Labor in Sports: The Next NFL Agreement

Now that the NBA and NHL have labor peace for the foreseeable future, those interested in sports and labor law will turn their attention to the NFL and Major League Baseball. Today, I will look at the potential issues in the NFL's next labor agreement. Next month, I will examine the hurdles that baseball must overcome.

The NFL is seen today as having the best labor agreement among the major sports, but this was not always the case. A series of labor problems and work stoppages culminated in the 1987 strike, where the owners hired replacement players and dealt a severe blow to the players union. (For an excellent summary, see Staudohar, "The football strike of 1987: A question of free agency," Monthly Labor Review, Aug. 1988). The strike did not achieve the players' goals of less restrictive free agency and higher salaries, but an antitrust lawsuit filed the same year was settled in 1992, with the institution of free agency as fans know it today.

The next year, the NFL and players signed the collective bargaining agreement still in place today. The agreement is considered exemplary because it pools almost all of the league's Defined Gross Revenues (DGR) (which includes TV, ticket sales, sponsorship, etc.) and creates a salary cap based on a percentage of those revenues (approx. 65%). This creates remarkable parity in the league.

If the agreement is so ideal, why would the sides want to risk a return to the labor problems of the 70s and 80s? Obviously, both the owners and the players would prefer an easy settlement, but issues exist that could divide the two sides. One can be found in the computation of the DGR. Owners in smaller-market teams would expand the formula to include a greater percentage of local team revenue, such as the Dallas Cowboys' sponsorship agreement with Pepsi. Players would like this because it would increase the total amount of DGR, but owners would then want to decrease the percentage guaranteed for player salaries. In addition, the owners would like a break for any debt obligations they have due to the construction of new stadiums.

Another possible area of disagreement comes from continually-escalating rookie salaries. Just a few days ago, Alex Smith signed the richest rookie contract ever -- $50M, with $24M guaranteed -- despite being considered by many as the "default" number one pick in a year devoid of top-notch prospects. ("NFL top-pick Alex Smith settles contract," S.F. Chron., 07/27/05). Owners may wish to see a rookie salary scale, similar to the one in the NBA, put in place to protect themselves from out-spending one another. Veterans could be in favor of these restrictions -- after all, more money spent on rookies means less is available for older players. But player agents, many of whom have considerable influence, will be against any attempt to limit the salaries of their newest clients. Moreover, it could be seen as a measure to drive down all player salaries, which the NFLPA would certainly oppose.

Finally, I have to believe that in some future negotiation, the players are going to fight for guaranteed contracts. The NFL is the only professional league that does not guarantee its contracts. Signing bonuses are guaranteed, and players can negotiate for a guarantee (like Shawn Alexander has done), but typically, an NFL team can cut a player for almost any reason and not be on the hook for the player's salary (and money never paid does not count against the salary cap).

For obvious reasons, many players do not like this. This is the main issue behind Terrell Owens' dispute with the Eagles -- why should he have to honor his contract if the team does not have to? Owens' new agent, Drew Rosenhaus, has attracted many new clients with this philosophy -- enough that other players may start caring about the issue of guarantees. As one player said, "Drew is doing far more for us than our own union." (See Cole, "Hardball football agent," Mia. Herald, 07/17/05).

Guaranteeing contracts, though, is not without problem. As explained by the NFLPA's general counsel, "[I]f I could wave a magic wand and, hereafter, all contracts that are signed are guaranteed, 80% of the players in this league would have one-year contracts because the clubs wouldn't want to take a chance on injury." (Christl, "Agent of change," Mil. Journal-Sentinel, 07/26/05). The union argues that players are better off with guaranteed bonuses and long-term contracts. It is unclear, though, if a majority of the players will agree, especially after listening to Rosenhaus.

Regardless, the owners will not give up on this issue without a fight. After all, injuries in football occur more frequently, and are often more severe, than in other sports. Football players also age more quickly than in other sports, turning a good player into a non-factor almost overnight. The owners will only guarantee contracts in exchange for major concessions from the players (i.e., a decreased salary cap). Whether in this bargaining session, or in the future, the issue of guaranteed contracts has the potential to cause a significant dispute between the league and the union.

At least one reporter has sources claiming the new NFL agreement will be signed within 60 days. (Felger, "NFL Notes," Bos. Herald, 07/24/05). If any of the issues discussed above becomes a factor, though, the negotiation could turn ugly, and a new agreement could be postponed until closer to the expiration of the current CBA in 2007. The NFL remains the gold standard of labor peace in professional sports, but the question remains: For how long?

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