CBA Split % Question

[theogt]

What are you referring to?

Ha! If I remembered the source exactly, I'd go find it and post it.

"Where's the last place you had your car keys." Hell, if I knew I'd go get them.

 

[Hoofbite]

Ha! If I remembered the source exactly, I'd go find it and post it.

"Where's the last place you had your car keys." Hell, if I knew I'd go get them.

I thought maybe you would know.

My bad. Didn't mean to ask for a little source info.

 

[theogt]

I thought maybe you would know.

My bad. Didn't mean to ask for a little source info.

It's in a thread here somewhere. If I wasn't still working, I'd take the time to find it.

 

[AdamJT13]

I think the players should, at best, be indifferent here. In fact, if anything, given the time value of money their economic incentive is to have the cash paid out to players earlier rather than currently.

I'm sure that they'd rather have it paid out "currently" than not at all, though. A cash minimum would force a team to spend a certain amount of money for a three-year period, regardless of how much it spent the year before that three-year period. Having only a cap minimum does not.

In a hypothetical example, let's say that the 2011 cap starts at $120 million and increases by $5 million per season. The 90 percent minimum would start at $108 million and increase by $4.5 million per season. So these would be the cap maximums and minimums through 2015, in millions --

2011 -- $120.0 max, $108.0 min
2012 -- $125.0 max, $112.5 min
2013 -- $130.0 max, $117.0 min
2014 -- $135.0 max, $121.5 min
2015 -- $140.0 max, $126.0 min

Now consider a hypothetical team that gives out one huge signing bonus in 2011, say $35 million for a five-year contract. To make it easy, we'll say that every other player on the team gets annual bonuses instead of prorated bonuses, and that the team's salaries and non-prorated bonuses total $101 million, $105.5 million, $110 million, $114.5 million and $119 million over these five years. With the $7 million annual proration included, the team would exactly meet the 90 percent cap minimum each season.

Let's look at the actual cash spent each season, though --

2011 -- $136 million (113.3 percent of cap)
2012 -- $105.5 million (84.4 percent)
2013 -- $110 million (84.6 percent)
2014 -- $114.5 million (84.8 percent)
2015 -- $119 million (85.0 percent)

For the period of 2012-14, the team actually spent only 84.6 percent of the cap in cash. That's $21 million less than it would be REQUIRED to spend if there was a cash minimum. It met the cap minimum, though, so with only a cap minimum, the team never has to spend that $21 million.

Even if the team spent right to the maximum in 2011 AND 2012 (adding $12 million in salaries for 2011 and $12.5 million in salaries for 2012), the team STILL would be required to spend another $21 million more in cash for 2013-2015 just to meet the cash minimum for that three-year period. Without it, the team would not have to spend that money. Ever.

 

[Outlaw Heroes]

I'm sure that they'd rather have it paid out "currently" than not at all, though. A cash minimum would force a team to spend a certain amount of money for a three-year period, regardless of how much it spent the year before that three-year period. Having only a cap minimum does not.

In a hypothetical example, let's say that the 2011 cap starts at $120 million and increases by $5 million per season. The 90 percent minimum would start at $108 million and increase by $4.5 million per season. So these would be the cap maximums and minimums through 2015, in millions --

2011 -- $120.0 max, $108.0 min
2012 -- $125.0 max, $112.5 min
2013 -- $130.0 max, $117.0 min
2014 -- $135.0 max, $121.5 min
2015 -- $140.0 max, $126.0 min

Now consider a hypothetical team that gives out one huge signing bonus in 2011, say $35 million for a five-year contract. To make it easy, we'll say that every other player on the team gets annual bonuses instead of prorated bonuses, and that the team's salaries and non-prorated bonuses total $101 million, $105.5 million, $110 million, $114.5 million and $119 million over these five years. With the $7 million annual proration included, the team would exactly meet the 90 percent cap minimum each season.

