Posted: June 27th, 2020
By: Ashley Willard
In March, after a long year of negotiations with the NFL, the NFL Players Association (“NFLPA”) ratified the 2020 Collective Bargaining Agreement (“CBA”), which governs through 2030. Neither side could have anticipated that a pandemic would ravage the country and potentially bring them back to the bargaining table just months later. Since the NFL does not have a “force majeure” clause in its CBA that could terminate the season, the show must go on. However, the NFL and the NFLPA will need to work together to address both safety issues and the looming prospect of a shrinking salary cap in 2021.
Pursuant to the CBA, the salary cap is calculated annually by a formula directly tied to league revenues from three main sources: broadcast rights, postseason money, and local revenue. Due to its revenue-sharing scheme and its massive national media contracts, the NFL is better insulated than other sports against the repercussions of playing games without fans. Still, game-day spending—gate receipts, parking, concessions, team merchandise, and game-day sponsor activation—constitutes a third of NFL revenue. League-wide losses have been projected at up to $5.5 billion for the worst-case scenario: games played in empty stadiums. While the 2020 salary cap is $198.2 million, sources estimate that the 2021 cap could fall to $170 million under these conditions. A cap drop would have negative repercussions for both teams and players. Fortunately, the CBA has a provision mandating “good faith negotiations” in the event of an anticipated decline in league revenue. So, what can we expect will be done to mitigate the consequences of a sudden cap drop?
One option would be to smooth out the cap by borrowing against future TV deals; in negotiating new agreements with television network partners, the NFL could request that payments be front-loaded to offset short-term revenue loss. Another option would be reducing or eliminating performance-based pay for a few years. For instance, if players were willing to forego performance-based pay in 2021, the cap could be puffed up by a couple million dollars. Teams have also contemplated returning to the bargaining table to ask players to ‘share the pain’ in the present—likely via a reduction in base salaries this season—to avoid worse consequences in the long-term. The alternative would be releasing veterans with large, non-guaranteed base salaries. Teams regularly release veteran players in such a position, and without another cost-saving solution, we can expect a league-wide slaughter. During NFL-NFLPA negotiations, all contingencies will need to be addressed, ranging from a season played entirely without fans to a season cut short by a resurgence of the outbreak.
In addition to looking forward to the 2021 season, teams will need to innovate to minimize losses in the here and now. The NFL recently announced it would allow individual teams to set their own limits on stadium capacity; this benefits the teams that can to adapt to public health standards and accommodate socially-distant fans in their stadiums. For example, the Dolphins have announced a plan to get 15,000 fans into their 65,000-seat stadium. Teams who can manage such a feat have the advantages of retaining a portion of gate receipts, concessions, parking, and merchandise revenue that would be otherwise lost as well as having a semblance of a home crowd. However, challenges with infrastructure (i.e. mobile ticketing, cashless transactions, and motion-activated fixtures in bathrooms) may prevent other teams from welcoming back fans at all.
In the absence of fans, teams will need to be creative in terms of sponsorship and advertising revenue. Sponsors who no longer see value in their investment, like those who purchased naming rights to a now-closed entrance or luxury suite, will need to be delivered value another way. For instance, teams featured more sponsors than ever in their draft coverage. Teams may negotiate with sponsors to restructure their agreements, either by extending payments, making payments smaller, skipping payments, or making a balloon payment in 2021. Another option is to sell exclusive access to practices, pre-game warmups, or pre-game locker room talk to sponsors to deliver premium content to consumers.
Since fans will not be in stadiums to view ribbon boards or LED video boards, teams will need to reconceptualize advertising placements to deliver value to sponsors. These new placements may include tarps across empty seats in lower bowls, the goal-post net, and the walls surrounding the field. For example, Bluemedia designs and produces screens that cover large swaths of seats; such technology could be used for sponsorship, marketing, advertising, and even images uploaded by fans. Sponsors may also see this situation as an opportunity to invest in the NFL for the first time, especially those who had earmarked advertising funds for events such as the 2020 Olympics or college football games.
While individual teams may innovate and recoup their losses with adjustments like these, the major decisions that impact how fans consume football will be generated at the bargaining table. In addition to important discussions about the salary cap, the NFL and NFLPA are in negotiations to shorten the preseason from four to two games. Set against a backdrop of other sports leagues struggling to finish their seasons (hockey and basketball) or start them at all (looking at you, baseball), football has been a ray of hope. Fans can be grateful not only to be able to fall back on the recent CBA but also to be able to trust the NFL’s and NFLPA’s demonstrated commitment to work together as new problems arise.
Within this context, stay tuned to see whether teams fumble or score big.
Ashley Willard is a second-year law student at Wake Forest University School of Law. She holds a Bachelor of Arts in both Political Science and Economics and a Bachelor of Science in Psychology from the University of Georgia. Upon graduation, she intends to practice criminal law.