Football as we know it may be changing. The NFL is facing the possibility of a dramatic shift in the way it operates to achieve competitive balance. We may be in the waning months of the application of the Salary Cap to a sport that has prided itself on its parity and the ability of every franchise to have an equal chance to compete for a championship.
How Did We Get Here?
In March of 2006 the NFL owners agreed to a Collective Bargaining Agreement (CBA) with the NFL Players Association that was ratified by 30 of the League's 32 owners. Unfortunately, at the meeting in Dallas in which the agreement was ratified, precious little time was spent on how good a deal it was for the players.
Instead, the focus of those meetings was on revenue sharing among the NFL clubs. The Executive Director of the NFLPA at the time, the late Gene Upshaw, did a masterful job of getting his adversaries so focused on their own internal issues that the labor deal slipped through virtually unnoticed.
As Vice President of the Packers at the time, I constantly checked for updates with our President and COO, who were at the meetings. Every update was about how the teams were going to split revenue. "What about the deal with the players?" I asked. "We really haven't talked about that" was the continual answer. With Upshaw purposely unavailable on a plane to Hawaii to meet with his union reps and outgoing NFL Commissioner Paul Tagliabue anxious to continue labor peace, the deal passed easily.
The objecting owners, Ralph Wilson of the Buffalo Bills and Mike Brown of the Cincinnati Bengals, were seen as contrarians by many of the league's other owners, voices in the wilderness whose views were dismissed at the time. However, not long after the ink was dry on the agreement with the players, other NFL owners and executives started realizing that player costs would increase at a more accelerated pace than operating revenues and wondered how to get out. I vividly remember the conference call explaining the deal where a few of us heard the terms and asked, "And what did we get?"
Fortunately for the owners, a way out was built into the deal. The owners had an option to terminate the CBA earlier than its stated expiration date of 2013, which they exercised. Thus, the deal now ends following the 2010 season. The agreement also states that during the last year of the deal -- which was 2012 but is now 2010 with the exercised option - the NFL will operate without a Salary Cap. Thus, without a new deal in sight, we may be in our last few weeks of the age of Cap football in the NFL.
The Cap
The NFL has two methods of accounting -- cash accounting and Cap accounting. Cash accounting shows the amount of hard dollars a team is paying based on committed cash. Cap accounting includes non-cash charges such as prorated signing bonus charges, LTBE (Likely to be Earned) incentives and NLTBE (Not Likely to be Earned) incentives, charges for injured players and injury settlements, grievance holds, unamortized bonus of players no longer on the team, etc.
The basic premise of a Cap is to level the playing field among teams to improve competitive balance, thereby fostering evenly matched games that are attractive to networks, sponsors, fans and media. The Cap is also designed to protect aggressive and emotional deep-pocketed owners from themselves, limiting their largesse in player spending from year to year.
There are certainly ways to spend above the Cap, as the NFL Salary Cap is more of a soft cap (a yarmulke, if you will) rather than a hard cap. Teams can prorate signing bonuses and push Cap charges into future years (although that is not possible this year as there is no Cap next year). This is mainly why we have a few teams spending over $150 million on a $123 million Cap this season.
Is It Working?
The disparity in cash spending in the NFL is noteworthy but insignificant compared to Major League Baseball (MLB), a league without a Cap. As noted above, the top teams in the NFL are spending north of $150 million while the lowest spending teams are a bit south of $110 million, a gap of over $40 million.
The New York Yankees (heard of them?) just won the World Series with a player payroll over $208 million. The Florida Marlins, with a payroll of under $40 million, compete in the same league against the same teams as the Yankees do. Thus, the disparity in cash spending in 2009 between the high and low teams in Major League Baseball is almost $170 million.
With a Salary Cap, the MLB disparity could not exist, as a Cap is self-regulating over the long term. In other words, NFL teams rise in the spending rankings one year only to fall down in the next or moderate somewhere in the middle over the long term.
No Cap?
Without a Cap, there exists the possibility that the NFL payroll disparity could look like that of MLB. Perhaps a team or two could engage in profligate spending without the limitation of a Cap and become the Yankees, Mets and Red Sox of football.
It could happen, but it's not likely. Football is a game of schemes and complex interactions between eleven players on the field at the same time. It is not like baseball, in which a player hits, catches and pitches and can be inserted into a new lineup seamlessly. Football has more issues in changing personnel, a reason why free agency in football has had spotty results.
But there is an important result of a uncapped NFL that is not receiving enough attention: Without a Cap in the NFL, not only is there no ceiling on player spending but there is also no floor. Thus, teams that are so inclined can cut back their spending as they wish, no longer forced to meet the Cap minimum ($108 million in 2009). Add this into the equation and the NFL may look more like baseball next year, with a payroll disparity potentially far greater than now.
Where do we go from here? There have been a few meetings between the NFL and the NFLPA, led by its new Executive Director DeMaurice Smith. Progress has been slow, with the union frustrated by the League's lack of specificity about the difficulty of the present CBA and the lack of concrete proposals from the NFL as to how to fix the system.
The league's slow-play may be a strategy to show a lack of trepidation about an uncapped -- and unfloored -- 2010. Without a Cap, there will also be restrictions on free agency for NFL players. Free agency will be available to players with six years of experience rather than four, thus eliminating free agency rights for over 150 players. These protections were put into the agreement as poison pills to an uncapped year.
So, will we have a new CBA in the NFL by the end of this season, ensuring a Salary Cap system for 2010 and labor peace beyond? I doubt it.
As to whether an agreement ensues in the months following this season and prior to the start of the Free Agency period in March 2010, well, that's a better question.
Stay tuned.