Let's look at the actual cash spent each season, though --

2011 -- $136 million (113.3 percent of cap)
2012 -- $105.5 million (84.4 percent)
2013 -- $110 million (84.6 percent)
2014 -- $114.5 million (84.8 percent)
2015 -- $119 million (85.0 percent)

For the period of 2012-14, the team actually spent only 84.6 percent of the cap in cash. That's $21 million less than it would be REQUIRED to spend if there was a cash minimum. It met the cap minimum, though, so with only a cap minimum, the team never has to spend that $21 million.

Even if the team spent right to the maximum in 2011 AND 2012 (adding $12 million in salaries for 2011 and $12.5 million in salaries for 2012), the team STILL would be required to spend another $21 million more in cash for 2013-2015 just to meet the cash minimum for that three-year period. Without it, the team would not have to spend that money. Ever.

This is a useful example, so let's keep working with it. The one issue I take with your argument is the claim that "with only a cap minimum, the team never has to spend that $21 million", which it otherwise has to spend sometime in the years 2012-14. The reason that the team meets the cap minimum (but not the cash spend minimum) in 2012-14 in your example is because it has already spent that $21 million. It spent it upfront, as part of the $35 million signing bonus.

To see that, all we have to do is restructure your hypothetical contract, so that, instead of a $35 million signing bonus, the team pays a $7 million signing bonus upfront and roster bonuses (or, if you prefer, increases in the player's annual salary) of $7 million in each of the remaining four years of the contract. Now the issue you identify in the years 2012-2014 disappears and the cash spend distribution looks like this:

2011 -- $108 million (90.0 percent of cap)
2012 -- $112.5 million (90.0 percent)
2013 -- $117 million (90.0 percent)
2014 -- $121.5 million (90.0 percent)
2015 -- $126 million (90.0 percent)

The team, simply by redistributing the upfront signing bonus, has managed to bring itself into compliance with both a 90% cap minimum and a 90% cash spend minimum, without spending a single dollar more.

The problem, from the players' perpective, is that they would prefer the cash spend distribution you use in your example, viz.:

2011 -- $136 million (113.3 percent of cap)
2012 -- $105.5 million (84.4 percent)
2013 -- $110 million (84.6 percent)
2014 -- $114.5 million (84.8 percent)
2015 -- $119 million (85.0 percent)

As you know, there are two reasons they would prefer this distribution: (a) the upfront money is guaranteed, whereas additional salary or roster bonuses in later years may never be realized, if the player is cut, and (b) given the time value of money, $35 million in a player's pocket today is simply worth more, financially, than $7 million today and an additional $7 million in each of the next four years (using a conservative rate of return of 4%, it's worth over $3 million more).

Thus, by providing the owners with a disincentive to pay out big signing bonuses upfront, and an incentive to instead spread the payment of any proposed signing bonus over the term of the contract (either as salary or roster bonuses in subsequent years of the contract), players may be left worse off by a cash spend minimum instead of a cap minimum, even though the dollar amount of the contracts doesn't change.

The players could assume, of course, that owners will continue to pay out big signing bonuses (perhaps in order to give themselves a competitive advantage) and later be forced to spend additional cash in order to remain in compliance with the cash spend minimum, but that's a dangerous assumption, given the economic incentives at play. And I think it's generally not advisable (certainly I would never advise a client) to assume, in a financial negotiation, that the other party will act contrary to its financial incentives in the future.

 

[AdamJT13]

This is a useful example, so let's keep working with it. The one issue I take with your argument is the claim that "with only a cap minimum, the team never has to spend that $21 million", which it otherwise has to spend sometime in the years 2012-14. The reason that the team meets the cap minimum (but not the cash spend minimum) in 2012-14 in your example is because it has already spent that $21 million. It spent it upfront, as part of the $35 million signing bonus.

