Monday, July 26, 2010

"Let's Take It From Them"

From Jim's popular category of 'things I meant to post a while ago but didn’t' comes a discussion from Brian Burke where he tries to tie NFL economics to more classical ones. While his ideas are interesting, I really can't say I agree with him at all.

Personally, I think they're all overpaid, rookies and veterans. If you ask most football players if they would still play football for $80,000 per year instead of $800,000 or $8 million, they'd say yes. It's almost certainly a better proposition than whatever else they'd be able to do in the labor market. If Sam Bradford had the choice between playing in the NFL for $80k/yr or looking for an entry level job in Oklahoma City, what do you think he'd do? Every dollar above $80k is icing on the cake. Technically, it could be considered economic rent.


It seems to me almost all of the economic rent in professional sports goes to the players. It's hard to imagine any other multi-billion dollar company paying more than 60% of its revenue to a few hundred employees. It's not that the salaries are high in absolute terms, it's that the athletes would gladly play for far less. I think that's partly why so many people object to the high salaries for many professional athletes.
Like I said, clever.

While this argument fails in a number of spots, its primary flaw is simply that Burke uses rhetorical ploys - he flails at peoples' sensibilities - in the place of sound reasoning. It hardly matters whether "multi-billion" dollar companies pay "60% of its revenue to a few hundred employeeds". The reason that they don't is that other multi-billion dollar companies rely on many more than a few hundred people to make things go, and professional sports are unique in that their highest paid employees are also their primary product. Investment banking (eg) follows similar principles, with their highest paid employees getting much more than professional athletes, however they have huge support networks feeding providing them with tools. NFL players have a couple of position coaches and strength trainers. Regardless, most multi-billion dollar companies do not have people as the primary product.

This discussion became topical recently since Domonique Foxworth's candid discussion of labor talks. Foxworth appears to be on the short list of players who may replace Kevin Mawae as NFLPA president.

What about allocating money to veteran players if a rookie wage scale is adopted?

Foxworth: "We had a meeting with the NFL and they said they wanted the money to go the veteran players. We said we would agree to it if they would guarantee all of that money would go to veteran players. They said we're not willing to make that guarantee. The rookie wage scale, in all honesty, they're using it as smoke and mirrors. It works in the NBA, but they have the Larry Bird exception.

"Those players get to be free agents a lot sooner and they can make so much money like a LeBron James. It works there. If they adopted the same model, we would consider it. But they're not interested in changing it. They're interested in changing it in a way that would hurt us. I think players should get paid on potential. The onus falls on general managers to make the right decisions on draft picks. They get steals in many cases."

With the owners refusing to reveal their financial records, at what point does the union stop asking for them to open up their books?

Foxworth: "We've negotiated without it up until this point. It's not something that we've been necessarily pleased with. In the interest of keeping the fans happy and keeping our product going, we'd be willing to agree to a good deal. Right now, they're not offering a good deal. They're offering a bad deal and saying we can't see their books. We would be willing to consider a good deal. It's unfair. There's no other companies that expect one group to negotiate with another group where you can't see all their cards and they can see yours. It's ridiculous. It's unfair."

I know that a lot of this is posturing. I'm probably a bit naive but when it comes to something like labor negotiations I fail to see the benefit of winning in the court of public opinion. The NFL won't open their books because they don't have to open their books. Those of us who remember the strikes of '82 and '87 can reasonably predict a similar pattern. As soon as the game checks stop flowing the pressure on the union to reach an agreement will intensify exponentially. A third of the NFLPA will realize their entire NFL income over the course of 1-2 seasons. Every week without a game is a minimum loss of $20k per player.

A few months ago Robert Kraft attempted to explain the NFL's position, disputing that the league was actually requesting an 18% rollback from the negotiated numbers.

The bottom line on this deal, in the new deal, is 75 percent of all the revenue has gone to the players since ’06. We just can’t survive doing that. It means we’re not gonna take risks, and that’s not good."
If this is true then I wonder what kind of calculus the league agreed to that made 60% into 75%. Kraft's claim was supported by the Packers recent financial statement (Green Bay publicly traded, ergo public financials).
During the four years of the current collective bargaining agreement, player costs increased 11.8 percent and revenue 5.5 percent annually, said Mark Murphy, president and CEO.

Player expenses include salaries, signing bonuses, health care plans, retirement plans and other payments to players. The team spreads the cost of signing bonuses over the life of contracts – called amortization – but otherwise generally account for player costs as they arise.

“We always try to follow conservative accounting policy,” Weyers said.

Murphy said that since the most recent collective bargaining agreement took effect in 2006-07, Packers’ revenue increased incrementally by $131.7 million. Of that, $123.4 million, or 94.3 percent, went to players.

If true, anyone can see that this is unsustainable, but again it raises the question of how 60% isn't 60%.

Okay, so enough meandering for now. Other than 'they're all lying' (which they are). It is hard to see how this will play out. I suspect that the NFLPA will look hard at the recent lesson learned by the NHL players and hammer out a deal before the clock strikes midnight.


  1. The other big obvious huge way that Brian Burke's argument fails is, simple supply & demand. Peyton Manning isn't paid "excess money" above "normal money" because of a lack of competition in market for players. Peyton Manning is paid the huge bucks because the marketplace for players is at least a little bit competitive, and over the last 10 years there isn't anyone else who can do what he does.

    Entry level jobs in Oklahoma City don't pay a ton, because there are a zillion people who can do them. But when you're one of only 3 or 4 guys *in the world* who can do what you do, and what you do is valuable, then you're going to get paid a lot of money for it. Ditto Lebron James.

    Very simple & straightforward.

  2. Yes to both of you.

    'It's hard to imagine any other multi-billion dollar company paying more than 60% of its revenue to a few hundred employees.'

    I-Banking is std 50-70% depending on firm, with some variance of course.

    In short, reporters are generally underpaid weenies from J-school who don't understand Econ and are jealous of *anyone* making $8mm a year if it's not them.



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