sides would continue to negotiate. While the ruling was important, in the end the players depend on the NFL for their health insurance and salaries and as long as no games are played, the owners can not capitalize on the lucrative TV contracts. However, while in lockout the owners would not be responsible for paying for the health insurance or salaries of the players which could come into negotiations down the road. The average career of an NFL player is not long; losing a full year of one’s career is a distributive factor that the owner’s thought would be on their side. The players had to take a hard stance in negotiating the percentage of the revenue that they would receive, but there were many other pressing issues out there where money was not the main factor. According to Bloomberg's Businessweek, the average NFL career is 3.5 years, with a median salary of $770,000 and an average salary of $1.9 million. Depending on where one gets information regarding this, the NFL claims the average career is closer to seven years while the player’s union claims it is just over three. Both use different calculations and figures, but regardless due to the violence of the game the career of a player can be very short. The NFL took a strong position to extend the NFL’s regular season from sixteen to eighteen games. For the NFL, these two extra games would create a lot of extra revenue. For the fans it would be two extra weeks of the regular season as the preseason has never gained much attention and for the players their contracts would have to get increased to compensate for this change. Kevin Mawae, the president of the NFLPA said, “Eighteen games is not going to happen through NFL player negotiations. We can not justify that for the health and safety of our players” (Marvez 2011). In the end, both sides agreed to keep the same 16 game regular season for 2011 and 2012 with subject being revisited in 2013. The 16 game regular season appeared to be a victory the players, but this was never something union was going to budge on. Revisiting it in 2013 may have been a slight concession by the players, but it was the safety and decrease in wear and tear that the players won when negotiating this deal where they really made their gains. The safety of the players was paramount to the union and was something they would be able to make strides on that would not affect the owner’s bottom lines. Some of these concessions that the players were able to achieve were reducing the off-season program by five weeks and reducing the organized team activities from 14 to 10. Organized team activities (OTAs) could be anything from team meetings, an outing to create camaraderie and pull the team closer but more often were used as mini training camps. Other big changes included limiting on-field practice time and contact as well as limiting full-contact practices in the preseason and regular season. This is a huge change to the players as most of them really go at one another in practice when it could mean a starting spot or for many or more importantly, simply a spot on the roster. Two a day practices in training camp were almost all but eliminated. Other concessions given to the players were the opportunity for current players to remain in the player medical plan for life and an enhanced injury protection benefit of up to $1 million of a player’s salary for the contract year after his injury and up to $500,000 in the second year after injury. While the players objective was get the best deal for themselves, they were also negotiating for players of the past and those that had yet to take a snap. One issue that both sides were able to agree upon in principal from the beginning but not in detail was the need to revamp the rookie pay scale and how they are paid when entering the league. JaMarcus Russell who was the number one pick in the 2007 NFL draft signed a six-year, $61 million contract that guaranteed him $32 million after he held out well into training camp. Russell among other famous high draft picks like Ryan Leaf, David Carr, Charles Rogers and Akili Smith received enormous contracts with guaranteed money taking money out of the pockets of established veterans currently in the game. Owners had always been strong-armed by players holding out and demanding monster contracts often more then established veterans before even taking a snap in the NFL. Owners wanted to avoid large guaranteed contracts while lowering the amount of money these rookies received but also wanted to keep control of them and limit them from going to free agency for a greater period of time. Since the players get a distributive amount of the allocated revenue, one would expect the players not to care about the future players coming into the league, but that was not the case. The rookies had no choice but to put a certain amount trust into the players and for them the same agents who represent the current players would represent them too which helped manage this conflict of interests. The NFL really wanted all drafted players to sign five year contacts while the players sought three so they would enter free agency sooner. There was a lot of comprise for this part of the negotiation as to where the money would go that was saved on this new compensation system. In the end, they reached middle ground in that all drafted players sign four-year contacts. Undrafted free agents sign three-year contracts with a maximum compensation for each draft class and strong anti-holdout rules. Like the much hated franchise tag that players disapprove of, clubs did manage to negotiate the option to extend only a first round draft choice for a fifth year based on agreed upon tender amounts. With the NFL able to save a significant amount of money on rookie contracts, the NFLPA was able to negotiate how this money along with additional funds allocated by the owners would help tackle another major issue the NFL had. However, this negotiation would