This is something that I've been thinking about for a long time; basically since the owners opted out of the current Collective Bargaining Agreement following the 2008 season and kinda since the last CBA was signed, because I could see it becoming a real issue.
It's important to keep in mind that a lockout does not necessarily mean that the entire 2011 NFL season will be canceled. The more I think about it, the less I think things will ever get that bad, but it's definitely possible.
The current deadline for creating a new CBA is March 3, 2011. If a new CBA is not negotiated by then, then the owners dissolve the union and lock the players out, because that's the only real weapon in their arsenal.
Here's why I think that happens...
Too Big to Fail:
This point and sub-points came from an e-mail thread that I was in with Weidman. His original point was this (how I got the name for this section):
"I keep hearing that argument (that the NFL is too big, too important, and too lucrative for the owners and players to be stubborn enough to kill it)...which is the sporting equivalent of the banking world's "Too big to fail." Yeah, well, that never meant that they were so big it was impossible - it meant that it was too big to allow to happen. This lead to the public bailout, which we all know and love.
With the NFL...that's not an option. Without a safety net, I refuse to buy into the "too strong to fail" argument. Do I think it's going to happen? I'd probably put money on it - and you know how I am with gambling. Do I think it's possible to avert? Yes I do...It would just take near a miracle."
(Editor's Note: Weidman would also like to remind everyone that tickets for the Pittsburgh Power are still available and their inaugural Arena Football League season kicks off on March 11th, eight days after the lockout.)
Continuing with the "too strong" line of thinking, I feel that's part of what could come back to bite the NFL. Players, owners and networks all make so much money off of it, and they all think that they are the reason the money is rolling in. They also think that the other two camps know this, and will realize that they're boned without them. Because of this, they all have this rolling inertia that could keep their heads in the sand until it's too late."
The NFL is the most popular sport in the US and the most profitable and many feel that the league is making too much money and is too strong and too popular to fail. Well, there's no rule that says that the NFL has to be the most popular and profitable sport in America, it just happens to hold that position right now.
Basketball was once more popular than football, but now they have a fraction of the popularity they once enjoyed. At one point, they were the major sport that was deemed "too big to fail" and then they had their own lockout. The game is recovering -- as is hockey and as did baseball after the strike in 1994 -- but it's not as strong as it once was and may never be again.
A side argument there is that the NFL is so popular and has so many diehard fans that everyone will come back after a lockout as though nothing had ever happened and the money train will keep rolling. That may happen, but I think the NFL will discover that they have a lot more casual fans than they thought if all or part of the 2011 season is locked out.
You would think that the owners and players are savvy enough to realize this. But, the longer things drag out, the more I think that they are too full of hubris to believe it.
Too Much Money on the Line:
A sub-argument in the "too big to fail" argument is that everyone -- the players, the owners, the networks -- is making a ton of money on NFL football and they'd be crazy to give all that up over a couple of lousy percentage points. Maybe one side will make slightly less and the other side will make slightly more, but everyone will still be making huge sums of money, so they should all be able to share.
The problem there is that was the basic thinking behind signing of the last CBA. The owners were in a horrible negotiating position and, in their own way, they all understood that the players were underpaid and needed a bigger piece of the TV revenue pie. Again, they looked at the situation and asked, "What's a couple of percentage points here or there when we're all making so much money?" They soon got their answer. A couple of percentage points here or there is a lot of money when you're talking about $4 billion in TV revenue each year.
Now that they know how important every last bit of every last percentage point is, they won't give up anything easily.
The players have seen their salaries skyrocket the past decade -- especially since the owners gave up those couple of percentage points -- but they still feel as though they're underpaid. What the players don't seem to realize is that the market has proven that they're wrong.
Before the current CBA was signed, the salary cap acted as a price ceiling, artificially lowering the price of labor, which resulted in the players being underpaid.