To see that, all we have to do is restructure your hypothetical contract, so that, instead of a $35 million signing bonus, the team pays a $7 million signing bonus upfront and roster bonuses (or, if you prefer, increases in the player's annual salary) of $7 million in each of the remaining four years of the contract. Now the issue you identify in the years 2012-2014 disappears and the cash spend distribution looks like this:

2011 -- $108 million (90.0 percent of cap)
2012 -- $112.5 million (90.0 percent)
2013 -- $117 million (90.0 percent)
2014 -- $121.5 million (90.0 percent)
2015 -- $126 million (90.0 percent)

The team, simply by redistributing the upfront signing bonus, has managed to bring itself into compliance with both a 90% cap minimum and a 90% cash spend minimum, without spending a single dollar more.

The problem, from the players' perpective, is that they would prefer the cash spend distribution you use in your example, viz.:

2011 -- $136 million (113.3 percent of cap)
2012 -- $105.5 million (84.4 percent)
2013 -- $110 million (84.6 percent)
2014 -- $114.5 million (84.8 percent)
2015 -- $119 million (85.0 percent)

As you know, there are two reasons they would prefer this distribution: (a) the upfront money is guaranteed, whereas additional salary or roster bonuses in later years may never be realized, if the player is cut, and (b) given the time value of money, $35 million in a player's pocket today is simply worth more, financially, than $7 million today and an additional $7 million in each of the next four years (using a conservative rate of return of 4%, it's worth over $3 million more).

Thus, by providing the owners with a disincentive to pay out big signing bonuses upfront, and an incentive to instead spread the payment of any proposed signing bonus over the term of the contract (either as salary or roster bonuses in subsequent years of the contract), players may be left worse off by a cash spend minimum instead of a cap minimum, even though the dollar amount of the contracts doesn't change.

The players could assume, of course, that owners will continue to pay out big signing bonuses (perhaps in order to give themselves a competitive advantage) and later be forced to spend additional cash in order to remain in compliance with the cash spend minimum, but that's a dangerous assumption, given the economic incentives at play. And I think it's generally not advisable (certainly I would never advise a client) to assume, in a financial negotiation, that the other party will act contrary to its financial incentives in the future.

There are all sorts of reasons why your argument doesn't fly.

Are individual players going to start signing with teams who won't give them signing bonuses over teams that would? No, they're going to sign where they get the most money, with time value factored in, which means that teams will still have to pay signing bonuses to entice players to sign. And don't forget that some teams could be *forced* to prorate money to spend the cash minimum while still staying under the cap maximum. For example, if you're $10 million under the cash minimum but only $2 million under the cap maximum, you've got to find a way to spend $10 million in cash but have only $2 million of it charged against the cap.

Are teams going to stop competing for players? No, they're going to give them the largest financial incentives that they can, which often means giving them a bigger signing bonus -- guaranteed, upfront money.

Are players who got a prorated bonus never going to get cut? No, teams will still try to maximize their value for the money they're paying. When a player isn't worth the money he'll cost, he'll still be cut -- and the cash he would have received will have to be spent on other players, up to the minimum, instead of previously paid money being counted as "dead money" and preventing the team from spending more.

If the owners had the financial restraint to avoid competing for players and paying signing bonuses, don't you think they would have done it already? Think of all of the "dead money" they've wasted during the past two decades overpaying players upfront when they could have given them annual roster bonuses instead. You don't think billionaire businessmen understand the time value of money, and that they could have earned more interest by paying less money up front? Obviously, they pay signing bonuses because they have to, and that wouldn't change. And every dollar that remains prorated after more than three years would have to be spent again in cash instead of continuing to count as money spent.

 

[Outlaw Heroes]

There are all sorts of reasons why your argument doesn't fly.

Are individual players going to start signing with teams who won't give them signing bonuses over teams that would? No, they're going to sign where they get the most money, with time value factored in. And don't forget that some teams could be *forced* to prorate money to spend the cash minimum while still staying under the cap maximum. For example, if you're $10 million under the cash minimum but only $2 million under the cap maximum, you've got to find a way to spend $10 million in cash but have only $2 million of it charged against the cap.

