August 23, 2009
In N.F.L.’s Labor Talks, the Rumblings of War
By JUDY BATTISTA
A good indicator of how far the N.F.L. is from a new labor agreement with its players is that the two sides do not even agree on whether their talks have been productive. Less than seven months from the expiration of the league’s salary cap, union leaders say the owners made no proposal in the first two negotiating sessions, and the owners say that their concerns have been conveyed during a series of less formal conversations.
It is increasingly likely that the N.F.L. is headed to a season without a salary cap. Unnerved by that prospect in 2006, the owners accepted a deal so favorable to the players that the owners soon began to say they could not live with it. Three years later — and more than a year after they opted out of the current agreement — the owners are convinced that most of them will be disciplined enough not to go on a spending spree in 2010. They aim to get a long-term agreement that works for them, no matter what it takes. A lockout looms less than two years from now, and owners no longer view the loss of games as unthinkable.
Much of the conversation at last week’s owners meeting was about preparation for labor unrest. DeMaurice Smith, the executive director of the N.F.L. Players Association, has said in recent weeks that he thinks the owners are preparing for a lockout. But management says that is not what it wants. Yet one of the league’s negotiators is Bob Batterman, who helped strike the owner-friendly N.H.L. labor deal after a season-long lockout and has a reputation as a union buster.
“We’re into this 14 months, we’re still waiting for a proposal from the N.F.L. that we haven’t gotten,” said James Quinn, a partner at Weil, Gotshal & Manges who is on the union’s negotiating team. “That will jump-start the negotiation. We were perfectly prepared to live with this deal another couple of years. It’s clearly incumbent on them to come forward and present some alternative.”
The N.F.L., with $8 billion in annual revenue, has not had a work stoppage since 1987, stability that has been the underpinning of its financial strength and its popularity with fans. The league says it remains a successful, profitable business, for owners and players, with total player costs this season approaching $5 billion. This is a fight, then, over degrees of success.
In the past year, owners — with a war chest enhanced by money from television contract extensions that will be paid even if no games are played — have had a change of heart about the very mechanisms that were built into the last collective bargaining agreement to encourage labor peace. It is easy to be unified with the doomsday situation nearly two years away, but the crux of their argument is this: The increase in the cost of running a franchise is outpacing the rise in revenue, squeezing profits, and a new deal must include some accounting for the debt and risks owners incur, instead of being based solely on gross revenue.
“The deal doesn’t reflect the current economics of running a football team,” said Jeff Pash, the N.F.L.’s chief counsel, who is leading the owners’ negotiating team. “A very good example is the extraordinary amount of debt the Jets and Giants are taking on to build a stadium. Yes, stadiums are drivers of new revenues, but there are tremendous costs.”
The mountains of debt that teams like the Giants, the Jets and the Dallas Cowboys have taken on to build billion-dollar stadiums seem to be a deterrent to a lockout, particularly because other revenue streams like naming rights have slowed during the economic downturn. According to Forbes, the Giants were valued at nearly $1.2 billion in 2007, the last year for which figures were available. But their debt was 55 percent of the value of the franchise — before the worst of the recession.
All that debt has to be paid, even if no games are played. The Giants and the Jets will move into their new stadium next season. The Cowboys, who open their new stadium this season, have not sold naming rights.
Since the current deal was reached in 2006, Pash said, 75 percent of new revenue has gone to player costs. In Green Bay, it is 80 percent, said Mark Murphy, the Packers’ president and chief executive. But the Packers, a publicly owned team, still made a $20.1 million profit last year, indicating that they are not being squeezed tightly.
Smith, echoing his predecessor Gene Upshaw, has vowed that if the cap disappears, the union will never accept one again, removing the cost certainty it provides.
The loss of the cap, set at $127 million per team this season, would have a domino effect. The salary minimum, nearly $108 million per team this season, would also disappear, allowing traditionally frugal teams like the Cincinnati Bengals to spend less on players and increase their profit margins.
Free-agent movement would be restricted because players would have to wait longer to be eligible for unrestricted free agency and because the top-finishing teams this season would be limited in the number of free agents they could sign. Still, the biggest-name free agents could benefit if teams decided to seize the uncapped year for an all-or-nothing run at the Super Bowl.
Owners quietly say they expect most of their colleagues to act responsibly without a cap, especially because big-ticket free-agency sprees rarely result in championships. But teams to watch are the free-spending Washington Redskins and perhaps the Jets, whose owner, Woody Johnson, has spent lavishly on free agents.
The showdown takes place against an uncertain economic future. The N.F.L. expects reduced ticket revenue and more local television blackouts this season. The Florida Times-Union reported last week that the Jacksonville Jaguars could sell so few tickets that every home game of the season will be blacked out locally. The Giants recently lowered the price of a small number of tickets in the new stadium, after having made one pass through their decades-long waiting list without selling out.
“There has been resistance on the part of fans,” said Robert McNair, the Houston Texans’ owner. “Somebody has to pay for this, and you can’t keep raising ticket prices.”
That makes the drive to find new revenue more urgent. The most prominent idea is a proposed 18-game regular season, which would provide more money primarily through television contracts. It would also open the door to more games in Europe, a vast market that has been largely untapped by the N.F.L.
“We really do want growth,” Pash said. “Nobody benefits from a static business.”
No new talks are scheduled before the season starts, although a flurry of negotiating is expected as the March deadline approaches. Until then, players and owners are counting their money and stashing it away, preparing for the worst. As are the fans.