Sports Biz: Remembering to share
As Pat Bowlen and his 31 fellow National Football League team owners contemplate a player lockout that could sack the 2011 NFL season, you’re going to hear plenty about a key contention point: what share of the league’s revenue should go to players.
More so than salary caps, adjustments to health benefits or controls on rookie compensation, the percentage of revenue to be devoted to players is the 300-pound gorilla – or in this case the 300-pound left tackle – that overshadows all.
The rest is details. But determining what percentage of the league’s roughly $8.5 billion in revenue goes to its labor force is huge. In a coarse lunge at the numbers, a single percentage point equates to around $85 million to be distributed among the 1,696 players on NFL team payrolls. If player salaries were uniform – they’re not, but let’s disregard that for a moment – a one-point swing in revenue allocation to labor would equal about $50,000 per player annually. Under the current collective bargaining agreement between the NFL and the NFL Players Association, players receive about 60 percent of league revenues.
Owners think that’s too much. You may, too.
The popular perception is that for all their Sunday afternoon heroics, NFL players are overcompensated athletes as far removed from the common fan, economically, as Broncos defensive specimen Elvis Dumervil is removed physically from that guy you see at the 24-Hour Fitness, sweating on the elliptical machine. The owners’ distaste for the revenue share formula is so pronounced that they decided to opt out of their contract, setting the stage for an anything-goes compensation system in 2010 and a possible lockout in 2011.
But are NFL players really getting a richer share of their employers’ take than the rest of us? Not really. Since the 1960s, U.S. workers have taken home around 56 percent to 59 percent of the gross domestic product in wages, fringe benefits and health insurance, according to the U.S. Department of Commerce’s Bureau of Economic Analysis unit. Compensation among the four major U.S. professional sports leagues is similar.
Even in Major League Baseball, where the absence of salary caps would seem to be an invitation to run up player revenues, the average ratio of player compensation to total revenue from 1994 through 2007 was 58 percent, according to a paper published last month in the Journal of Sports Economics. So how cool is that? Turns out whether you’re a plumber or a CFO, you’re basically taking home the same share of dough from the company as your typical hard-working New York Yankee.
Whether your employer is prospering isn’t as certain. The Journal of Sports Economics analysis by Smith College economics professor Andrew Zimbalist points out that baseball’s insistence on avoiding salary caps, while criticized for producing gaping talent imbalances among teams, has helped baseball team owners produce predictable profits. Baseball’s open compensation systems, coupled with a “luxury tax” formula of distributing income from richer teams to poorer teams, allow the league’s also-rans to preserve profitability by controlling total payroll while collecting a steady flow of income from their own operations and receipts from revenue-sharing.
In contrast, the NFL’s tightly bound system demands that the Broncos and other teams maintain payrolls within a narrow range bounded by minimum and maximum outlays. Because the NFL range is based on league-wide revenues – and because there are big economic differences between, let’s say, Green Bay and Chicago – the formula can produce disparities in team economic performance.
“I’ve got partners out there right now whose teams are making less money than their linebackers,” Baltimore Ravens owner Scott Bisciotti pronounced during an early February news conference.
As of mid-February, NFL team owners and players were far apart on the revenue-to-salary ratio. The owners want to reduce the percentage devoted to player compensation, while union representatives not only want to preserve it, but to base it on a broader interpretation of revenue, including an accounting of income from sources such as the league’s NFL Network.
Despite the rhetorical posturing, chances are in the end, the share of revenue devoted to salaries in the NFL will remain in the same neighborhood where it now resides. Why not? It seems to work fine for the rest of us working stiffs.