Are teams going to stop competing for players? No, they're going to give them the largest financial incentives that they can, which often means giving them a bigger signing bonus -- guaranteed, upfront money.

Are players who got a prorated bonus never going to get cut? No, teams will still try to maximize their value for the money they're paying. When a player isn't worth the money he'll cost, he'll still be cut -- and the cash he would have received will have to be spent on other players, up to the minimum, instead of previously paid money being counted as "dead money" and preventing the team from spending more.

If the owners had the financial restraint to avoid competing for players and paying signing bonuses, don't you think they would have done it already? Think of all of the "dead money" they've wasted during the past two decades overpaying players upfront when they could have given them annual roster bonuses instead. You don't think billionaire businessmen understand the time value of money, and that they could have earned more interest by paying less money up front? Obviously, they pay signing bonuses because they have to, and that wouldn't change. And every dollar that remains prorated after more than three years would have to be spent again in cash instead of continuing to count as money spent.

I don't disagree with this, in substance. I do, however, believe that if you change a person's economic incentives it will inevitably change the person's behavior.

The owners have not, in the past, required nearly as much restraint to avoid paying huge signing bonuses. While it did cost them the time value of money, this was compensated for (as you properly suggest) by the fact that it allowed the owners to remain competitive in attracting players. A three-year rolling cash spend minimum adds the threat of having to pay out a big chunk of money later in addition to the big chunk paid out now in signing bonuses, in order to remain in compliance with a cash spend minimum. I'm not as sanguine as you appear to be about the possibility that owners will simply ignore that change in incentives.

 

[AdamJT13]

I don't disagree with this, in substance. I do, however, believe that if you change a person's economic incentives it will inevitably change the person's behavior.

The owners have not, in the past, required nearly as much restraint to avoid paying huge signing bonuses. While it did cost them the time value of money, this was compensated for (as you properly suggest) by the fact that it allowed the owners to remain competitive in attracting players. A three-year rolling cash spend minimum adds the threat of having to pay out a big chunk of money later in addition to the big chunk paid out now in signing bonuses, in order to remain in compliance with a cash spend minimum. I'm not as sanguine as you appear to be about the possibility that owners will simply ignore that change in incentives.

Although some super-cheap owners might behave differently given the change (likely the same ones who rarely gave out big bonuses under the old system anyway), doing so would limit their ability to compete for players.

Remember also, that although you're changing the incentive to prorate money for more than three years, you're also reducing the ability to underspend the minimum through the use of bogus incentives. Without a cash minimum, teams could spend less than the minimum every season and merely add unreachable incentives to meet the cap minimum. They could continue to do this for an indefinite number of years -- certainly longer than three years. The argument that the team MIGHT eventually use some or all of that cap room ignores the time value issue and ignores the fact that the team never has to spend that rolled-over cap room as long as the ability to roll it forward still exists.

There are far greater benefits for the players from a cash minimum than some hypothetical harm that might be incurred if the NFL owners suddenly became frugal -- and somehow avoided being accused of collusion while doing so.

 

[Outlaw Heroes]

Remember also, that although you're changing the incentive to prorate money for more than three years, you're also reducing the ability to underspend the minimum through the use of bogus incentives. Without a cash minimum, teams could spend less than the minimum every season and merely add unreachable incentives to meet the cap minimum. They could continue to do this for an indefinite number of years -- certainly longer than three years. The argument that the team MIGHT eventually use some or all of that cap room ignores the time value issue and ignores the fact that the team never has to spend that rolled-over cap room as long as the ability to roll it forward still exists.

I think this is a compelling argument, and one that players should factor into the analysis in deciding on the cash spend minimum.

