Archive for the ‘ Issues in Administration ’ Category

Shelby American, Inc.: A Past and Present of the Legendary Modifier/Builder that Forever Changed the American Auto Industry

From left to right: The limited edition 2012 Shelby GT350 (only 350 are being made by Shelby American), which was unveiled at the 2011 Chicago Auto Show in coupe and convertible form, and the 1965 Shelby GT350 (which was a Shelby-tuned and modified version of Ford's all-new Mustang). Originally seen as a "secretary's car" in spite of its immediate popularity, the factory 1965 Ford Mustang needed an edgier soul, so Ford management asked Shelby and his outfit to liven it up. The Mustang and GT350's instant success resulted in the beginning of a beautiful friendship between Ford and Shelby that changed the industry and international auto racing forever.

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The NFL and the NFLPA: The Significance of the Current Collective Bargaining Process and a Collection of Relevant Legal and Ethical Issues (Part 5: Conclusions and Bibliography.)

 

As the lights go out in Cowboys Stadium at the conclusion of Super Bowl XLV, the clock will be ticking for both sides to finalize a new collective bargaining agreement.

Conclusions: A Final Assessment of Each Side’s Arguments and a Second Look through the Legal Lens at the History of Collective Bargaining in the NFL

League revenue reached $4.3 billion in 2001, exceeded $6 billion in 2005, and passed $8 billion at the end of fiscal 2009 (Lee, p. 87).  Certainly, there are signs of growth throughout the league, though the Packers’ arguments regarding rising operational costs and player costs that are growing faster than net income stand as legitimate concerns for team owners.  Since teams – except the publicly owned Green Bay Packers – refuse to open their accounting books for all to see, a lack of transparency prevents analysts from achieving a clear understanding of the debate over a new collective bargaining agreement.  The most valid position – in logical terms, the only side offering enough evidence to form a valid argument – regarding revenue-sharing in the battle between NFL management and players belongs to the NFLPA when we rely on the sources I chose for this project.  Statistical analyses, such as a multiple regression of team revenue, retained earnings, player costs, and net income across the league would help resolve the argument between the NFL and the players’ union, since inferences could be drawn from the entire population of thirty-two teams.  With only one team’s financial data, however, statistical conclusions cannot be drawn with any confidence; in other words, analysts cannot extrapolate figures for the rest of the league from the Green Bay Packers’ financial statements.  Arguments are strong on both sides regarding an 18-game season and a rookie salary cap, but the owners’ position on revenue-sharing forces the union to accept claims of financial hardship without many references to concrete financial data.

At this point, the NFLPA may choose to decertify and use antitrust laws to sue the NFL.  “If the NFLPA were to decertify, it would, in effect, operate as a trade organization but cease to be a union,” writes Liz Mullen of the Sports Business Journal (2010, p. 27).  The union is gaining player support to exercise the option to decertify and impose a firm deadline for owners to act, since it must sue before the CBA expires or it will have to wait six months after 3 March 2010 to pursue legal action (Mullen, 2010, p. 27).

Should the union decertify, though, the NFL could gain the upper hand.  In 1989, the

An artist's rendition of the NFLPA's Demaurice Smith as found on the Sports Illustrated website.

NFLPA decertified “only to become a union again in 1993, after it won a jury trial in the Reggie White v. NFL case,” according to Mullen (2010, p. 27). The NFLPA would also relinquish its ability to collectively bargain and represent players before the league, collect dues, and lose players’ licensing and marketing rights (Mullen, 2010, p. 27).  Nevertheless, decertification would “allow the union to legally challenge any NFL plan to unilaterally implement a new labor system” (Mullen, 2010, p. 27).  If the NFLPA sued and used antitrust laws, the league could defend itself by using the “single entity defense” since the “Supreme Court ruled that a single entity cannot conspire with itself in violation… of the Sherman Act” (Kahn, 2009, p. 860).  Even though the NFL has a defense from antitrust laws, the NFLPA could persist and hope for an outcome similar to the Curt Flood Act, “named after the player who had unsuccessfully sued [Major League Baseball] under antitrust laws in 1972, which removed baseball’s antitrust exemption in labor matters” (Kahn, 2009, p. 862).

