You Got Served: Impending CBA edition

Happy Friday, friends.  As we seem to be nearing a CBA settlement, I’ve decided to re-engage on some of the substance of the issues, as reported in the last day.  As usual, I have thoughts.  Ready… BEGIN!!!  (It feels good to say that, and to give y’all a healthy serving.)

1.  The news about the agreement on the rookie wage scale is major, but not unexpected.  The reporting in recent days has been that that was the dominant topic, and as engaged as the two sides have been, and now that they’re both negotiating fully in good faith, it’s no surprise that an accord was eventually reached.  (Too bad that doesn’t hold true on the federal government’s debt ceiling negotiations.)

Assuming the reporting is correct, the NFL has essentially copied the only smart thing that the NBA has been doing with their salary structure.  They’ve introduced an honest-to-goodness risk management plan, and fundamentally re-valued draft picks.  This is great for the quality of the NFL, and its ability to promote parity across the entire league landscape.

The NBA has fully guaranteed contracts, so their rookie scale has featured a two-year deal for first-rounders , followed by team options for years three and four, and restricted free agency in year five.  That means that when the Bucks pick Joe Alexander eighth overall, and he quickly shows that his running and jumping aren’t playing at an NBA level, they’re only on the hook for him for two years at relatively small dollars, which are pre-ordained by a set scale.  To give you an idea of the range, here are the annual salaries for Washington’s John Wall, Milwaukee’s Larry Sanders, and Minnesota’s Lazar Hayward (a Doug Lee All-Star from Marquette), who were the first-, 15th- and 30th-overall picks of the 2010 NBA Draft.

Player Pick 2010 2011 2012 2013 2014 Guaranteed Options Qualifying Total
John Wall 1 5.1M 5.5M 5.9M 6.7M Q - 8.7M 10.6M 12.6M 8.7M 31.9M
Larry Sanders 15 1.7M 1,9M 2.0M 3.0M Q - 4.3M 3.6M 5.0M 4.3M 12.9M
Lazar Hayward 30 1.0M 1.1M 1.2M 2.1M Q - 3.2M 2.1M 3.3M 3.2M 8.6M

These are two-year deals, which can convert to as much as four-year deals.  In the case of Wall, it’s effectively a four-year, $23.2 million deal.  That’s very close to the four-year, $22 million number that was being bandied about for Cam Newton over the last couple days.  It’s like Jon Stewart held another Rally to Restore Sanity, because this is a huge move toward rationality for the NFL.

Since NFL contracts aren’t guaranteed, using the same option structure as the NBA is largely unnecessary, but let’s say that Newton gets this deal here, which follows the rate of increase that Wall got, to be directionally close:

Player Pick 2011 2012 2013 2014 2015 Contracted Options Total
Cam Newton 1 4.86M 5.2M 5.6M 6.3M 11.0M 22.0M 11.0M 33.0M

If Newton looks like the second coming of JaMarcus Russell, the Panthers can cut him after two years, only having paid out $10.1 million.  They will have borne the opportunity cost of blowing the first-overall pick, like the Raiders did with Russell, but they will not have experienced the financial and salary cap catastrophe.  It sucks, but it’s not really that big of a deal, in other words.  What that does, in effect, is make the top 10 picks in the NFL much more desirable to NFL teams, because the huge downside financial and operational risk goes away from the equation.

It’s being reported that the first 10 picks of the first round will have team options for the fifth year at the salary point of the average of the top 10 at their position, and the next 22 picks would have their fifth-year option valued at the average of the 3rd to the 25th highest paid at their positions.  Presumably, if the NFL follows the NBA, that amount will be calculated at the time of contract signing, so it’s actually the average of the effective range from four years prior, when the contract was signed.  The player probably gets a healthy raise from year four to year five, but it’s still depressed a bit from a legacy transition or franchise tag, and it represents the kind of cost certainty that teams are going to like.  The Panthers would absolutely love for Newton’s four-year, $22 million deal to become a five-year, $33 million deal.  That’s a terrific deal for them if the guy becomes the QB they’re expecting him to become.