be for those that have already left the game while also helping to solidify the financial future of current and future NFL players. With the average NFL career believed by many to be 3.5 years but even less for certain positions like running back partially due to the sheer violence of the game, retirement and pension is often not thought about by these young adults entering the league not much older then twenty-one. From the USA Today, “A 2003 University of North Carolina study found 263 of 2,500 retired NFL players said concussions may have had a permanent effect on their ability to think and remember as they got older” (Colston 7/13/07). With many having only played a short time in the game and then not being able to work the pensions they receive from the NFL are below the poverty line. Retirees have often gone after the then NFLPA President Gene Upshaw for not doing more for retirees and in examining this negotiation a certain level of social ethics took place with the players. Minimum salaries and salaries in general were far more substantial now compared to when many former players were in the league. The players would now be negotiating to take money out of their own pockets to help benefit those that came before them but also that will help them down the line. In the end, it was negotiated that over the course of the next ten years, additional funding for retiree benefits of between $900 million and $1 billion with the largest single amount, $620 million being used for a new Legacy Fund which will be devoted to increasing pension for pre-1993 retirees. While this represented a huge gain for retired players, many retirees were still not happy with the gains made. With little to no representation in the negotiations, one can argue that once again not enough was done to support the retired players as statistics show that their pensions are well below those of the three other major sports that operate on far less revenue. As players and owners continued to go back and forth the middle of July and close the gap in negotiations, no deal had been reached and trouble loomed for many free agents that could not sign with a team during the lockout. Talks had already begun with eliminating pre-season games and the regular season not starting on time and the owners must have figured they had time on their hands. Although they stood to lose some money, many of the owners were already billionaires, owned other businesses and could tolerate an extended lockout. They knew many players would need their paychecks and anticipated the union to go against one another and not stay strong once many players financially had their backs up against the wall. A player’s career is short; owners knew losing a season was not something they could tolerate. Preparation for any lockout is crucial and the players and executive director DeMaurice Smith made a strategic move in the winter of 2010 when they knew a potential lockout loomed. When DeMaurice Smith was elected Executive Director of the NFLPA in 2009 after the unexpected death of Gene Upshaw, he always took a long view with negotiations and hoped for the best and planned for the worst. Jim Trotter of Sports Illustrated reported, “the impetus for the breakthrough may have been a secret insurance fund set up by the NFL Players Association executive director DeMaurice Smith more then a year ago, providing for $200,000 in compensation for every player in the event of a lockout in 2011”(Klemko 2011). While the owners believed the players would fold when they began losing paychecks, this secret fund showed great solidarity by the union and potentially was the ace up the union’s sleeve that they needed. While the owners refused to exchange financial information that could hurt them in negotiations, the players who most of which did not know about this fund kept it a secret and waited until what they believed to be the most opportune time with talks stalling to greatly improve their bargaining power with the owners. As the owners battled to secure money with the TV contracts, the players chose a more ethical route of taking out an insurance policy to protect their financial interests as well.
From the beginning, the players never sought more money; they just wanted to assume their piece of the revenue would not be reduced. The players and owners had been splitting 50% of the revenue prior to the lockout with the owners taking one billion off the top for operating and investment expenses before the remainder of the money is divided by the players. However, the owners sought an additional 18% or one billion starting next year. Only the owners will know if they thought this initial offer was legitimate or not, but in the end they did claim a small victory with the new revenue split being between 46-48% compared with the previous 50-50 split. The owners also won with the top picks of the 2011 NFL draft class only being able to sign contracts for half the amount of those in 2010. The safety of the players was a huge gain for the players as was the nearly one billion for improved retired benefits. Beginning in 2012, the salary cap will be set based on a combined share of all revenue with players receiving 55% of national media revenue, 45% of NFL Ventures revenue and 40% of local club revenue. The NFL beginning in 2012 will also true up on an annual basis increases or decreases versus projections. The bottom line is that players must share at least 47% for the 10-year term of the agreement and also got the league to agree that all teams must commit to spend 99% or more of the cap in 2011 and 2012. For the remainder of the CBA from 2013-2020, the clubs collectively must spend at least 95% of the cap with each club committed to a minimum of 89%. Increases to minimum salaries of 10 percent in year 1 with continuing increases each year of the agreement are a nice concession that will have a great effect on a large amount of players now and down the road.

