A financial hurricane is heading straight for the NFL. It will touch land.
The only question is whether it weakens and causes minor inconvenience or whether it strengthens and wreaks havoc.
What kind of havoc? A massive drop in the salary cap leading to a wave of throws by big-name players. A little labor struggle. Hell for the smallest, low-money market teams. A widening of the wage gap between elite players and minions. Complications with the next round of TV deals. Basically a ripple effect that could affect the league for a decade.
How much would all this harm the Patriots franchise? It could actually help them.
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Here is the situation. The salary cap for 2020 is $ 198.2 million, compared to $ 188.2 million in 2019. The cap has increased by at least $ 10 million every year since 2012. Growth has been strong and uninterrupted and since there is no reason to To do it differently, contracts have been written with that constant growth of the cap in mind.
The formula is quite easy. Players earn 48 percent of aggregate revenue (AR). Before the new CBA that had just been ratified in March, they got 47 percent. If you want to read all about it, here is the CBA.
According to the CBA, “AR means aggregate income received or to be received on an accrual basis, for or with respect to a League Year during the term of this Agreement, by the NFL and all NFL Clubs (and their designated), from all sources, known or unknown, derived from, related to, or derived from the performance of players in NFL football games. “
The CBA also states: “AR will be subdivided into three categories for the purpose of calculating the Player Cost Amount and the Salary Limit: (1) League Media AR; (2) NFL Ventures / Postseason AR; and (3) local AR “.
The league’s media are primarily television deals with major networks (of which NBC is one). NFL Ventures / Postseason AR is basically all NFL sponsored media (NFL Network, NFL Films, NFL Enterprises, etc.) Local AR is everything else.
With everything surrounding the 2020 NFL season in doubt: training camps, preseason, regular season, all groups can take a hit, but the “local AR” group could be decimated if there are no fans in the stands, no concessions, no parking, less local advertisers etc.
Jason Fitzgerald, founder of the site OverTheCap.com, analyzed the finances of the 2019 Green Bay Packers. Since the Packers are the only publicly owned franchise, they are the only ones whose finances we can see. But as all 32 teams get the same cut, Fitzgerald made some figures and came up with this.
“Last year, the Packers received national revenue of $ 274.3 million with $ 203.7 million coming from local revenue. … a fair estimate is that 45% of the league’s revenue is made up of local revenue and the rest comes from the revenue share of the big media packages … Based on recent growth, I think the Packers probably would have expected around $ 208 or $ 209 million in revenue (in 2021). Let’s just call $ 210 and pretend that applies to all teams. If you remove 70% of that figure, approximately $ 78 million of the losses would be attributed to the owners and $ 69 million to the players.
“There is currently an 80-20 split between the salary cap and player distribution benefits, which would mean that we would see a decrease of about $ 55 million in cap space, assuming benefits are not reduced in number determined, in which case the capital loss would be greater. If you were to lose all local revenue, you would probably be seeing a loss of $ 80 million in the compounding space, while a loss of 40% would result in a $ 31 million drop in the capitalization room ”.
The result? If the loss of revenue is so significant in 2020, the limit could drop from $ 198 million this year to a worst-case scenario of about $ 130 million.
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According to Fitzgerald’s projections for 2021 based on current contracts, all but four teams in the league would exceed the limit in that scenario. The Four: Foals, Chargers, Jaguars annnnnnd Patriots Which would mean that if nothing were done, all league teams would have to start renegotiating deals and throwing players overboard.
“It would be a pretty chaotic situation,” Fitzgerald told me last week. “The teams will have to fight to get salary space and you are talking about a real potential big drop. Teams typically budget with a profit of about $ 10 to $ 12 million a year in the salary cap. Maybe they expected a little more with the new TV offerings (after 2020). And now you’re talking about a scenario where the limit could drop from $ 20M to $ 40M to $ 60M, depending on whether fans are allowed in the games and how they will be able to spend money if they are in those games. … (Local AR) is basically anything the NFL makes money with that is not national and a lot of that is based on the fact that you need fans in stadiums. ”
To be sure, this is not news for the teams or the players.
In fact, there is a provision in the CBA that explains canceled games.
(xii) Games canceled. If one or more weeks of any NFL season is canceled or the AR for any League Year is substantially decreased, in any event due to terrorist or military action, natural disaster, or similar event, the parties will enter into good faith negotiations to adjust the provisions of this Agreement regarding the AR projection (all earnings) and the salary cap for the next league year, so that AR for the next league year will project fairly and consistently with the change in income projection caused by such action. (CBA, p. 99)
No doubt, the owners and the NFLPA are already working on plans to address this with the aforementioned “good faith negotiations.” Or at least they are saying how to do it. But with so much uncertainty and so many hypotheses, there has only been silence so far.
