Archive for November, 2010

The NFL and the NFLPA: The Significance of the Current Collective Bargaining Process and a Collection of Relevant Legal and Ethical Issues (Part 2: A Brief and General History of the 1993 NFL Collective Bargaining Agreement)

 

Football fans and other unions supported players' calls for fair wages and contracts in the 1987 players' strike. This time, though, team owners (management) are threatening a lockout of the 2011 season in their attempt to rewrite the CBA.

A Concise History of Collective Bargaining in the NFL and a Look Towards the Future

After a players’ strike in 1987, collective bargaining commenced and resulted in the 1993 collective bargaining agreement.  The CBA lasted 17 years, and in 2008, the owners decided to opt out after its expiration in 2010.  “When the collective bargaining agreement was approved in 1993, both sides won big: the players got free agency and the owners got a salary cap.  It seemed like everyone was happy,” according to Troy Aikman, former quarterback of the Dallas Cowboys and recent Hall of Fame inductee (Aikman, 2009).  Aikman adds that “owners found a loophole in the agreement that allowed them to pay big signing bonuses to players” and distribute the uncapped sum over the contract’s duration (2009).  This loophole, exploited by team owners in the years immediately following the CBA’s expiration, contributed to a culture of increasingly high player salaries that apparently caught up to them fifteen years later.  The NFL has enjoyed the longest period without a work stoppage in all of American professional sports – 23 years since 1987, to be exact.  Nevertheless, Aikman remains optimistic that both sides will find enough common ground and continue to enjoy the league’s unprecedented growth in popularity, partnerships, and revenue (2009).

Washington Redskins owner Daniel Snyder is no stranger to controversy and one of the league's most well-known executives.

The 1993 collective bargaining agreement had a significant impact on parity in the NFL that led to two paradigm shifts.  Competitive balance increased throughout the NFL with the creation of free agency: the first major change (Lee, 2010, p. 77).  The second major shift regarded payroll constraints, such as the salary cap, that curtailed excessive team spending – theoretically – on “expensive” talent and kept talent on the market for teams with enough cap room to bid for their services (p. 78-82).  Signing bonuses and their amortized values helped owners circumvent salary cap limits and contributed to large contracts reaching nine figures (such as Albert Haynesworth’s current contract with the Washington Redskins) over their duration.  Also, the old collective bargaining agreement was revolutionary in American sports.  Unlike other leagues that instituted both rules and structural changes in their CBAs, the NFL is the only league that saw a CBA stimulate parity (Lee, p. 86).

As of early October 2010, forecasts for a quick resolution of the collective bargaining process seem bright for some and dismal for others.  New England Patriots owner Robert Kraft expressed confidence in the possibility that a new agreement would be approved by the end of the season, as did Dallas Cowboys owner Jerry Jones, in interviews in early October (Wilner, 2010).  Several owners share in this optimism, yet want to lower the amount of revenue shared with players to pre-free agency numbers, which would be as low as early 1980s figures (DiTullio, 2010).  However, in mid-October, the NFLPA’s DeMaurice Smith considered progress towards a new collective bargaining agreement “nonexistent” (King, 2010, p. 44).  With such conflicting data and inconsistent stories, the future of the current collective bargaining process is difficult to gauge or predict.

Cam Suarez-Bitar.

Read Part 3 at: Part 3!

Read part 1 at: Part 1!

I will post Part 3 next week.  Thank you for your readership and emails regarding the CBA.  Remember that discussions are also possible by posting comments after clicking the “comments” link next to each article.

 

A great picture of Pro Football Hall of Fame wide receiver Jerry Rice - needing a helmet more than ever - on bleacherreport.com. Though this photograph is irrelevant to my article, it could offer a much needed laugh on a Wednesday afternoon at work.

The NFL and the NFLPA: The Significance of the Current Collective Bargaining Process and a Collection of Relevant Legal and Ethical Issues (Part 1: Introduction, Etc.)

 

And so, the dance begins... the NFL and NFLPA open their virtual tango over wages and schedules.

Introduction: A Concise Discussion of the Issues at Hand

In 1993, the NFL and players’ union (NFLPA) finalized the current collective bargaining agreement (CBA) set to expire 3 March 2010 (Kaplan, 2010, p. 36).  The process – initiated by a player strike in 1987 – took approximately six years to produce the 1993 collective bargaining agreement that both sides finally deemed fair.  This time, “We just want to play football… We weren’t the ones who opted out,” according to Patriots linebacker Adalius Thomas, who referred to the league’s threat to lockout the 2011 season if owner demands are not met (Dividing Line is Drawn, p. 1c).  In 2008, team owners chose not to renew and pushed for a new agreement; in fact, as of November 2010, the league has reserved $900 million to survive a lockout if arguments with the NFLPA over escalating player costs and decreased profits/net annual income outlive the current collective bargaining agreement (Kaplan, 2010, p. 36).