From an outsiders perspective it appears as if the players came out on top in this lengthy negotiation. The owners although unreasonable, sought a much higher percentage of the revenue then they ended up with and took a strong position with an eighteen game season to increase revenue which did not happen. While future rookie classes had no choice but to make large concessions, the union collectively made great strides on how the player’s revenue would be split amongst themselves. The small decrease in revenue that they made as a concession was far out weighed by huge gains in their health, welfare and insurance benefits due to injury. Retired players also made huge gains with this new CBA. In the end, the tactics used by the players proved to be far more successful then those maneuvered by the owners. Preparation proved to be crucial when the owners lost some bargaining power when not securing the $4 billion in TV contracts and the players pulled out the trump card with the secret insurance policy in the end. In this negotiation the position of power for the owners over the players was evident and the players were able to conquer this and gain crucial leverage in the end.

Works Cited

1) Associated Press. (2011, March 2). Federal judge: Nfl can't keep tv revenue. Retrieved from http://www.cbssports.com/nfl/story/14757584/federal-judge-nfl-cant-keep-tv-revenue

2) Battista, J. (2010, September 11). N.f.l. players union to vote on . Retrieved from http://www.nytimes.com/2010/09/12/sports/football/12nfl.html

3) Battista, J. (2011, July 19). With n.f.l. deal in sight, each side can claim gains. Retrieved from http://www.nytimes.com/2011/07/20/sports/football/its-fourth-and-inches-as-nfl-nears-end-of-lockout.html?pagewanted=all

4) Colston, C. (2007, July 13). Nfl retirees feel forgotten as fight for benefits rages. Retrieved from http://www.usatoday.com/sports/football/nfl/2007-07-08-sw-retirees_N.htm

5) Hubbuch, B. (2011, July 13). Rookie salary issue puts crimp in nfl labor talks. Retrieved from http://www.nypost.com/p/sports/more_sports/rookie_salary_issue_puts_crimp_in_ILpp9v2uFfFu02kM5H8dTM

6) Klemko, R. (2011, July 16). It was widely speculated early in the lockout that the players would fold when they began losing paychecks. the fund could be interpreted as an indication of more solidarity than the'yve been given credit for.. Retrieved from http://content.usatoday.com/communities/thehuddle/post/2011/07/report-players-reveal-secret-insurance-fund-spur-negotiations/1

7) Kurtz, Z. (2011, February 10). The nfl gets to keep a 4 billion-dollar bargaining chip. Retrieved from http://www.sportsagentblog.com/2011/02/10/the-nfl-gets-to-keep-a-4-billion-dollar-bargaining-chip/

8) Marvez, A. (2011, March 15). Nflpa president rejects 18-game season. Retrieved from http://msn.foxsports.com/nfl/story/NFL-Players-Association-Kevin-Mawae-rejects-18-game-season-031411

9) Maske, M. (2010, December 15). Time is short for nfl, players. Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2010/12/14/AR2010121407094.html

10) Wilson, A. (2011, July 21). Details of new nfl bargaining agreement. Retrieved from http://www.nationalfootballpost.com/Details-of-new-NFL-collective-bargaining-agreement.html