The outcome could be even more positive for the players, however.  Kahn’s study shows how the NFLPA could succeed if it took the NFL to court over antitrust laws.  Player payroll rose from 41% of league revenue in 1990 to 67% in 1996: a direct result of the union decertifying and taking the league to court over alleged violations of federal antitrust laws (Kahn, 2009, p. 874).  The NFL argues that union decertification would be a “sham” and would be caused by the union’s efforts to gain access to antitrust laws, but regarding decertification, “the [Supreme] Court left open the possibility of future labor-related antitrust suits” under such circumstances (Kahn, 2009, p. 875).  Therefore, the NFLPA has a strong option in decertification.

In all, the NFLPA has valid and strong arguments regarding revenue-sharing and an 18-game season, especially when the history of NFL collective bargaining is viewed from a legal perspective.  Both sides could benefit from collective bargaining and resolving the matter before 3 March 2011, but if the dispute between the union and team owners goes to federal court, anything could happen.  The NFLPA could win big like in 1993; or, in the event of a loss in court, it could set a precedent that would not allow unions to decertify only to gain access to antitrust laws.  On the other hand, the NFL could be shielded from antitrust laws by the “single entity” defense and defeat the NFLPA in federal court; however, if the NFL cannot win in court, the league could lose its antitrust exemption like Major League Baseball in 1972 with the Curt Flood Act.

Though several other legal and ethical issues define the current collective bargaining process – including the battle between owners involving revenue-sharing among the NFL’s thirty-two teams – over the past five weeks in this five-part report we have taken a broad look at literature that reveals certain intricacies of the debate on the CBA.  Below my signature, please find the bibliography of sources I examined for this analysis.  I hope you now have a clearer understanding of the NFL’s current collective bargaining process, and if there are any questions or comments, please feel free to post them here or send me an email.

Cam Suarez-Bitar.

Bibliography

Aikman, Troy.  (2009, August 31).  Enjoy This Season: Labor Pains Could be Right Around the Corner.  Sporting News, 233(19/20), p. 43. (http://content.ebscohost.com/ContentServer.asp?T=P& P=AN& K=44002287& EbscoContent=dGJyMMvl7ESep7M4zOX0OLCmr0ieqK9Srq%2B4TLeWxWXS& ContentCustomer=dGJyMPGus0mxrLVRuePfgeyx%2BEu3q64A& D=aph )

Associated Press.  Colts’ Bill Polian: NFL’s 18-Game Season is “Fait Accompli.” (2010, September 28) USA Today, Sports, NFL, (http://www.usatoday.com/sports/football/nfl/2010-09-27-bill-polian-18-game-season_N.htm)

Associated Press.  Goodell Pushes for a New Stadium in Atlanta.  (2010, November 11).  ESPN.com, (http://sports.espn.go.com/espn/wire?section=nfl&id=5793484)

Associated Press.  Goodell: Rookie Pay Scale “Ridiculous.”  (2008).  NFL.com, (http://www.nfl.com/news/story?confirm=true&id=09000d5d80909cc9&template=with-video)

Baschnagel, Charles N.  An Analysis of the Effects of the 1993 NFL Salary Cap on Competitive Balance and League Revenue: Has anticompetitive behavior led to better competition? Available from Ebscohost database.

Dividing Line is Drawn.  (2010, March 3).  USA Today, Sports p. 1c.

Green Bay Packers Audit performed by the Wisconsin Legislative Audit Bureau, 1999.  Retrieved from Google.com search for “Green Bay Packers financial statements.”  File found online in .pdf format.

Kahn, Lawrence M.  (2009).  Sports, Antitrust Enforcement, and Collective Bargaining.  The Antitrust Bulletin, 54(4), p. 857-881. (http://proquest.umi.com/pqdweb?did=1973216451& Fmt=6& VInst=PROD& VType=PQD& RQT=309& VName=PQD& )

Kaplan, Daniel.  (2010, November 1).  NFL Pools $900M for Labor Fight.  Sports Business Journal, 13(27), p.1, p. 36.

King, Peter.  (2010, October 18).  The Gathering Storm.  Sports Illustrated, 113(14), p. 44-46.