Still, we are already seeing that this affects companies. Rookie contracts for this year are signed at a historically slow rate. The Patriots were the first team to get their entire rookie class under contract. Few have followed him since.
“I think a big part of that is that a good chunk of the signing bonus that these guys get, which is a big chunk of their contracts, they get paid within two weeks of signing, so I think the teams They are looking to accumulate cash right now just to prepare for the unknown, “added Fitzgerald.” If they can push things with a rookie until August, they probably will. ”
Teams with top players looking for long-term deals, like Cowboys quarterback Dak Prescott, have to be sweating on how to structure those deals. Meanwhile, smaller market teams with less cash on hand will be even more challenged.
Pete Kendall, a 12-year Weymouth NFL veteran who went to Boston College and was first-round elected in 1996, was a key player in the NFLPA. His insight and perspective were so valued by the union that, in 2011, NFLPA President DeMaurice Smith asked him to help guide the latest CBA negotiations.
“There are a couple of ways this could go,” said Kendall. “You will almost certainly see a decrease in income from ’19 to ’20, so how does that fit in ’21? I think there is a mechanism in the CBA that, if allowed to run its course, would represent a reduction in the salary cap, but that could lead to a lot of problems, including teams that have to abandon players who don’t. ” . I don’t want to stop knowing that there will be a market around the corner in some other city for them.
“You could do what was done in the early days of the previous CBA, which is to borrow against the limits of future years. Would that lead some homeowners to have to take out some loans to finance the limit in the future? My suspicion is no, but I don’t know the inner workings of the 32 clubs. So how would players recognize that expense?
Agent Joe Linta, who represents Joe Flacco and has had several Patriots as clients over the years, speculated that the NFL could soften the blow of the expected slump in 2021 by extending the loss over a three-year period.
“I think there is motivation and incentive for both sides not to allow a sharp drop in the limit if revenue falls as much as it would with empty stadiums,” said Kendall. “Both sides will try to do everything possible to make any drop tasty and digestible. I don’t think it’s a good thing for the league, frankly, to talk about a salary cap of almost $ 200 million to talk about a cap that falls below $ 150 million. ”
Fitzgerald agreed with Linta’s speculation.
“(Linta) is right about the way they should or will deal with it, which is to have the limit stuck for a couple of years and then pay whatever that deficit is,” he said. “I suppose it would be over a three-year period just because of the way the rules are set on how much teams must spend in a three-year period as a percentage of the limit, so it can extend from 2021 to 2023. It’s not a good situation for anybody. “
No, it’s not. But for a small number of teams, the Patriots at the top of that list is not only less serious, but could present an opportunity.
This year, they are extremely tight on the limit and carry significant dead money from players who are no longer with them like Tom Brady, Stephen Gostkowski, Michael Bennett and Antonio Brown.
But next year, they project to have only $ 124 million allocated to the 55 players currently under contract.
They have some major players with expiring deals: Joe Thuney (currently franchised), Dont’a Hightower, Mohamed Sanu, Jason McCourty, James White, Lawrence Guy, Adam Butler, Rex Burkhead, and David Andrews. But Thuney, White, Butler and Andrews are the only ones under the age of 30 right now, which is why the team may be telling some of the others so long.
If the team had to pay a valuable quarterback, like the Cowboys do with Prescott and the Chiefs do with Patrick Mahomes, or if they signed up for another year for Brady, they’d be worse off. But currently, the team is paying $ 3.5M combined by Jarrett Stidham, Brian Hoyer, J’Mar Smith, and Brian Lewerke.
There are 35 quarterbacks in the NFL who will earn more in 2020 than the Patriots’ four quarterbacks combined.
What if most of the league has to make painful cuts? The Patriots are in a prime position for shopping.
“It is a difficult situation for the players and that is why (the two sides) have to reach some kind of agreement in early August on how to handle this,” Fitzgerald said. “If they don’t do that, if you’re a team next year like the Eagles, Falcons or Steelers looking to make $ 5M over the limit in 2021 (currently) … go from that to $ 50M over the limit, you should start cutting players in August to be below the limit if that’s going to happen. If you have veterans who are making $ 4M or 5M who are kind of a bubble guy, with 30 percent play time, you probably want to cut those players this August if you have no idea how this will play out. ”
At this point, no one does. But it is coming. One way or another.