Essentially, both entities disagree on the following key points: owners want players to shave $1 billion off the “revenue-sharing pool, estimated at $ 8 billion annually;” an 18-game regular season schedule proposed by owners that high profile players like Tom Brady and Ray Lewis strongly oppose; replacement of the current revenue-sharing system – which allots 60% of total league revenue to players after deductions – for a lump sum over the duration of a new collective bargaining agreement (which ties in with the first point); and revisions of policies regarding rookie salary guarantees (King, 2010, p. 44-46).  Other issues also define the current NFL labor dispute, but will not be covered in this analysis for the sake of brevity and efficiency.

Methodology and Thesis Statement

NFL Commissioner Roger Goodell

This analysis will treat aspects of the current labor battle between the National Football League and the NFLPA.  First, we will look at a brief history of the current collective bargaining agreement signed in 1993 by looking at academic papers and newspaper articles by sources close to the league and players’ union.  An examination of future possibilities/outcomes regarding the new collective bargaining process accompanies our historical review.  Discussions of ethical issues (as perceived by both sides) help determine the strength and validity of both the owners and union’s arguments in the current collective bargaining process and form the basis of my argument in favor of the union’s position.   Finally, a conclusion section includes a look at how the NFLPA could use antitrust laws to counter league obstinacy regarding ethical issues at the core of the current collective bargaining process.

At varying points throughout this study, I will cite an audit of the Green Bay Packers’ financial statements performed by the Wisconsin Legislative Audit Bureau in 1999 as an example of NFL team financial performance in the years immediately following the 1993 collective bargaining agreement.  Unfortunately, for the sake of this study – and, ironically, the union’s purposes – financial information from the other thirty-one NFL teams is unavailable, since the other teams refuse to “open their books” to the public (laws require the publicly-owned Green Bay Packers to disclose annual financial reports).  Nevertheless, by understanding the Green Bay Packers’ financial performance in the years immediately after the 1993 CBA, one may form a basic picture of league and union arguments regarding perceived financial hardship and season expansion.  Lastly, to complement the Wisconsin Legislative Audit Bureau’s study and assess the team’s position relative to the government’s findings, I will count on articles based on the Green Bay Packers’ financial statements published in 2010 (which detail the franchise’s performance through 2009) at different points in my study.

Since a thorough and exhaustive treatment of the entire collective bargaining

NFLPA head DeMaurice Smith

process and all underlying legal and ethical issues would be unfeasible in 10-15 pages, my objective is to provide an assessment of the current CBA’s impact on NFL culture, an overall view of key ethical issues in the current collective bargaining crisis, and an analysis of antitrust cases in sports business in my conclusions, since I recommend that the NFLPA strongly consider decertification if the NFL does not negotiate.   The last few pages contain a deep and carefully assembled bibliography containing over thirty sources I used in my analysis of the legal and ethical issues surrounding the current collective bargaining process.

Basically, I contend that: the NFLPA’s arguments prove both valid and strong when the Green Bay Packers’ financial records and league revenue numbers are considered; the league’s current push to build new stadiums contradicts its claims of “financial hardship;” and the league risks a lapse in ethics should it assert its power and force players to both receive substantial pay cuts and play longer seasons.  The NFLPA should not hesitate to decertify and sue the NFL over violations of federal antitrust laws if both parties do not agree on a deal by 3 March 2011.  The new collective bargaining agreement will, essentially, determine acceptable payment, compensation, and revenue-sharing thresholds for a sport that generated more than $8.83 billion in 2009 (Dividing Line is Drawn, p. 1c).  The results of collective bargaining will shape the league’s culture for years to come.

Cam Suarez-Bitar.

Read Part 3 at: Part 3

Read part 2 at: http://csbcomsportsbiz.com/2010/11/30/the-nfl-and-the-nflpa-the-significance-of-the-current-collective-bargaining-process-and-a-collection-of-relevant-legal-and-ethical-issues-part-2-a-brief-and-general-history-of-the-1993-nfl-collecti/

 

Do the players have enough leverage to negotiate a favorable deal?

A Week Off: A Study of the NFL’s CBA has Monopolized My Time

Dear Readers,

I will not publish an article this week since I am in the process of completing an analysis of the NFL’s current collective bargaining process.  Next week, I will publish my findings in a series of weekly articles (in much the same way that I published my Hall of Fame statistical study).