When the current CBA went into effect, it created a price floor, artificially raising the price of labor, which resulted in players -- especially marginal players -- being overpaid. What a lot of people don't realize about the salary cap is that it sets a salary minimum in addition to setting a salary maximum. So, teams were required to spend more than they needed to to field a team in order to get to the minimum. The Bucs and Chiefs paid out future roster and workout bonuses -- bonuses that were guaranteed, but hadn't come due yet -- just to get to the minimum. This also meant that teams were outbidding each other and overpaying for players that filled a role on their team, but not a critical one, just because they needed to spend the money.
When the uncapped year happened in 2010, teams didn't have a maximum that they could spend, but they also didn't have a minimum. When the free market determined prices, players were signed more cheaply than before, but to better contracts than they signed when the price ceiling was in effect. Superstars like Julius Peppers will always get paid, but teams were handing out $15 million contracts to back-ups because they needed to meet the minimum. When they were no longer required to do that, owners tightened their purse strings to the point where the Players Association is putting together a collusion lawsuit saying that the owners got together and decided that no one was going to sign restricted free agents in the offseason.
Getting an uncapped year was supposed to be the "Holy Grail" for the players -- and it would have been if the current CBA was never put in place to inflate wages -- but it ended up showing the owners that they could make more money in a free market system. The other important thing to remember is that the revenue sharing checks from the league didn't stop coming in just because there wasn't a salary cap. The owners still got paid and doled out what they thought appropriate to the players. More on this later.
This situation reminds me a lot of the writer's strike in 2007-2008. Most of the TV-watching public couldn't understand why the two sides couldn't come to terms when there was so much money to be made and so much money was being lost as a result of the strike.
The issue there was the same as the issue here. Both sides understand how much money is at stake and neither side wants to give up even a fraction of a percentage point at the negotiating table because they know how much money it represents. Rich people don't get rich by being careless with their money. When you have a bunch of them on opposite sides of a whole lot of money, neither side is going to throw in the towel without a fight.
Too Many Issues:
These are issues above and beyond the fact that you've got a ton of proud, stubborn people on both sides of the table and that they're running out of time. The deadline is March 3rd, which is close enough. Add in the fact that there are still playoff games to be played, a Pro Bowl, and a Super Bowl, and you're realistically talking about a one month window to negotiate a multi-billion dollar agreement. That's a huge issue in and of itself and almost seemed too obvious to state. But, I stated it, so...
The 18 Game Schedule:
Kaiser Goodell and the owners basically railroaded this one through despite the fact that the players and not on board with it at all. That's one part of the issue.
The other part is how the players will be compensated for more games. They're almost all currently under contract and those contracts are for 16 game seasons. Do they get two more game checks -- players get a check each week for each game, not a lump sum at the beginning or end of the season, which will be important to know later -- for the same amount as though they played two more games than in a 16 game season? Or will their weekly game check be based on their 16 game base salary, just divided by 18 instead of 16? You're talking about huge dollar amounts, so the answers to those questions are of considerable importance.
The one thing that hasn't been discussed as much as the other two points -- and may be more important overall -- is that two more games means 140-160 more collisions for players whose bodies already take a lot of abuse. Just like the uncapped year, this doesn't affect the stars much, since they're all elite players and take care of themselves and will have long, storied careers. But, stars are about five percent of the league, so this is an issue that has serious ramifications for 95 percent of the players in the NFL.
We watch football week in and week out and watch highlights of big plays and bigger hits, but I don't think that we really understand what a violent game NFL football is. For example, I recently talked to a guy that played as a wide receiver for Pitt for four years, then as an undrafted free agent for a Falcons for four games. He also played in the AFL and the afl2 as a receiver.
He showed me his mangled left hand. He dislocated the pinky finger on his left hand six times and the ring finger on that hand four times. He's had two surgeries.
He saw his fair share of action in college and professional football, no doubt, but he was not a guy that played in the NFL 16 (or 18) games a season for ten years. Wide receiver is also a position that is more protected and sees less contact than on the offensive line, defensive line, or running back.
Adding two games adds more collisions and more chances for guys to get seriously hurt, which in turn lowers the playing career of the average NFL player in terms of total seasons. When a former player tries to collect his pension or tries to get medical coverage, the first thing they look at his is NFL tenure.