Kuriloff, Aaron.  (2010, July 14).  Green Bay Packers Net Income Rises 30% in Annual Report Amid Labor Talks. Bloomberg.com, (http://www.bloomberg.com/news/2010-07-14/green-bay-packers-net-income-rises-30-in-annual-report-amid-labor-talks.html)

La Canfora, Jason.  (2010, July 14).  Pack Thriving and Suffering, Depending on Who’s Reading Ledger.  NFL.com, (http://www.nfl.com/news/story/09000d5d8191f3cb/article/pack-thriving-and-suffering-depending-on-whos-reading-ledger)

La Canfora, Jason.  (2010, July 14).  Packers Cite Player Costs in $10.3 Million Drop in Operating Profit. NFL.com, (http://www.nfl.com/news/story/09000d5d8191dcca/article/packers-cite-player-costs-in-drop-in-operating-profit)

Labor is Focus at NFL Meeting. (2009, March 24).  USA Today, p. 10c.

Lee, Travis.  (2010).  Competitive Balance in the National Football League After the 1993 Collective Bargaining Agreement.  Journal of Sports Economics, 11(1), p. 77-88. DOI 10.1177/1527002509336207 545MN

Lobdell, Colin.  (2010, October 23).  Can NFL Players Survive an 18-Game Season? Bleacher Report. (http://bleacherreport.com/articles/499818-can-nfl-players-survive-an-18-game-season)

Mullen, Liz.  (2010, November 1).  Labor Uncertainty, Reluctant Recruits Hampering Agents.  Sports Business Journal, (https://www.sportsbusinessjournal.com/article/67304)

Mullen, Liz.  (2010, September 13).  Union Seeks Authority to Decertify.  Sports Business Journal, 13(20), p. 27.

Murphy, Nick.  (2010, November 4).  Guest Column by Nick Murphy: The Numbers Don’t Lie.  Retrieved November 5, 2010 from NFLPlayers.com.  (http://www.nflplayers.com/Articles/CBA-News/Guest-Column-by-Nick-Murphy-The-Numbers-Dont-Lie/)

NFL.com.  (2006-2010).  NFL Collective Bargaining Agreement 2006-2010. Available from NFL.com database.  Searched Google.com for “current NFL collective bargaining agreement” – results: static.nfl.com/static/content/public/…/cba/nflcba-2006-2012.pdf

NFLPlayers.com.  (2010).  Breaking News: Player Breaks Down Revenue Discrepancy.  Retrieved November 5, 2010 from NFLPA.com database. (http://www.nflplayers.com/Articles/CBA-News/Breaking-News-Player-Breaks-Down-Revenue-Discrepancy/)

NFLPlayers.com.  (2010, June 16).  Lewis, Brady Sound Off on Potential Expanded Season.  Retrieved November 4, 2010, from NFLPA.com database.  (http://www.nflplayers.com/Articles/CBA-News/Lewis-Brady-Sound-Off-on-Potential-Expanded-Season/)

NFLPlayers.com.  (2010). NFLPA Lockout Central. Retrieved November 5, 2010, from NFLPA.com database. (http://www.nflplayers.com/about-us/2011-Lockout-Central/)

NFLPlayers.com.  (2010).  Taxpayer Subsidies for NFL Stadiums.  NFLPA.com, (http://www.nflplayers.com/Articles/CBA-News/Taxpayer-Subsidies-for-NFL-Stadiums/)

NFLPlayers.com.  (2010).  Players’ Workers Compensation Issues.  Retrieved November 5, 2010, from NFLPA.com database. (http://images.nflplayers.com/mediaResources/files/Workers%20Comp_FACTS.pdf)

Players Knock Goodell During Camp Tour. (2010, August 10).  USA Today, Sports p. 3c.

Roberts, Gary R.  (1988).  The Evolving Confusion of Professional Sports Antitrust, the Rule of Reason, and the Doctrine of Ancillary Restraints.  Southern California Law Review, 61 S. Cal. L. Rev. 943.

Schiess, Wayne.  (2010).  Advice for Drafting a New NFL Collective Bargaining Agreement.  Texas Review of Entertainment & Sports Law11(2), p.205-217.  (http://content.ebscohost.com/ContentServer.asp?T=P& P=AN& K=51229487& EbscoContent=dGJyMMvl7ESep7M4zOX0OLCmr0iep7ZSs6e4S7CWxWXS& ContentCustomer=dGJyMPGus0mxrLVRuePfgeyx%2BEu3q64A& D=aph )

Standstill Irks Union Leader.  (2009, September 9).  USA Today, Sports p. 10c.

