The Money Behind The NFL Players' Lawsuit

By Geoffrey Michael | March 25, 2011 AAA
The Money Behind The NFL Players' Lawsuit

Like most labor contract negotiations, the current dispute between the National Football League and its players is about money. What makes this battle different is that football is the most popular American sport, and the amount of money involved is astronomical. Team owners are billionaires and many players are millionaires. Annual revenues are running at more than $9 billion, and the average team would sell for $1 billion. Moreover, all 32 teams are making money in a very tough economy.
TUTORIAL: The Greatest Investors

There's no doubt that a football strike would have economic impact in the metropolitan areas that host NFL franchises. Beyond the owners and players, the impact stretches across the economic spectrum. Hotels, airlines, restaurants, stadium staff, stadium vendors and the entire infrastructure that operates the teams would see their incomes reduced or eliminated.

What would life without football look like? Let's take a look.

History
The NFL has had two recent strikes, but neither resulted in the loss of an entire season. In 1982, the strike reduced the number of games from 16 to nine, and cut the season by 57 days. Play resumed when the players accepted a $60 million one-time payment. This was supplemented with enhanced benefits and higher minimum salaries across the league.

The 1987 strike lasted only 24 days, and caused the cancellation of the third week of games. Replacement players were brought in to play the games for weeks four through six. When star players started crossing the picket lines, the players union weakened and handed the owners a significant victory. Coincidentally, the Washington Redskins won the Super Bowl in both 1982 and 1987.

The Current Dispute
Five years ago, a deal was signed that gave the players 60% of NFL revenues exceeding $1 billion. That first billion was targeted for new stadium developments and league promotional activities. As a result, the owners have seen their fortunes increase dramatically since a new stadium increases franchise values by an average of 35%. Overall, franchises have tripled in value over the past 12 years.

The owners now want to kick the $1 billion ceiling up to $2 billion, thereby reducing the pot available for revenue sharing with the players. Part of the owners' plan was to take two of the four preseason games and use them to expand the regular season from 16 to 18 games. Even though this would enlarge the revenue pot, the players rejected the offer and a federal mediator was brought in to facilitate negotiations.

Negotiations broke down and the owners imposed a lockout. The players union was legally disbanded, terminating the collective bargaining relationship, and filed an antitrust suit against the NFL. The issues raised in the suit center on restricted free agency, salary cap, college entry draft, the lockout and the franchise tag. Professional sports leagues have historically been exempted from antitrust laws by the U. S. Congress. (These monoliths helped develop the economy and infrastructure at the expense of competition, check out A History Of U.S. Monopolies.)

Fan Support
Enough time has passed since the last strike that there is now a generation of new fans that has no recollection of fall weekends without pro football. For the fans who do remember those dark days, most have largely forgiven the league for breaking their trust. Another long strike would rekindle the memories of the older fans, and they would likely be far less forgiving than the younger ones.

With U.S. unemployment hovering around 9%, the owners and players aren't likely to garner much sympathy from most fans. Loyal followers of the sport have continued to support even the losing teams, while paying escalating ticket prices that have made a family outing at the ballgame an expensive proposition. According to Team Marketing Report, the average ticket cost $76.47 in 2010, a hefty increase of 30% over the 2005 price of $59.05. Premium seats now go for an average ticket price of $238.94. (Fans get involved in other ways as well, check out A Quick And Dirty Look At Sports Gambling.)

Public Image
The NFL has worked very hard over the years to create an image of wholesomeness and patriotism, but it has stumbled along the way. In addition to the strikes, it has endured the negative publicity caused by several players who committed crimes ranging from spousal abuse to murder. More recently, it had to deal with the indefinite suspension of star quarterback Michael Vick and the fallout from his conviction on dogfighting charges.

In spite of these events, the league has successfully negotiated lucrative broadcasting contracts and seen attendance and revenues grow as it added teams and expanded its popularity. A lost season would put the NFL brand at risk during a time when many fans are hurting financially and won't have much patience with the league. (If you're looking to master the art of trading, you may think you need an expert trader. What you may really need is an expert teacher, check out Finding The Right Trading Coach.)

Outlook
While there are fears that the 1980s may be revisited, there is so much money on the line this time that it seems unlikely. The league has signed a new $4 billion television contract, and there are many players making below the $800,000 median salary that don't want to sit out an entire season.

The Bottom Line
NFL football can proceed in spite of the lawsuit and decertification of the union. The owners would have to end the lockout and the players would have to agree not to strike. The owners have already pledged not to hire replacements if there is a shutdown. The annual draft will proceed as scheduled, but the rookie players will have no contact with their teams. Trades and training camps will be on hold until a solution is reached.

You May Also Like

Related Articles
  1. Building A Fortune: Jerry Jones And ...
    Entrepreneurship

    Building A Fortune: Jerry Jones And ...

  2. 5 Famous MLB Players Who Went Broke
    Investing News

    5 Famous MLB Players Who Went Broke

  3. The Irreplaceable Brand Of Donald Trump
    Investing News

    The Irreplaceable Brand Of Donald Trump

  4. What If Donald Sterling Ran Your Company?
    Investing News

    What If Donald Sterling Ran Your Company?

  5. 5 Better Uses of Your Money Than Buying ...
    Savings

    5 Better Uses of Your Money Than Buying ...

Trading Center