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Tuesday, November 09, 2004

New NFL contract / salary cap

by Mark Lawrence
PackerChatters Staff

The NFL has announced a new TV contract with CBS and FOX. It runs through 2011. The NFL has the right now to move up to 7 late season games from Sunday to Monday night, and up to 8 late season games which would move from Sunday to Thursday or Saturday.

CBS and FOX each get two Superbowls.

There was also a DirecTV / Sunday Ticket contract extension announced. Sunday Ticket will have a new channel, "Red Zone," which will switch from game to game showing teams about to score.

The NFL is still negotiating with ABC and ESPN. Obviously they wanted to finish these contracts first, as the rights to move games around and make these new Saturday and Thursday games makes the MNF and ESPN packages much more valuable.

At this instant we're looking at a salary cap which will be over $100M by 2008. The expected large increase in the MNF / ESPN packages, plus the money from the new Saturday / Thursday package will only increase that number, making it likely we'll see a $100M salary cap by 2008, perhaps 2007, and perhaps a $120M cap by 2010. This contract suggests the salary cap will increase at a rate of about 7% - 9% per year. Since the economy is growing at more like 2% a year, this means the price paid for TV ads during games will increase about as fast as medical expenses and college tuition. It's difficult to see increases like this and not presume that ticket prices and Sunday Ticket subscriber costs will also increase substantially. This will also substantially increase the value of the various team, except for the Packers.

This money will not be distributed evenly to the players. Most players will continue to play for league minimum. Most of this money will go into the top few contracts. We've already seen a couple $100M player contracts. This contract all but guarantees we will see a $200M player contract with a $50M signing bonus this decade. Perhaps the first such contract will go to Eli Manning, Phil Rivers, or Ben Rothlisberger. They will be negotiating long term deals in about the right time frame. It's difficult to imagine Art Rooney signing a $200M contract, so this TV contract may mean Pittsburgh will lose even more players. One must contrast this with Reggie White's FA contract with Green Bay in 1994. At the time this contract was seen as outrageous and if not the largest contract to date, certainly in the top couple. It was $17M / 4 years, $4.25 / year. Today I believe the league's richest contract is Payton Manning's, $99.2M, 7 years, $34.5M signing bonus, $14M / year.

It's getting harder and harder to see this as a game, and easier and easier to see it as a business with out of control greed-driven growth. It's difficult to see how contracts like this are in the interests of fans, especially fans in the smaller markets like GB, San Diego, Buffalo, Pittsburgh, Cincinnati. In the end, stadium revenue must increase at about this same 9% per year rate, or the team failing to keep up will run out of money for coaches, facilities, and signing bonuses. I think it's easy to imagine that Dallas, Washington, and NY will raise ticket prices at or above this rate.

Here's a table of the actual salary cap and the percent increase on the previous year, and my rough projection of salary caps for the rest of this decade. I assume 8% growth per year. The actual growth will not be quite this smooth.

1994 $34.600
1995 $37.100 7%
1996 $40.777 10%
1997 $41.450 2%
1998 $52.388 27%
1999 $58.353 12%
2000 $62.172 7%
2001 $67.400 8%
2002 $71.100 5%
2003 $75.007 6%
2004 $78.780 5%
2005 $83 5%
2006 $89 8%
2007 $96 8%
2008 $104 8%
2009 $113 8%
2010 $122 8%
2011 $131 8%

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