Trotter, Jim.  (2010, September 20).  Going Digital.  Sports Illustrated, 113(10), p. 14

Walker, Don.  (2010, July 14).  Packers’ Worth, Worries Up.  Wall Street Journal, (http://www.jsonline.com/sports/packers/98472199.html)

Wilner, Barry.  (2010, October 13).  NFL Owners Show Optimism About Reaching a New CBA.  Yahoo! Sports, (http://sports.yahoo.com/nfl/news?slug=ap-nflmeetings)

 

Just under two months remain before the current CBA expires. Negotiations are heating up between the owners and the NFLPA.

The NFL and the NFLPA: The Significance of the Current Collective Bargaining Process and a Collection of Relevant Legal and Ethical Issues (Part 4: The 18-Game Season and Rookie Salaries.)

 

Tom Brady has expressed his concern over an 18 game season.

The 18-Game Schedule and Rookie Salaries

a) The Owners’ Perspective

To football fans anywhere, two more regular season games would sound like a gift from the Almighty.  Owners are well aware of this and hope to grow revenue by expanding the schedule to 18 regular season games.  Indianapolis Colts President Bill Polian considers the 18-game season an inevitable outcome of the collective bargaining process (Associated Press, Colts’ Bill Polian: NFL’s 18-game Season is “Fait Accompli,” 2010).  “I think that the owners, and principally the commissioner, have decided that it’s the way to go, and so the debate, such as it was, is over,” said Bill Polian to the Associated Press (2010).  Both games will be the result of a swap: essentially, two preseason games will be eliminated and two regular season games added to the official schedule.  NFL Spokesman Greg Aiello wrote once that 18-game football seasons are nothing new, since the CFL and USFL played those schedules before, and Goodell agrees (Lobdell, 2010).  The owners’ argument holds well against the union’s contention since players already play four preseason games that do not count in the win/loss column; by making two of those four games count, any resulting player injuries would not seem in vain.

Owners will not argue much with the union over rookie wages, since both sides agree that unproven players do not deserve to be among the highest-paid players in the league without taking their first NFL snap.  Essentially, team owners are pushing for a rookie salary cap without meeting significant union resistance (Labor is Focus at NFL Meeting, 2010).  Packers President and CEO Mark Murphy has seen his fair share of the spotlight since July 2010, since Green Bay is the only publicly owned team and required by law to publish their yearly accounting statements.  He contends that the current system is “unsustainable” and that rookie salaries are “another thing we’d like to address in collective bargaining” (La Canfora, Pack Thriving and Suffering, Depending on Who’s reading Ledger, 2010).  NFL Commissioner Roger Goodell has long believed that rookie wages are “ridiculous… money is going to a player that never makes it in the NFL,” and that “the money should go to people who perform” (Associated Press, Goodell: Rookie Pay Scale “Ridiculous,” 2008).

b)            Perspectives from the Players’ Union

The Miami Dolphins' Jake Long became the league's highest paid offensive lineman before taking his first snap in the NFL.

 

The Green Bay Packers’ net income rose by about 30% to $5.2 million in the fiscal year ending March 31 [2010],” according to Bloomberg.com’s Aaron Kuriloff (2010).  In the same report, however, Kuriloff reveals that operating profit declined by more than half: from $20.1 million to $9.8 million (2010).  Nevertheless, “it’s 1/32nd of the financial information we’ve requested in response to their demand that we give back $1 billion and increase our injury risk by playing two additional games,” according to NFLPA President Kevin Mawae (La Canfora, Pack Thriving and Suffering, Depending on Who’s Reading the Ledger, 2010).  Two more games-worth of added risk of injury and decreased overall pay seems like a difficult proposition despite losses reported by one of thirty-two NFL teams.  Quarterback Tom Brady of the New England Patriots and Linebacker Ray Lewis of the Baltimore Ravens also disagree with a two game extension.

“Don’t get me wrong, I love the game of football.  If fans want to show their love, they should let everyone know that we are not machines,” said Lewis regarding an expanded season (NFLPlayers.com, 2010).  He added, “swapping two preseason games for two end-of-season games – when players already play hurt – comes at a huge cost for the player and the team” (NFLPlayers.com, 2010).  Tom Brady complemented Lewis’ position and stated, “The long-term impact this game has on our bodies is well documented.  Look no further than the players that came before we did” (NFLPlayers.com, 2010).  Brady finished by adding the fact that a player must play three years if he expects to receive post-career health care for just five years (NFLPlayers.com).  In an 18 October 2010 Sports Illustrated article, Peter King points out that the NFLPA wants owners to modify post-career health care plans if the season is extended, since players would play six extra games over three years to earn five years of post-career health care (King, 2010, p. 44-46).  The NFLPA also expects a 15% annual pay increase if the season is expanded to cover wages for two extra games.