For now, please avail yourself of the archives and the wealth of information I have posted over the past year.  Thank you for your support and remember, you can always reach me by commenting on my site or emailing me with questions or concerns (as some of you have already done).

Best regards,

Cam Suarez-Bitar.

Accounting in Sports Entrepreneurship and Event Production: How Similar, Dissimilar, and Interchangeable are Sponsorship Revenue/Value and Stockholder Equity?

 

While there are many options available to entrepreneurs planning sporting events like marathons, sponsorship stands as the least compromising option for properties and both the most creative and most exploitable option for the property and sponsors alike. The accounting equation is positively affected on both sides of the equals sign by sponsorship, which is not always the case with loans or even transactions involving stockholder equity.

Introduction

This week, General Motors took the last steps to finalize the sale of about $500 million of stock to SAIC Motor Corp. of China.  In addition to the deal with China’s largest car manufacturer, GM will sell an estimated total of $1 billion in shares to foreign investors, according to an article published on Yahoo! News (see: http://news.yahoo.com/s/ap/20101112/ap_on_bi_ge/us_gm_foreign_investment for the full article).  In General Motors’ effort to increase assets, it will release 365 million shares of common stock and an undisclosed amount of preferred stock; the latter will pay a 5.5-6% annual dividend.

With the “accounting equation” in mind (represented as:  Assets = Liabilities + Shareholder Equity + Retained Earnings), it appears that GM will dilute control of its business over a pool of owners larger than the current list for the sake of increasing its assets.  “Cash” accounts and “Accounts Receivable” may increase on the left side… but shareholder equity – as well as “dividends” – will follow proportionally.

Which leads us to the next issue.  Exactly what does this have to do with sports entrepreneurship?  Observe…

Stockholder Equity and Entrepreneurship (think about what the following section means to someone who would like to create their own sporting event)

Manager and Philanthropist Alfred P. Sloan of General Motors, as featured on the cover of Time Magazine 27 December 1926

Over time, through the sale of common and preferred stock, General Motors – once the world’s largest company and formerly run by Alfred P. Sloan through the company’s halcyon days of the 20th century – has relinquished more control over its own destiny to an ever-increasing field of investors who seek success and fortune through increased stock values and decreased costs in the company’s annual reports.  As stated in the introduction, GM will sell preferred stock and pay an annual dividend that could reach 6%; consequentially, due to the time value of money, amortization will lead to a loss in the long run if GM does not reconcile dividend expense with either new – or improved – revenue streams, or amplified cost reduction initiatives over the next several years.

Every entrepreneur faces the same problem: how in the world do I raise sufficient capital to start/maintain my own business?  Loans invariably lead to interest payments and are an inevitable reality in entrepreneurship in many cases (but not always).  They may increase cash accounts, but they also inflate those “____ payable” accounts on the right side of the accounting equation, otherwise known as “liabilities.”  Entrepreneurs could also count on stockholder equity, or the sale of corporate control (i.e. shares, common stock, etc.) in exchange for cash. “The Aviator” Howard Hughes detested the idea of having shareholders interfere with his plans, since shareholders have an interest in seeing the value of their shares rise over time and will work to maximize their ROI by the end of each fiscal year.  Their plans do not always resonate with management and tensions mount, as a result.  Expressed in dollars and cents, financial statements – the black-and-white result of all business accounting – report the company’s fiscal performance to shareholders, help determine the outlook for the upcoming year, and directly affect share value.  Lastly, the entrepreneur could sell bonds, but a new business venture cannot leverage itself as well as an established entity; thus, buyers may not be as willing to assume the risk and interest may be high.  In addition, the time value of money would make interest payments by the bond issuer amortize over the bond’s lifetime (in other words, until it reaches maturity), resulting in larger payments to the bond holder.

This is not an indictment of the above methods of capital generation.  Rather, this is a presentation of the risk involved in the use of these options by business leaders.  An entrepreneur must be aware of the effects of each and exercise due diligence in financial planning.  Either armed with sound accounting knowledge or assisted by a good accountant, the entrepreneur can use these tools to grow her business.

These are not the only options available, however.  Sponsorship can both supplement revenue generation strategies and inject capital into a new venture.  For example, an entrepreneur could produce a sporting event with the assistance of a good sponsor lineup.

Sponsorship and Entrepreneurship: The Best Option through Proper Execution and – Most of All – Excellent Activation

As with all business ventures, if you would like to plan a sporting event (i.e. a marathon), you need capital.

Bank of America's title sponsorship of the Chicago Marathon not only makes the event possible, but also helps define corporate values and reinforces its presence in the Chicagoland area.