You’ll notice that I’m not factoring in any signing bonuses, and as I wrote a few weeks ago, I can’t see how the new salary cap could be anything but a cash-basis measure, since there’s a minimum cash floor that’s very close to the overall ceiling.  Giving somebody a $40 million bonus that’s amortizable over six years would make it really hard to shoot the gap between the minimum cash number and the maximum cap number, unless both are stated in cash, and don’t factor in any amortization.  That would have the effect of making amortizable signing bonuses a thing of the past.

By the way, Bill Simmons made a joke out of not understanding what amortization means.  I can help with that.  There are two kinds of amortization: financial amortization and accounting amortization.  Financial amortization refers to the retirement of principal debt over time, such as in a series of (self-amortizing) mortgage payments.  That’s obviously not germane to legacy salary cap math, but since it’s the same word, I wanted to make the distinction. 

A form of accounting amortization is what we’re looking at in the old CBA, and that term refers to the cash realization of a major expense at a specific point (often the beginning) of the long-term useful life of the asset purchased.  You amortize it over the entirety of the useful life, on a straight-line basis.  Amortization expense is just like depreciation expense, but depreciation tends to go with tangible assets, and amortization with intangible assets. 

I spend $10 million to implement SAP as my new accounting system, and agree to use it for 5 years after implementation.  I put out $10 million cash at Time 0, but I’m going to expense $166,666 per month for 60 months.  If I cancel the contract after 3 years, the remaining expense for the final 2 years accelerates to my income statement at that time. 

That’s exactly how salary cap amortization had worked in the last CBA, except on an annual basis.  The $40 million bonus carried a $6.67 million cap charge per year.  If a guy is cut after three years, the remaining bonus expense has been accelerating into that period when it happens.  With a cash basis salary cap, that concept is most likely dead, and we’ll be moving into the territory of teams guaranteeing salaries in specific seasons like the NBA does with the first two years of its rookie deals.  Maybe Simmons will read this, and understand it, but he seems to have an elitist attitude toward independent websites like IAOFM, so I’m not holding my breath.

To wrap this up, I saw where Chris Mortensen said that this isn’t a scale, and that there would be negotiations for rookies, but I don’t see how that could really be the case.  I do think that Mortensen and other reporters like Albert Breer have done a great job of reporting lately, and I don’t blame them for not being qualified financial analysts, but I don’t think he can be correct, given the nature of the information that has gotten out.

For the Broncos, of course, this is a huge stroke of luck.  They just picked second overall, which was the highest pick they’ve ever had in a Draft, and they’re not going to be saddled with the horrible financial exposure that the high-selecting teams of the last 10 years or so have been stuck with.  It’s a great time to have a chance to draft a blue-chipper, and if they somehow have to do it again next year, which I doubt, it won’t be something to dread from a financial perspective.

2.  Of equal interest to me is the movement toward removing federal judicial oversight from the new CBA, and I find it fascinating that both sides view this compromise as more win than loss.  Basically, it’s being reported that all matters of appeal between the two sides will be contractually sent to an arbitration panel, consisting of some number of former judges.

For the owners, that means no more oversight by Judge David Doty, who they feel has been in the pocket of the players for the last 20 years.  That was a major goal for the NFL in this new CBA, and it seems that they’ll accomplish it.

For the players, Roger Goodell is no longer the judge, jury, and executioner on discipline matters, and that’s a huge deal to them.  James Harrison’s comments to Men’s Journal were more than a little inartful, but he’s definitely not the only player in the NFL who resents the heavy-handed disciplinary approach that Goodell has brought to the table since taking over as Commissioner in 2006. 

To many black players, particularly, Goodell’s enforcement has been uneven, and there have been many comments indicating that those players view the public-facing nature of his efforts to be sending a message of “we’re keeping the animals in check” to placate a major segment of the upscale and largely white customer base that he’s trying to sell the game to.

Before some of you inevitably lose your minds, and start flaming me, and saying that I’m calling all white people racist (stop me if you’ve heard that nonsense before), understand that I’m not co-signing that thinking, or necessarily even taking a position on it.  I am saying that I’ve heard and read many black players subtly and not-so-subtly say that the NFL’s disciplinary regime is unfairly applied to black players, and I’m making the point that it was a big enough deal to them to give up federal oversight from a mostly player-friendly federal judge, in order to ensure that some clear-cut objectivity and fairness entered into the ongoing NFL disciplinary regime.

We heard all along from various reporters that the application of the personal conduct policy was a major issue to players, and today we see just how major it was by virtue of what was traded for it.  Both sides get something that was very important to them, and it’s another sign of a good negotiation.

I was going to write a short piece on Tuesday about the conduct policy, and its application in light of the Pacman Jones arrest of last weekend, and I’m pretty glad that work precluded me from doing so at the time, because it dovetails in nicely with this topic. 

Mr. Jones was arrested by Cincinnati Police at a downtown Cincinnati bar last Friday night, and his story and that of the police vary widely.  Frankly, neither is to be fully believed.  Jones has a bad history, and the Cincy police has one that’s just as bad.

For all the widespread butt-hurt about my Peyton Hillis writings, the only entity I’ve ever called racist in my writing career is the Cincinnati Police Department.  In Ohio, this is so well-known that it’s not even the slightest bit controversial for me to say.  The Cincinnati police have a long history of disproportionately messing with black people, especially athletes.

I don’t trust either side, so frankly, I am not the least bit troubled by last weekend’s dustup.  It sounds like a lot of he-said, she-said to me.  Somehow, though, on Monday morning as I was driving to work, I heard this discussion on Sirius XM NFL Radio about whether Pacman should be banned from the NFL for life over it. 

That’s just crazy to me, and the fact that that discussion even takes place over such a minor event lends a bit of credence to the players’ stance that the existing conduct policy, and the resulting public perception thereof, is out of control. 

Look, if you’ve ever frequented bars, chances are that you’ve been involved in a disagreement or altercation that you didn’t start, and aren’t remotely responsible for.  As of today, I’m 34, and I’m a law-abiding citizen.  As of a cold night in March, my law-abiding self was dragged out of a bar in Willoughby, Ohio by my neck because I was involved in an altercation, whereby I got between my friend and some coked-out fool who was trying to attack him, and was basically pass-blocking to protect my buddy. 

When I got outside, there were cops waiting, and I explained to them that I wasn’t any kind of aggressor, and demonstrated that I wasn’t drunk or disorderly.  They let me be on my way, and actually let the aggressor and my friend go too, at separate times, to prevent further altercation.  I call that reasonable policing.

Even if I had been arrested, that wouldn’t have made me some scumbag, though.  I’d get due process if some prosecutor had cared enough to charge me with a crime, and I’m sure I would have come out just fine from it.  Pacman isn’t likely going to be convicted of any crime here, either, but his name has been back in the news, and because of the frankly un-American policy where Goodell can levy punishment before the legal process plays out, we have this silly discussion about banning the dude for life from earning a living. 

I think that’s a perfect crystallization of why the players have been so adamant that such power shouldn’t be in the hands of one person, especially one who’s primarily trying to sell a game and a league, and who has no particular reason to care about disproportionately hurting the career of a player or two, if he thinks it serves his greater sales purpose.  The new arbitration concept takes that ultimate power away from Goodell.  He can still make his rulings, and be Mr. Law and Order in his marketing-to-white-people efforts, and then the egregious stuff can be canceled or tempered on appeal by the arbitration panel.

3.  Finally, I wanted to share some quick thoughts on some of the outstanding issues that are expected to be discussed today, per NFL Network’s Albert Breer.

a.  Retiree Legacy Fund  - As I’ve been saying for quite awhile, this is a tough issue for both sides, because while a case can be made that retirees are underpaid, a better case can be made that they’re compensated at the level of how their representation negotiated for them in their time, and the level at which the game prospered financially while they were playing it.  I’m not exactly Joe Unrepentant Capitalist, as most of you know, but I tend to agree with the latter argument, which is privately shared by most present-day owners and players. 

It’s a nasty PR situation, though, and it’s really easy to find broken-down retired players to trot out and hammer the current NFL with.  Expect the two sides to agree to put something semi-substantial in place, but not everything the retiree cohort wants, obviously.  Both sides need to be able to plausibly claim that they cared and did the best they could.

b. Player Safety – This is getting to be a difficult PR situation for both sides too, as the NFL has lost control of the studies of injuries and the media coverage of those studies.  I would propose two positive things that could come out of this negotiation, vis-à-vis safety:

i.  Make it mandatory that all players wear a minimum set of safety equipment, consisting of a helmet, mouthguard, shoulder pads, girdle with hip and butt pads, thigh pads, and knee pads.  They can and should end the dumbassery-posing-as-toughness that has been shown by guys like Rod Woodson and our old friend Ed McCaffrey over the years, in wearing as little safety equipment as possible.  If everybody has to wear it all, nobody can say that a speed advantage is lost or gained in so doing.  It also sets the right example for young players.

ii.  Solicit bids from major research universities in developing better safety technology, especially helmets, and contribute a substantial amount of funding to those universities.  This is good policy, and great PR, and generally, a no-brainer.  I’m certain that better shock absorption technology can be developed if some smart people were incentivized to develop it.

c.  Free-agent tags – The NFL would still like to have franchise and transition tags for key players, and the players would mostly like those concepts to disappear.  It seems like the discussion is moving toward keeping the rules materially the same, but only allowing a player to be tagged once, which seems very reasonable to me.

d.  Litigation/Recertification – This is a bit of a hurdle, because there’s a major litigation item that the NFL has already lost, surrounding their conscious decision not to take the best TV deal in 2008, and instead include a provision which would have paid the NFL even if 2011 games were missed. 

Judge David Doty ruled that the NFL failed to meet its fiduciary responsibility to the NFLPA as its partner in taking less money than they could have gotten in the TV deal, in exchange for the leverage-creating provision.  Doty hasn’t ruled yet on the damages to be awarded, so I expect that a cash settlement on that front would be part of this CBA negotiation.  The NFL’s exposure could be as much as $2 billion, so I think that something like $200 million sounds reasonable, with maybe half going to an endowment for retired players, helping to take care of the Legacy Fund.  (There’s been no reporting on this, it’s just strictly my thought about what’s reasonable.)

There’s also the matter of recertification as a union by the NFLPA.  This is a huge negotiating chip for the players, because the owners need there to be a union for their cartel-based league to be a legal enterprise.  We’ve covered the non-statutory labor exemption here ad nauseam, so you can read either of those to understand why the players are legitimately partners with the NFL, where the United Auto Workers aren’t exactly partners to Ford.  (Feel free to ignore the guesses I made that turned out not to happen, if you want to.) 

The NFLPA will ultimately have to recertify, but they’re not going to agree to do so without getting some concessions for it, and probably some major ones, at that.

That’s all the time I have for today, friends.  Tonight I drink for my birthday, and tomorrow I drink at a wedding, where I’ll see the joining of two fine Cleveland families, the Meaneys and the Brozaks.  I’ll find some time to play golf in there too, so all around, you can expect there to be another fun Ted Bartlett weekend on the shores of Lake Erie.  I’ll see you Tuesday, assuming I don’t get pulled into many more fire drills at work.  If something pops in the labor front, and it needs my special touch, you might even see me before that.  How lucky would that make you?

1.  I’m not in the arguing business, I’m in the saying what I think business.
2.  I get my information from my eyes.

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You Got Served