Finally, the NFLPA’s position on rookie salaries does not much differ from the owners’ stance.  “They need to do it like the NBA… Get a rookie salary cap, then let a guy play for three or four years and prove himself,” stated Pittsburgh Steelers linebacker James Harrison in March 2010 (Dividing Line is Drawn, 2010).  In 2008, the Miami Dolphins drafted Jake Long from the University of Michigan – the five-year, $30 million deal made him the highest-paid offensive lineman in the league (Dividing Line is Drawn, 2010).

Cam Suarez-Bitar.






 

Happy New Year!!!!

The NFL and the NFLPA: The Significance of the Current Collective Bargaining Process and a Collection of Relevant Legal and Ethical Issues (Part 3: What SI’s Peter King calls “The Billion-Dollar Give Back.”)

The players' union is flexing its muscles as it prepares for a CBA process that most likely will not be resolved until after March 2011.

A Collection of Issues Revolving Around a New Collective Bargaining

Agreement – The Owners vs. The Players’ Union

__________

1 – What Peter King of Sports Illustrated dubs, “The Billion-Dollar Give Back.”

a)            The Owners’ Perspective

Team owners argue that player costs are too high and that revenue-sharing must be rolled back for several reasons.  First, owners state that stadium financing in the NFL has changed drastically over the last thirty years.  According to Peter King, Giants Stadium cost $78 million in 1976 and was paid with public funding (King, 2010, p. 45).  However, the New Meadowlands Stadium hosted its first NFL game during the 2010-2011 season and cost the Giants and Jets $1.6 billion with “practically no public funding” (King, 2010, p. 45).  Since the cost of either new stadiums or renovations have increased while public funding has not climbed at the same rate, owners are asking players to subtract another $1 billion from the revenue-sharing pool and allow the owners to allocate those funds to stadium renovation/construction, thereby increasing the exempt amount to $2.4 billion (King, 2010, p.45).

Players benefit from working in modern facilities, since newer stadiums usually include amenities that help the team generate revenue and improve the fan experience.  With new stadiums in Dallas and New York/New Jersey, team owners in other cities feel pressure to catch up to a new wave of modernization and need help meeting expectations.  Such pressure arrives from a myriad of sources, including the commissioner himself.  “The bar has been raised because you’re getting great facilities around the country in great communities… [Super Bowls] are a tremendous value to the communities, so there’s a lot of competition for [them].  So I think a new stadium with [sic] this great community would be beneficial to bringing another Super Bowl to this community” (Associated Press, 2010).  Though local officials and Atlanta Falcons ownership are currently discussing the costs of modifications to the state-owned, 72,000-seat Georgia Dome, the cost would place added pressure on team owners and taxpayers to raise capital without player assistance.  “That’s one of the reasons we’re focused on restructuring the collective bargaining agreement, to make sure that we have the kind of structure that will allow us to make those kind [sic] of investments in the game and the communities which allow the game to continue to grow… That is good for the players, good for the teams, good for the communities [sic].  That’s something we want to continue to focus on,” added Goodell (Associated Press, 2010).

Without financial support from the players, local governments may be pressured to

Atlanta's Georgia Dome: one of several "outdated" NFL stadiums eclipsed by the new palaces of technology in Dallas and New York.

contribute higher amounts of capital than ever before to stadium construction plans.  After local media plays both sides of the argument over public stadium financing, residents usually side with the owners after local news outlets sympathize with teams.  One example is Norman Braman, a Miami businessman who struggled to prevent the use of public funds to finance construction of the new Florida Marlins’ stadium in an impoverished Miami neighborhood, but failed after local media eventually took a softer stance on team owners and government officials partial to the Marlins’ cause.

b)            Arguments for the Players’ Union

In response to owners’ calls to lower player costs (i.e. players salaries), NFLPA Executive Director DeMaurice Smith asked, “How do I go in front of my players with information from Forbes [stating] that teams average $31 million in profit and justify an 18% pay cut” (Dividing Line is Drawn, p. 1c).  Smaller-market team owners depend on revenue-sharing between teams to maintain viability – this issue is also one of the most heated in the debate over the CBA, according to notes taken at a lecture by Northwestern University Sports Administration Professor Roy Kessel.  Under a new CBA, owners hope to reduce player costs by $1 billion dollars and offset inter-team revenue-sharing costs as much as possible and lessen dependence by smaller-market teams on their more affluent colleagues.  In spite of decreased profits/net income, teams in San Francisco, Minnesota, Oakland, and Atlanta are making overtures for new stadiums or renovations; nevertheless, they claim “financial hardship” as they apparently plan for these elective costs.

