The Coronavirus Impact on Contracts and Cap Space
By: Colin Platz
The National Football League made roughly 15 billion dollars in revenue during the 2018 season, the most profitable year for the league in the past decade. Football has had success largely due to massive television contracts, lucrative sponsorship deals, and of course, by producing an extremely entertaining product. At the center of the TV deals, sponsorships, and the other numerous ways the NFL generates money, it’s ultimately the players on the field, playing a game they love, driving revenue for the league.
Generally speaking, the NFL is only as successful as the 32 franchises that comprise the league. Within the 32 franchises, each roster is made up of 53 players under contract and numerous coaches and staff members on the team’s payroll. Each franchise has numerous goals throughout a season, but the common goal for all teams is simply winning football games.
Winning games and successful seasons drive revenue for teams and the league alike, and more often than not, it’s the players on the field who translate the success of the product. These players get paid to compete on Sundays and maintain the NFL’s stature as the king of American sports. Therefore, it isn’t surprising that league success and lucrative player contracts go hand-in-hand. Over the past few months, media and fans have celebrated multiple high-profile players signing massive contracts. Christian McCaffrey of the Carolina Panthers recently signed a deal worth 64 million dollars in April making him the highest-paid running back in league history. More recently, Patrick Mahomes of the Kansas City Chiefs signed a contract extension worth approximately 503 million dollars making him the highest-paid player in NFL history. Not only have these contracts created a massive buzz in the sports world, they will also likely set the standard for future contracts at their respective positions.
Every year player contracts in the NFL get negotiated and renewed. Players face the option of hitting the open market in free agency or negotiating with their current team to reach a deal. Blockbuster contracts and increased league revenue has allowed players to cash out and get paid, but the COVID-19 pandemic may change that for future seasons. The NFL’s revenue may slump due to implications of the pandemic and a reduction in cap space may be inevitable. If this occurs, it will likely reduce the size of player contracts extending beyond the 2020-2021 season.
The NFL has a salary cap of 198.2 million for the 2020 season. This means that each team can afford to pay their players a combined 198.2 million dollars in 2020. The NFL has a hard cap, unlike certain other sports, meaning that no team can exceed the cap limit for any reason. This hard cap serves as a great equalizer across the league. Teams must choose who to pay and how to pay them in a way that’s conducive to competitive longevity. It’s exceedingly difficult to balance cap space across 53 players; so much so that teams and media outlets make use of cap experts for consultation on salaries and cap space. Cap space is determined by league revenue and given the current landscape, league revenue is projected to decline. The potential of canceling games and a reduction in ticket sales suggest a loss in revenue that could ultimately hinder the revenue increase the league has gradually experienced over the years. Since 2001, the league’s revenue has increased by 10 billion dollars. Further, the NFL hopes to achieve 25 billion dollars in revenue by 2027, projecting a 67% increase in 9 years. TV deals make up about 50% of the league’s revenue, but each team depends on local revenue to run their franchise. Local revenue is defined broadly as ticket sales, concessions, and corporate sponsors. Due to social restrictions and potential government or league rules, local revenue could decline if full stadiums are prohibited during the 2020 season. To put it in perspective, the Green Bay Packers local revenue made up about 43% of their total revenue in 2018. A reduction in half the revenue of each team would translate to being a reduction in half the revenue of the entire league. While the chances of this happening are slim, a decrease in league revenue certainly seems like a very likely possibility.
Andrew Brant, a columnist for The Monday Morning Quarterback, stated in a recent article “In all my years both managing an NFL salary cap and analyzing the business of the NFL, I never imagined discussing the possibility of a cap decrease from one year to the next, but that is now a very real possibility.” Football fans and players across the world are cautiously optimistic that the 2020-2021 NFL season will be completed. Unfortunately, when the season begins it won’t be without controversy or mild chaos. Players may get sick or hurt, and with social restrictions, stadiums are destined to operate at a reduced capacity. As the pandemic surges across America, the ramifications on league revenue may extend well beyond the 2020-2021 season.
NFL players have been fighting for more guaranteed contract money and a bigger share of the revenue since the inception of the Collective Bargaining Agreement and progress has been made for the players to get the money they feel they deserve. However, a loss in revenue could reduce the salary cap for 2021 and ultimately reduce the size of contracts in the near future.
At this point a reduction in revenue seems inevitable, however, the effect it will have on the league has yet to be determined. One thing that seems to be for certain is the NFLPA and agents may have obstacles ahead while advocating for lucrative contracts.
Colin is a rising 1L at the University of New Hampshire School of Law.
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