As another example, I was watching the Colts-Jaguars game in Week 15 with my grandparents. On one play, Austin Collie got sandwiched between two defenders and was concussed. This was his second concussion in as many months and the game against Jacksonville was his first time back in action after his last concussion. As he lay motionless on the ground, my grandfather impassively muttered, "Brutal game," as though he heard some commentator say it at some point and felt as though he should say something. When they showed several concerned fans in the stands -- more than one female fan appeared to be crying -- my grandmother said that they must be members of his family. But, they started showing different sections with different groups of concerned, crying fans, and I felt the need to point out that this was his second concussion in the past two months and that he could be in a coma, paralyzed, or worse.
The point of that story is not to say that my grandparents are uncaring jerks, they're not. The point is that, as a fan base, we're desensitized to the violence of the NFL game. We don't understand what the players go through every game -- and after every game -- but the players definitely do. They most certainly understand what another two games a year means for their bodies and their future.
Kaiser Goodell:
The players don't like him. I don't like him, either. The problem is that the owners love him and they have several good reasons.
The fact that the players don't like Goodell isn't much of a news flash. He's handed out arbitrary, inconsistent punishments and fines for different infractions, on the field or off. He pushed the 18 game schedule through without much of a passing thought as to what the players might think. This season, he suddenly decided to start strictly enforcing the helmet-to-helmet rules in mid season.
Now, there's nothing wrong with the helmet-to-helmet rules. There's nothing wrong with strictly enforcing them. The problem is that he dropped this bomb on the players in mid season. Usually, if someone thinks that a rule needs to be changed or emphasized, they do it in the offseason and they let the players know, in specific detail, how it is going to be changed or emphasized. The league did this after the 2003 season when the Colts complained about a lack of enforcement of defensive holding. Everyone adjusted and it was (mostly) fine. To pull something like that during the course of a season -- and without warning -- alters the way the players play the game and therefore the competitive balance, as James Harrison will gladly tell you.
All this would be less of a problem if the owners didn't have a man crush on Goodell and he wasn't -- in their eyes -- doing such a good job.
Goodell has kept the players in line and let them know that they will be punished to the full extent of the law, whatever the law happens to be that day. He has made broad, sweeping decisions on the present and future of the league and has acted decisively, which the owners can't do for themselves, especially when broad, sweeping decisions work out to their best benefit.
Most importantly, he's done what Paul Tagliabue couldn't: He's created a wealth of new revenue streams on television, multimedia, marketing, and the Internet.
The owners are very interested in squeezing every last dollar out of the NFL product outside of game day, since the season lasts only five months. Goodell has grown a number of those revenue streams and even created a few new ones and the owners are very much in favor of that.
When Goodell took over, NFL.com was a static site with a weak community, little or no video and interactive content, and a poor fantasy football presence. The site is now dynamic, interactive, has a strong community, tons of fantasy football content and league tools, and has forced other sites that carry NFL content to step up their technology efforts. When he took over, the NFL Network was struggling to get its sea legs and looked like it might fold. It's not a juggernaut like ESPN, but it has shown vast improvement and is more viewed and well-received than other league-centric channels such as MLB TV or NHL TV.
As with most things, it's doubtful that either side will budge.
The Rookie Salary Pool:
I mention this because it's a big item with owners and veteran players and it introduces one other party with something at stake: The agents. Agents don't have the kind of power in the NFL that they have in other professional sports -- they have basically no power at all and Drew Rosenhaus even seems to have been disappeared by the league -- but they do talk to the players and they do have a good deal of influence over them.
The owners and players mostly agree with regard to a rookie salary pool/cap where each team is allotted a certain amount for rookie salaries and players are slotted and paid according to their draft position. But, my guess is that the players -- especially the veterans -- want stricter controls and limits on rookie salaries than they owners do.
Veteran players hate the idea of guys in their early 20s coming into the league making several times what they do, never having played a down of NFL football in their lives. Tommy Maddox protested in 2004 that he was the starter, but the lowest paid quarterback on the roster by a wide margin, when the Steelers drafted Ben Roethlisberger. There are numerous other examples.