Sponsorship presents a long list of benefits to all parties involved.  Interest payments and dividend disbursements such as those following loan and bond sales, respectively, are not an issue.  Sponsorship agreements do not necessarily require the event producer to surrender long-term control of the business to sponsors (as in the case of shareholders), unless both parties concur.  In fact, an entrepreneur/event producer could create an event and a list of assets to sell as inventory (i.e. mobile apps, interactive fan and guest zones, etc.) and recover ownership of that inventory at the end of the sponsorship agreement.  Here, assets increase on the left side of the accounting equation and revenue increases on the right.  Liabilities – such as notes payable or interest payable – are minimized while “right side” accounts, like “unearned revenue”, may also rise.  The latter, however, is reconciled upon the event’s completion and through proper activation.

As assets increase after successful execution of the sporting event and proper sponsorship activation, “inventory,” like our mobile apps and interactive fan zones, will appreciate over time and could be packaged with other assets to drive the value of our event’s sponsorship upward.  Unlike tangible inventory, solid and proven assets as those created in sporting events (take our marathon example) do not usually depreciate over time and return to the property at the end of the sponsorship’s duration.  They can then be resold to the highest bidder or repackaged in another sponsorship deal.

Nevertheless, the property (i.e. the event) and our entrepreneur must be accountable to sponsors.  To ensure sponsor ROI and maintain a mutually beneficial relationship, the property must always overdeliver.  This dynamic resembles the relationship between a company and its shareholders, with the exception that sponsors cannot impose their will on the property in the same way that shareholders influence a company’s business decisions for an unspecified amount of time.

Conclusion

Sponsorship is an excellent tool for the entrepreneur who plans a sporting event and needs capital to start.  Unlike stock sales in the GM example, sponsorship does not require the property or business to sell shares of itself or control to investors.  It does not involve interest payments or dividend disbursements, like loans and bond sales, respectively.  Lastly, sponsorship positively affects the left side of the accounting equation (remember:  Assets = Liabilities + Stockholder Equity + Retained Earnings) while boosting revenue and “unearned revenue” accounts.  Loans, interest payable, and bonds payable are liabilities while the sale of common and preferred stock are stockholder equity, the latter meaning that others could have a voice in your decisions until her shares are either sold to someone else or you buy them back at a premium.  Lastly, dividends negatively affect retained earnings.

Although sponsorship could not generate the instant revenue GM needs to recover from its billion-dollar financial woes, it is an excellent tool the company can use to repair its image, increase its relevance, and generate capital without relinquishing corporate control or paying interest. Sponsorship is also the most creative method to increase sales and differentiate itself in a competitive and currently depressed - though always relevant - market.

Again, I am not asserting that loans, bonds, and stockholder equity are not good tools in the entrepreneur’s utility belt.  Rather, I wish to underline the consequences of using said tools without considering the beneficial role sponsorship plays in the creation and funding of a sporting event.  Sponsors want you to succeed since they are borrowing brand equity, exposure, and other intangible benefits from your event unavailable elsewhere.  Successful sporting events help define a sponsor’s role in the community, such as Bank of America’s growing presence and significance in Chicago as a result of its title sponsorship of the Bank of America Chicago Marathon; furthermore, Bank of America pays a premium to be the event’s title sponsor and helps promote the marathon through its own marketing department.  Loans, bonds, and stockholder equity cannot buy you such cooperation.  Good sponsors work with properties to ensure an event’s success.

Also, sponsorship is the only means of acquiring revenue that allows a property to create new assets (remember our mobile apps and fan zone examples mentioned above?), expand its inventory, and sell them to stakeholders (sponsors in this case) for the benefit of all involved, including participants and guests.  From the property’s perspective, both sides of the accounting equation are positively affected through the property’s acquisition of cash (left) through net income (right).  The sponsor sees gains by exploiting tangible and intangible benefits of association with the property, which are thus measured by third-party evaluators like IEG and Navigate Marketing, to name a few.

If you are an aspiring entrepreneur and plan to create your own sporting event, consider teaming with sponsors who could help you as you help them.  Research potential sponsors and identify their needs before contact.  Write a clear and concise sponsorship proposal with a specific call to action.  Mention the benefits of association with your property (not just the features you will offer).  Schedule a meeting, prepare for it, and create an atmosphere during the conversation in which the potential sponsor could comfortably do most of the talking.  Listen.  Take all feedback and integrate all relevant information with your plan.  Meet again to discuss your enhanced plan.  If all falls into place, remember… 1) communicate often enough and 2) as the property, you must always overdeliver.  You can only ensure ROI through proper activation.