Since 1990 and in spite of recent claims of financial hardship and escalating player

Since it is publicly owned, the Green Bay Packers (right) are the only NFL team required by law to disclose its yearly financial statements.

costs, 28 of all NFL teams have either moved into new stadiums, completed renovations, or are currently in the planning stages (NFLPlayers.com, 2010, Taxpayer Subsidies for NFL Stadiums).  The average team “receives 65% of its stadium financing through taxpayer subsidies” as team values continue to rise (NFLPlayers. com, 2010). Increased elective costs, such as stadium renovations or construction, could appear irresponsible in an ailing economy.  Statistics on the NFLPA website suggest that increased dependence on public financing for stadium construction – and other high elective expenses that teams incur – as team operating revenues decrease does not signal responsible fiscal behavior.

Ownership enjoys significant leverage when issues regarding stadium financing arise.  In fact, the Minnesota Vikings’ Vice-President for Public Affairs Lester Bagley stated, “The clock is ticking, and the lease is coming due.  The state can’t afford to have us become free agents” (2010).  If teams cannot afford to build new stadiums or renovate current facilities, they should table the matter until finances improve.  In any case, if players are expected to contribute to stadium construction by taking a $1 billion pay cut, then they should have the power to influence the decision as stakeholders to build or not.  Even though players could benefit from the construction of new stadiums while under the employ of the team with the new facility, long-term benefits would only rest with management and ownership since teams could trade players away.

Essentially, the NFLPA could argue that Commissioner Roger Goodell ought to treat stadiums independently, not comparatively.  The players – and taxpayers – share no responsibility for excessive team spending while owners and the commissioner choose to invest in new facilities and operating costs, allegedly, continue to rise across the league.

President and CEO of the Green Bay Packers Mark Murphy (but I guess you already knew that from looking at the picture!)

Lastly, Chief Executive Officer of the Green Bay Packers, Mark Murphy, claims that the Packers’ “only growth in revenue in recent years has been on the national side,” according to the team’s 2009 financial statements (Kuriloff, 2010).  However, according to the Wisconsin Legislative Audit Bureau’s 1999 audit of the Green Bay Packers’ books between 1995 and 1999, the Packers’ annual net income ranged between $5.4 and $7.1 million, respectively, and retained earnings nearly doubled from 1995 ($40.5 million) to 1999 ($76.2 million) (Wisconsin Legislative Audit Bureau, 1999).  With 2009 net income at $5.2 million – a 30% increase from 2008 – (Kuriloff, 2010) the Green Bay Packers did not appear to be worse off in 2009 than they were 15 years ago.  As Troy Aikman points out, “owners claim they can’t keep up with player salaries.  Yet [sic] the Redskins’ Daniel Snyder reaches into his pockets and gives [Albert] Haynesworth a $100 million deal” (Aikman, 2009).  Former NFL punter Nick Murphy also disagrees with owners and wrote, “player expenses increased only 4 percent in 2009 and only half of that was salary-related.  From 1996 to 2007, the average NFL owner increased a franchise’s value by $693 million (338 percent) [and] according to Forbes magazine, player expenditures have nothing at all to do with the first decrease in NFL club valuations in 12 years” (Murphy, 2010).

Pete Kendall, “permanent player representative” for the NFLPA at CBA bargaining sessions, adds to the union’s argument by stating in a memorandum to NFL players that “the current salary cap system provides a percentage cap on the amount of football related revenue to be spent on player salaries and benefits” and that even though percentages of total revenue shared with players will remain the same, the league’s new definition of “total revenue” would decrease the money in that account and thus lower yearly distributions to players (DiTullio, 2010).

Without financial statements or audits from the other 31 teams, the players’ union has insufficient evidence to determine the league’s “need” – an essential set of details missing from the debate regarding a possible $1 billion pay cut.

Cam Suarez-Bitar.

Read Part 2 at: Part 2

Read Part 1 at: Part 1

 

Indianapolis Colts President Bill Polian, seen here with Peyton Manning (right) and former Colts backup Jim Sorgi (left).

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?

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.

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