Owners need to have an eye towards the future and realize that, if the restrictions are too severe, they'll lose out on juniors that declare early for the draft. Juniors declaring early are usually taken in the first two rounds. If they don't see a huge upside in coming to the NFL a year early, many will stay in school and play there, which sets the cycle of incoming talent back a year. Players most likely realize this as well, so they have even more incentive to make the rookie salary cap as unattractive as possible. The less young talent coming in, the better the chance that they'll keep their jobs.
The agents don't have great relationships with the owners, but they have a vested interest in making sure that the hundreds of new clients they sign every year get the best deal. They will work on the veterans, but this is definitely an issue that will require serious discussion and compromise to resolve.
Too Many Rich Owners, Too Many "Poor" Players:
The players, for the most part, are rich. The owners, for the most part, are super-rich and that's a very important difference.
The owner's landscape has changed over the past few years, with most of the "old school" families giving way to wealthy businessmen that made their money -- and plenty of it -- in trades other than football.
Also, the last expansion team to enter the league was the Houston Texans in 2002 and, before that, the Jaguars and Panthers in 1995. The most recent addition to the owner's circle was Zygi Wilf, who bought the Vikings in 2005. I had to Google that. I really thought he bought them in, like, 2007 or 2008. The point is that Wayne Weaver (Jaguars), Jerry Richardson (Panthers), Bob McNair (Texans), and Zygi Wilf (Vikings) were all too new to the ownership game when the current CBA was negotiated in 2006. McNair was still knee-deep in debt from paying off his team, Wilf didn't have a name tag yet, and Richardson and Weaver were trying to figure out how to make more money.
Well, five years later, it's a different story. The owners are more organized now, more resolute, and they know what happens when you give up a couple of percentage points here or there. They also no longer believe that the terms they negotiated previously are sustainable and certainly not able to be increased. Richardson held a news conference in which he stated that some NFL teams are currently cash flow negative. Now, I've already hit you with some economics, so I won't bore you with accounting, but here's the short version: Cash flow negative is not as bad as negative income (teams are losing money), but it's a bad leading indicator, especially in a mature business such as an NFL team.
Even though that's the case, the owners opted out in 2008, which means that most of them -- all good businessmen -- should have known that this eventuality was possible. That means that they probably started a "rainy day" account then. Even if they didn't, when the salary cap went away for the 2010 season and owners didn't need to spend a certain amount, the "rainy day" account got opened and started getting big time weekly deposits in anticipation of a lockout.
If a team spent, say, $60 million on payroll this season but still got $127 million in checks from the league office, then they were able to pocket that extra $67 million. That's a serious rainy day account.
"Hold on a second, Keller," you're probably saying to yourself. "Wouldn't the players -- who are rich themselves -- not start the same kind of 'rainy day' account in anticipation of a lockout?" Well, not necessarily.
I saw a recent article where DeMaurice Smith, president of the NFL Players Association, sent out a memo to players saying that the owners appeared to be girding themselves for a lockout and that players should save their last three game checks of the season in case they needed the money. (See? Game checks was important, so I made sure to mention that.) The fact that he needed to send out that reminder makes me think that money management is not at the top of the average NFL player's mind.
Michael Vick signed a contract with $37 million signing bonus in 2005, but needed to declare bankruptcy in order to pay the Falcons back $7 million of that money about 2 1/2 years later. I understand that he needed to run a dogfighting ring and pay for houses and such, but blowing over $30 million in less than three years sounds a little excessive. There aren't many NFL players that can pull a Barry Sanders, retire, then pay back their signing bonus in cash.
This is not to single out NFL players, who are mostly young, black men. This is more a symptom of an environment. Football players -- especially good ones -- are led to believe that they are invincible, will play forever, and are awesome in every way by their coaches, probably their family, and by the media. The football mentality is to compartmentalize everything and think of it one game at a time, one week at a time. Are these guys thinking about life after football? Is anyone talking to them about it? If someone did talk to them about it, would they listen?
I contribute to a 401k at work and Social Security taxes are taken out of my paycheck, but every time I see a commercial on TV about retirement I change the channel. I'm not thinking about that. I'm thinking about what I have to do tomorrow, if there's soap in the sink at work, and whether or not the issue that my one customer is having has been resolved. Retirement is at least 30 years away and doesn't consume much of my thoughts.
Thinking about NFL players in that light, the average NFL player makes about a million dollars a year. Taking the stars and superstars out of the picture -- only about five percent of the league -- you have a bunch of guys that are rich, but that are probably living paycheck to paycheck.
How many Americans -- football players or not -- that make a million dollars a year are in a similar situation? How many of them would have to seriously adjust their lifestyle if the paychecks stopped? How many of them would have a severely bad reaction to that lifestyle change? Add to that the fact that most Americans making a million dollars a year are allowed to live in relative obscurity. If some twenty-something bond trader makes a killing one month, maybe their spouse and immediate family know about it. If Joe Football Hero gets drafted in the sixth round by the Steelers, it's all over the Internet. How does Joe Football Hero respond when he suddenly has dozens of girls wanting to be with him, scores of unknown relatives and "friends" that have an investment idea or just need a little help to get by?
When the paychecks are rolling in, this is easier to manage. What happens when they stop rolling in? I'm not trying to play a morality card here, I'm just trying to talk about the realities of an NFL player's life and finances. The league has actually done a very good job of creating symposiums and programs to talk to players about these issues when they enter the league. But, given the fact that the players are human and human nature tells them to change the channel, how many of them are listening?
To go back to the "too big to fail" example, a number of firms were still buying up consolidated mortgage securities even after it looked like it was a virtual certainty that the bottom would fall out of the market. Maybe individual players think that the NFL money train is too big to fail. If I have thought about it, you can be sure that the owners have thought about it. That gives them another advantage and another reason to lock out.
Too Many Revenue Streams:
I don't mean to beat a dead horse here, but the NFL faces the same issues regarding Internet and multimedia revenue streams that Hollywood producers and writers faced in 2007 and 2008. The owners, like Hollywood producers, would like nothing more than to make as much money as possible without having to pay the players/actors. It's cheaper now to CGI something than to actually pay someone to do it. The NFL -- through the NFL Network and online content -- are able to re-purpose content that they've already paid players for to make more money.
Would you pay for an online archive of every Steelers game from the past 50 years? Would you watch NFL Network if they were running a marathon of "Top 10 Steelers Playoff Games"? The NFL owns NFL Films and the owners, essentially, own the NFL. How much could they make off of that if there was a lockout and there was no live option? They have extensive archives and unlimited possibilities. They may have to pay the players something, but it would be a small portion of what they make overall.
The NFL Network already runs 24/7/365 coverage of a sport that only plays two days out of the week five months a year. How difficult would it be for them to run content throughout the year without that 48 hours a week for five months a year to talk about? What if they were able to pay players that are struggling to make ends meet to make appearances? Some individual teams may suffer, but the collective would prosper and the players -- the most important part of this equation -- would continue to suffer.
Would you pay ten bucks to go to Heinz Field and watch a highlight reel of previous great Steeler seasons? I wouldn't in May, because I'd be too busy. But September? October? November? When I've got a serious NFL jones on? I would pay my ten dollars and happily drink beer with other Steeler fans and think about how things used to be before the lockout.
How many players would cross the picket lines to sign autographs and shake hands with fans in exchange for a nice paycheck at an event sponsored by Budweiser?
In addition, the NFL Network has signed deals with the AFL and CFL to broadcast those games to their audience. That will give football fans a way to watch live football action, even if it isn't NFL action.
I guess the central point here is that the owners have more options than the players at this point. The players have one option: Pay for play. The stars and superstars will still have sponsorships to fall back on, but that's less than five percent of the league.
Too Much Bad Blood:
To hit you up with some more economics, I took an Economics Analysis class last summer, where we covered a bunch of stuff -- including price ceilings and price floors -- and we also covered Negotiations.
The Cliff notes version of the Negotiations section is this: When two parties enter into negotiations, each party will choose the option that minimizes their losses and maximizes their gains provided they are thinking logically. The only thing that will not make them think logically is the existence of bad blood; history between the two parties that makes one want to hurt the other.
To clarify: Locking the players out makes less economic sense than coming to an agreement with the players. The best economic situation -- both for the players and the owners -- would be to come to an agreement and continue to play football. But, there's too much bad blood.
I mentioned Goodell. I mentioned the collusion lawsuit. Those are big items. I mentioned the 18 game schedule issue. I mentioned that the owners passed the current CBA, but I didn't mention that it passed 30-2, with the two "no" votes being cast by Mike Brown of the Bengals and Ralph Wilson of the Bills because they didn't know what they were signing.
Brown and Wilson are two old, crazy, cheap NFL owners, but they were onto something when they voted against the current CBA. They knew that it was a bad deal for the owners, but they were out-voted. Now, they may be viewed as sage old school guys that are interested in showing the players their place in the world. Fellow crazy old man Al Davis probably joins the dissenting ranks at this point.
So, the owners are now listening to the crazy, old triumvirate and they're still stinging from the bad blood of the current CBA. They have a pending collusion lawsuit from the players and they can't understand why the players can't be happy with what they've been handed. The players think that the owners are greedy, old, colluding men. Both sides want more money. Both sides think they have an unfairly small portion of the money that is currently available. Both sides think that they have been screwed -- one way or another -- for the past five years.
I would say that qualifies as bad blood.
Too Many Fallen Leaders:
When Gene Upshaw passed in August of 2008, I thought that the chance to renegotiate the CBA died with him. Upshaw was an outstanding president of the NFLPA, always had the players' best interest in mind, and had an excellent relationship with both owners and the commissioner (even Goodell).
If this were a presidential or congressional election, Upshaw would be applauded for his ability to "reach across the aisle" to find the best deal for everyone. This is not to discredit DeMaurice Smith, but Gene Upshaw was a unique individual. He will be missed in general, but he will be particularly missed in these negotiations.
In addition, former Chiefs owner Lamar Hunt and former Giants owner Wellington Mara were also lost. Hunt and Mara were instrumental in getting the original AFL-NFL merger pushed through in 1970 and were voices of reason throughout the rest of the history of the league. They helped resolve the strike/lockout issues of 1981 and 1987, they helped the salary cap pass in 1993, and they secured votes in favor of the last CBA.
Dan Rooney was also very involved in all of those events and is still alive. That's a feather in the cap against the lockout, but he's only one man and doesn't hold the same position of authority in his organization that he once held. He's majority owner, but he's no longer the president of the Steelers. People will still listen to him, people will still respect him, but he no longer has the position of authority that he once had and he no longer has the backing of Hunt and Mara.
Mara, Hunt, Upshaw, and Rooney were the "voice of reason" in previous negotiations when the NFL was facing a critical decision point. This is a critical decision point. With the old leaders gone, hopefully new ones will emerge.
What This All Means:
It means that the NFL is headed for a lockout. How long that lockout lasts is up to the parties involved and the issues I addressed (lots of money involved, 18 game schedule, Roger Goodell and so forth).
My guess is that the lockout doesn't last long into the season. I think the players will run out of money and the owners will win. But, bad blood cannot be predicted. This could linger on. I doubt that it will linger too long, thus canceling the 2011 season, but I really don't know. There are a lot of issues and a lot of bad blood and I'm not sure that throwing a whole lot of money at all of that will fix anything.
I really don't know. I know that the owners and players will not reach an agreement by March 3. I don't know what will happen after that. One would hope that saner heads would prevail and some type of agreement could be met. But, it will probably drag on until enough players that are losing enough money decide to sign whatever's in front of them.
I know that Casey Hampton will check in at about 400 pounds in August unless he decides to retire. I know James Harrison won't want any part of the NFL if Goodell is still in charge. James Farrior could retire if it looks like 2011 is locked out for sure. The same with Aaron Smith, Flozell Adams, maybe Brett Keisel, Hines Ward, Larry Foote, and Ryan Clark. I think a number of fringe players with a number of years of service will retire, provided their benefits are covered.
I hope that this season ends well. It could be our last until 2012.
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