Cam Suarez-Bitar.

 

Funding accomplished through sponsorships. Could it be said that the New York Yankees have lost control of their fate due to stock sales or pay more interest affected by the time value of money associated with the sale of bonds or receipt of additional loans? Sponsorships can fulfill these needs.

Agents’ Panel Considers Available Options Regarding Marketing Agents Etc. and the Josh Luchs Situation (or, “Is There Significant Demand or Need for Revenue Sharing Between the NCAA and Student-Athletes?”)

 

The NCAA and athletic departments/universities around the US are finding it harder to enforce somewhat vague compliance rules. State lawmakers will play an increasingly important role in "policing" agent activity with regards to student-athletes.

In an Associated Press article written by Michael Marot, titled “Agents’ panel not taking anything ‘off the table,’” and published 27 October 2010 on the NFL News online news service available through the mobile Android application dubbed “NFL News,” agents and student-athletes are increasingly targeted over time in a recent probe by the NCAA.  The collegiate athletics sanctioning body commenced an investigation of ever-increasing thoroughness after Reggie Bush was accused of accepting consideration from agents while a student-athlete at the University of Southern California.  More recently, six University of North Carolina student-athletes were suspended from athletic events after allegations were leveled at the latter and coaches who broke NCAA rules by engaging agents and accepting consideration for contact with players and coaches on the football team.

Josh Luchs: the agent industry's Jose Canseco.

Serious issues underline the fact that student-athletes are keeping relationships with agents and coaches – as in UNC’s case – are facilitating the process.  According to Marot’s article, since the late 1980s, student-athletes like Ohio State superstar and prospective Pro Football Hall of Fame wide receiver Chris Carter have either accepted consideration from agents or simply contacted them before their eligibility expires.  It is an old problem that lingers in the student-athlete’s former athletic department (i.e. Reggie Bush sunk USC’s athletic department and football program, though he and the offending agents were the only parties in breach of NCAA rules) and disappears from the athlete’s life upon departure from the university/team.  Therefore, the NCAA has enlisted the help of former agent/whistleblower Josh Luchs in its determined and focused effort to decrease the frequency of such infractions.  By punishing student-athletes who are drafted by the NFL and any agents who violate NCAA and state rules and laws, the sanctioning body hopes to deter engagement in said activities, which affect the university and uninvolved/innocent student-athletes who remain at their institutions in the long run and follow the rules.  In a statement by the NFLPA – a prime stakeholder in the student-athlete/agent controversy – mentioned in Marot’s article, however, the professional players’ union refused to levy penalties on players who violated NCAA rules in spite of any of the probe’s findings.

The NCAA’s investigation extends beyond the USC and UNC football teams.  Currently, student-athletes at the University of Georgia, University of Alabama (defending BCS national champions), and the University of South Carolina have been implicated in the league’s investigation.  The problem of agent/player relationships resulting in an exchange of consideration before the end of the student-athlete’s college playing career is more insidious than originally thought.  Clearly, student-athletes – specifically college football players – are lured by financial gain to break NCAA rules.

It would be interesting to see the results of a decision by the NCAA to share its revenue with student-athletes in a holistic attempt to prevent unethical behavior by the latter and agents.  Since over 90% of college athletic departments operate at a loss, revenue sharing would be accomplished through the NCAA and not on a per-school basis.  Universities with athletic departments sanctioned by the NCAA ought to be audited to ensure that financial statements accurately represent curtailed profits.  In such a case that the statistic is true, then the NCAA ought to create escrow accounts for student-athletes that may be either withdrawn upon graduation to assist with transition to a life outside of professional sports, or give the former student-athlete a head start on a retirement fund.  After all, the NCAA’s assets reach well beyond seven, eight, or even nine figures per year, yet it does not incur the same costs that significantly decrease professional leagues’ retained earnings at the end of the year: player salaries.

All in all, the process has only just begun.

Cam Suarez-Bitar.

For more on the topic of student-athletes and revenue sharing, you can read a related article at http://csbcomsportsbiz.com/2010/08/03/should-college-athletes-be-paid/

 

The fact that student-athletes are willing to accept money from agents or boosters acting unethically may signal a growing demand for revenue sharing between the NCAA and college student-athletes. After all, without the student-athletes, would athletic departments, universities, or the NCAA (i.e. Bowl Championship Series) have a product to market? Depending on your answer, it follows to ask what would constitute fair compensation for the full-time student-athletes who make college football the prime time spectacle the nation follows and marketers exploit. It is a challenging conundrum, to say the least.

%d bloggers like this: