The NFL’s Win-Win Labor Agreement
SOURCE: AP/Jim Prisching
The opening of the NFL season, usually an exciting time for fans, players, and owners, may be bittersweet this year because the owners of the National Football League are threatening to lock out the players next season—meaning canceled games—if the owners and the players’ union cannot agree to a new collective bargaining agreement by March 2011.
These negotiations are important not just to NFL fans but to all Americans because they show that collective bargaining—the process where unionized workers and management negotiate wages, benefits, and working conditions—can create significant benefits for both workers and owners. This is a process that most Americans no longer have first-hand knowledge of. The reason: Just 7 percent of the private-sector workforce today is unionized. That’s why the latest round of negotiations can help illustrate how unions can help level the playing field between workers and management.
Both NFL players and owners have done quite well under the current collective bargaining agreement. Median player salaries rose 9.4 percent between 2006 and 2009, and team values rose an impressive 16.2 percent over the same period. Such a win-win labor accord is obviously something both sides should want to renew.
That’s not the case today in many other industries, where some corporate managers view the current economic downturn as an opportunity to seek concessions from workers and cut costs, with even some quite profitable companies demanding that workers do the same job for far less than they once made. So when Drew Brees, the quarterback of the world champion New Orleans Saints, and other NFL stars negotiate together to seek the best deal they can get, ordinary workers who may be good at their job, but perhaps not the best in the world may recognize the importance of joining together to ensure they are treated fairly.
The owners argue that the current collective bargaining agreement signed in 2006 did not serve them well—despite the rising value of their franchises—and that the cost of building new stadiums and the upkeep of league-owned assets are eating into their bottom line. These specific claims are hard to evaluate because only the publicly owned Green Bay Packers release any detailed financial information—details that show the team is quite profitable, though somewhat less so during the Great Recession. The NFL hasn’t released data on any other teams, including those likely to be much more profitable, such as the Dallas Cowboys and Washington Redskins.
But a look at the data that is available clearly shows that the current labor agreement, an extension of the original collective bargaining agreement signed in 1993, is a great success not only for the players but for the owners as well. The league, by combining a strong union with strong league institutions, created an effective model that delivers financial success across the board—an accomplishment that other leagues have not replicated, as a comparison with Major League Baseball and several international soccer teams clearly shows. NFL players’ salaries and the value of NFL teams grew smartly over this time period, even during the recession.
The signing of the 1993 collective bargaining agreement brought the advent of the salary cap, free agency, and more than 15 years of labor peace in the NFL. It also created a system that has fostered prosperity for both the owners and the players. Player salaries are kept in line with revenue by the salary cap, and revenue sharing ensures that all NFL franchises share in the success of the league. As structured under the current collective bargaining agreement, the salary cap is set as a percentage of total revenue, the league’s revenue less a deduction for owners. The 2006 agreement set that percentage at 57.5 percent for the 2009 season, as detailed on page 96 of the contract.
Players have done quite well under these terms, with the median NFL salary in 2009 equaling $790,000 a year, according to data provided by the National Football League Players Association. Since 2000, the earliest year with data available, we calculate that the median NFL player salary increased by 79 percent, and since signing the 2006 extension, median player salary has increased by 9.4 percent, meaning that player salaries have increased even during very tough recession years.
Similarly, the owners have done quite well under the current agreement, despite their claims to the contrary. Since 1999, the year Forbes magazine started to value NFL franchises, the average franchise value has risen by 171 percent, so that by 2009, the average franchise was worth $1.04 billion—with 19 of the 32 franchises valued over $1 billion—according to Forbes’s annual “Business of Football” valuations. Since 2006 when the current CBA was signed, the average NFL franchise value has increased by 16.2 percent, a growth rate that is faster than the median player salary increase. As a result, it appears that NFL owners are doing fine, but if the league’s financials reflect a different reality, then the owners should release these numbers. (See graph 1)
And compared to other professional sports leagues, the NFL collective bargaining agreement looks like it served the owners especially well. Baseball may be America’s pastime, but Major League Baseball can’t stack up financially against the National Football league. Likewise, soccer has a worldwide appeal unmatched by any other sport, as evidenced by the enthusiasm surrounding the World Cup this past summer. Yet the financial value of European soccer leagues can’t rival that of the National Football League. (See graph 2)
Specifically, in 2010 the average value of a Major League Baseball franchise was $491 million, approximately half of that of the average NFL team. Not only are baseball franchises worth less on average, but the variation in value is quite large. In 2010, the New York Yankees were valued at $1.6 billion, equivalent to the value of the top NFL teams. But the Pittsburgh Pirates, the least valuable baseball franchise, was valued at $289 million. In contrast, the least valuable NFL franchise, the Jacksonville Jaguars, was valued at $725 million.
In addition, since 2001, the earliest year data is available, the value of the average MLB team only grew by 7.3 percent per year on average, while NFL franchises grew by an average of 12 percent. The MLB Players Association has a history of success in advocating for its players, but the league lacks many of the redistribution mechanisms of the NFL, including a salary cap, league-negotiated television deals, and a strong revenue sharing system. The strong union, strong top-team, weak-league model has served MLB players and some owners well though the league itself has certainly not prospered as much as the NFL.
Similarly, the soccer clubs of England, Spain, and Italy attract the world’s best players from across the globe, and clubs such as Manchester United and Inter Milan can claim fans on several continents. Yet the average value of the top 20 most valuable soccer clubs in all the leagues of Europe was $632 million in 2010, according to Forbes, meaning the average NFL team was worth considerably more than the average of the top clubs from the English, Spanish, Italian, German, and French leagues.
The variation in value of top soccer teams is quite wide. Manchester United, the English powerhouse, was valued at $1.8 billion in 2010, the wealthiest team on Forbes’s World’s Most Valuable Sports Teams list, just edging out the Dallas Cowboys. Rangers F.C. of the Scottish Premier League is worth $194 million, according to Forbes. This disparity would be amazing if the clubs were in the same league, but amazingly Rangers was the 20th most valuable soccer club in all of Europe in 2009. Everton, which competes with Manchester United in the English Premier League, was valued at $207 million but is far from a cellar dweller in the league. If data were available, the variation in wealth within domestic European leagues would be incredible. It is important to note that these figures are for the top 20 clubs in all of Europe and could be considerably different if we knew the financial status of other clubs.
This inequality in international soccer is the result of both weak unions and weak league institutions. Players’ associations are much weaker and there are no collective bargaining agreements in the English Premier League, the most lucrative league. Television deals are not split equally, but divided out according to performance. Furthermore, the teams at the bottom of the standings are demoted from the top league and replaced by other teams in a system known as regulation and promotion. This weak-union, strong-team, weak-league model results in wildly unequal leagues where only a few teams make substantial amounts of money.
Through collective bargaining agreements and strong league institutions, the NFL boasts a system that creates wealth for all of its owners and players. The institutional models of Major League Baseball and European soccer leagues do not produce anything rivaling the broad-based prosperity the NFL creates. As the NFL owners and the NFLPA representatives continue their negotiations, they should look at other sports leagues and remember how well the current system has served them.
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