The Real Issues Behind The Potential NFL Lockout
Written by CMDA Attorney Jim Acho
Recently I appeared on sports radio shows in Cleveland and Minneapolis to discuss the looming NFL lockout. Not a day goes by where I don't get a phone call or an email from someone asking "Will there be an NFL season in 2011?" Of course, if I had a crystal ball to elicit such information, I'd dress far better than many of you know me to dress--certainly I'd upgrade my footwear. Nevertheless, I have dealt at length with the NFL and NFL Players Associations on various matters, and have had the opportunity to speak in person with NFLPA Executive Director DeMaurice Smith, so I have a pretty firm grasp on the issues. In fact, I had arguably the most prominent NFL agent and representative guest lecture to my sports law class that I teach at Madonna University on this very issue, and those individuals have their finger on the pulse of what's going on, so I will impart that information here.
My answer to the question "Will there be a 2011 season?" is an unequivocal "Yes," and I always try to explain why. But what most people don't know is why it's come to this. People don't understand why the owners and players would upset the apple cart, when the NFL is a veritable cash cow. A $9 billion dollar per year profit-making machine that literally prints money for all those lucky to be involved in the enterprise. The answer is of course, money. Rather, more money. Some might call it greed, others (the owners) might call it the residue of capitalism. Let's look at what each side wants in order to move forward so that fans across the country can enjoy a 2011 NFL football season.
On Thursday March 3, 2011 the current CBA (collective bargaining agreement) between the NFL and the NFLPA (Players Association) will expire. At that time, the owners can then "lock out" the players--meaning, they can forbid players from entering their premises, working out, doing anything NFL or team related. The players of course are not striking as has occurred in the past, so they have and will file unfair labor practices grievances with the arbitrator assigned by the NLRB (National Labor Relations Board, or, the "court" of jurisdiction in this matter). However, you may have read that NFLPA Executive Director President DeMaurice Smith may decertify the NFLPA as a union. That bit of information created little splash in the news--nothing more than a mere blurb, in fact--but this is a very big deal. What this means is the NFLPA will cease to be a union. What this also means is since the players are no longer union members, the NLRB no longer has jurisdiction and no longer has the power to compel the players (or owners) to do anything. In effect, it means you'd now have 1800 individual employees (the players) who work for and have exclusive employment contracts with 32 separate employers.
The reason the NFLPA could decertify (note that there is precedent for this: Smith's predecessor Gene Upshaw and the NFLPA decertified in 1989) is so they can bring Antitrust litigation in federal court. That is a huge legal tactic and could work to the players benefit. Is it posturing? Yes. Is it a tactic that could compel the owners to allow the players to be able to work out at NFL team-owned facilities? Yes. And that's a very big step--it would be a tough pill for the owners to swallow. Now, something to be mindful of is the doctrine known as the "non-statutory labor exemption," the exemption protects the product of collective bargaining from attack under antitrust law. Thus, any terms of the collective bargaining agreement are immunized from attack under antitrust law. But, the exemption extends beyond just the terms of an actual agreement -- the United States Supreme Court has held that the exemption applies, even in the absence of a current collective bargaining agreement, as long as a bargaining relationship still exists. Essentially, players are required to choose labor law (and collective bargaining) or antitrust law (and individual bargaining and litigation). If the players choose labor law, an antitrust shield is raised that prevents them from attacking NFL rules under the antitrust laws. To lower the shield and choose antitrust law, the players must end the collective bargaining relationship. Decertification is how the players surrender their collective bargaining rights and choose antitrust law instead of labor law. As of this writing on Monday, February 28, 2011, it appears to me that's the strategy the NFLPA will employ.
What do the owners want?
1) An 18 game regular season;
2) A rookie salary cap;
3) Most importantly, revenue sharing to not exceed 40% of league net revenues so that of the $9 billion in revenues, owners will realize closer to $2 billion per year as opposed to the $1 billion they have realized the last 5 years.
What do the players want?
How often have you ever heard of a scenario where employees in the private sector demand 50-60% revenue sharing of profits from the owners of said private company? It is an unheard of demand, but that's exactly what the players want, and that's their chief demand. The revenue sharing is already believed to exceed 40%, but some teams claim their profit margins have dwindled to the point that their operating expenses exceed net revenue. The NFLPA doesn't believe it, not with a $3 billion dollar annual television contract, and has asked the NFL teams to show the NFLPA their books. The NFL has refused, save for the Green Bay Packers, the NFL's only publicly-owned franchise. The Packers books show a precipitous drop in revenues from 2009 to 2010, as well as an 18% increase in operating expenses; then again, much of that was an increase in player salaries, and, not coincidentally, the Packers just won the Super Bowl. That is the cost of doing business in today's NFL.
The players also are opposed to an 18 game schedule, and who can blame them? Life expectancy for an NFL player is 62 years. The playing career averages exactly 3 years. The vesting requirement for pension is 3 years +3 games and it is deliberately set at that, so that most players will not vest for pension. Adding 2 more games to this violent sport (in which more than 30% of former players report ongoing closed head injuries from multiple concussions while playing, as well as an early onset dementia rate that far exceeds the general population) is sure to shorten careers and lives. If the season is to expanded to 18 games, then the vesting requirement for pension must be reduced to 2 or 2.5 seasons. That means owners will have to contribute millions more to the pension fund and various disability funds.
Illusory Leverage
It is said that the NFL owners will be able to hold out for a whole season because not only are these fabulously wealthy people, but the NFL's $3 billion dollar annual TV contract(s) with the TV networks are insured, so they will receive that money, whether or not there is a season. In fact, it's also said, the owners would actually make three times the money in 2011 with no season than they would if there was a season. However, what is not reported is that the owners have to pay that money back beginning in 2012, at a believed to be 24% interest. These are savvy business people, the owners--some of the most brilliant business minds in America--and you cannot expect them to absorb a borderline usurious blow. Yes, they have leverage, but it isn't strong as one might think.
What will happen (My Prediction)
There will be an NFL draft in April, 2011, lockout or not. The NFL and NFLPA have publicly stated this, so no worries there, Lions fans, you won't miss the Lions' Super Bowl.
The NFLPA will concede to a rookie salary cap. Occasionally a top overrall rookie draft pick like, say, Jake Long from the University of Michigan, pans out and is as advertised. More often than not, first round picks can be categorized as "busts," or players who underachieve or underproduce, for whatever reason. Of recent vintage, 2008 #1 overrall pick JaMarcus Rusell, who was given a $65 million dollar contract ($40 million of which was guaranteed), was waived by the Oakland Raiders, and is out of football. It is for that reason owners want a rookie cap, and it is my belief the NFLPA will begrudgingly agree. Statistics will hurt the NFLPA's claim here, and they know this.
The NFLPA will also agree to an 18 game regular season. After all, more money for the league will in the end mean some more money to spend on salaries. The increase in game schedule--which was 12 games in 1968 before moving to 14 and then finally 16 in 1978--has become a necessary evil.
In turn, the NFL will agree to a lowering of the vesting requirement to something less than the 3 years +3 games that it is now. Perhaps 2.5 seasons. The NFL will agree to additional contributions to the pension and disability funds. This is a big deal, by the way. Most players--and I serve as legal counsel to 7 players in the NFL today so I feel comfortable making this sweeping generalization--do not understand the importance of a pension at age 55. Most don't see themselves living that long, or they think they will have plenty of money forever based on their short-lived hefty earnings. Incidentally, while you can start collecting your pension at age 45, it is a mere pittance compared to waiting until age 55 or 65. Having represented many retirees, I can tell you that far too many take the pension at age 45. If they can hold out until age 55, it improves drastically, and the rare ones who wait until age 65 see pensions in the $8-$10,000 per month range. Nevertheless, despite the 18 game schedule, more players will be able to collect a pension, and in the future, we'll see far less homeless players than we do today (the plight of the NFL retiree over age 50 today is a real tragic epidemic, and there is plenty of information on the internet on this.)
The revenue sharing will be split at the 50% mark. It will not approach the 60% players want, nor will it be reduced to 35-40% as owners have insisted. In the end the owners know that people buy season tickets and turn on their televisions to see the players. The players are the commodity, the product. I've yet to see a fan wearing a jersey with the owner's name stitched on the back. The owners know this, and, despite their magnificent egos that dwarf those of even the most arrogant self-promoting player, they know how fragile the psyche of the American sports fan is. They know it took baseball a decade or longer to come back after the 1994 strike. They know that fans will largely side with the players in this labor issue. They know they risk killing this golden goose that is the NFL. They are too smart to let this happen. Yes, this dispute could drag on all summer and into August. In the end, though, I expect cooler, more sensible heads to prevail, and a deal to be done in the next few months. I wouldn't worry; we will all be sitting in front of our televisions next fall, watching NFL action.
--Jim Acho