There are far greater benefits for the players from a cash minimum than some hypothetical harm that might be incurred if the NFL owners suddenly became frugal -- and somehow avoided being accused of collusion while doing so.

I don't necessarily disagree with your overall conclusion. I would point out, however, that accusations of collusion would be spurious in the circumstances, since each individual owner would have the same incentive to be "frugal", irrespective of what owners were doing (although their frugality would be punished competitively if other owners chose not to act according to the new incentives).

 

[jterrell]

In the owners' March offer, they included a cash floor equal to 90% of the cap. Historically there has been a cap floor at 80%, IIRC.

Cash floor of 90% but only every 3 years.

This means you could see significantly lower than 80% the first year or any year a team wants to tank or become more profitable for the sale of say selling the team. It gave the owners more flexibility.

In all honesty that offer was terrible and the owners know it. It wasn't an attempt to settle anything but instead was a PR ploy; and a quite good one.

 

[jterrell]

Although some super-cheap owners might behave differently given the change (likely the same ones who rarely gave out big bonuses under the old system anyway), doing so would limit their ability to compete for players.

Remember also, that although you're changing the incentive to prorate money for more than three years, you're also reducing the ability to underspend the minimum through the use of bogus incentives. Without a cash minimum, teams could spend less than the minimum every season and merely add unreachable incentives to meet the cap minimum. They could continue to do this for an indefinite number of years -- certainly longer than three years. The argument that the team MIGHT eventually use some or all of that cap room ignores the time value issue and ignores the fact that the team never has to spend that rolled-over cap room as long as the ability to roll it forward still exists.

There are far greater benefits for the players from a cash minimum than some hypothetical harm that might be incurred if the NFL owners suddenly became frugal -- and somehow avoided being accused of collusion while doing so.

What your first point does is derail the entire argument about the meaning of the floor period. Owners who want to compete will spend to the cap. Ones who do not are far more likely to fall below 80% as often as possible.

This proposal was a clear move toward Owner interest not some win for players as has been at times portrayed.

There are only 4 teams with 2010 caps below 100 Million. If you plug in actual data; that you have in far more abundance than me, you'll see the math doesn't add up for the players.

It isn't a terrible deal for the players but is also not a clear net gain by any means. Not using recent spending levels.

 

[Hoofbite]

Cash floor of 90% but only every 3 years.

This means you could see significantly lower than 80% the first year or any year a team wants to tank or become more profitable for the sale of say selling the team. It gave the owners more flexibility.

In all honesty that offer was terrible and the owners know it. It wasn't an attempt to settle anything but instead was a PR ploy; and a quite good one.

Ownership changes hands so rarely this shouldn't even be brought into consideration. Any person buying a team isn't going to just look the other way. If Jerry Jones was at 75%, you don't think it would be taken into consideration that the next owner would have to make up that 15% somewhere?

Not to mention the NFL has to approve any ownership changes. It's not like some owner could implement this kind of a scheme in short order.

Additionally, Adam mentioned it was a rolling 3 year value, making it harder to pull off. Unless I'm mistaken, it would be pretty impractical to even try.


1st Period

2011: 75%
2012: 97%
2013: 98%

2nd Period

2012: 97%
2013: 98%
2014: >74%

3rd Period

2013: 98%
2014: >74%
2015: Whatever %

And the whole contractual commitment would make it even more difficult to select a year to tank.

Seems highly unreasonable that anybody would ever try to tank a season just try and earn more, sell the team and get out. I mean, the cash difference between 70% and 90% is 24 million dollars (going off a 120M cap). In the grand scheme of the NFL, 24 million is a pretty small amount of money to get out with. If you're selling the franchise, you're probably pulling 40X that amount.

 

[jterrell]

Ownership changes hands so rarely this shouldn't even be brought into consideration. Any person buying a team isn't going to just look the other way. If Jerry Jones was at 75%, you don't think it would be taken into consideration that the next owner would have to make up that 15% somewhere?

Not to mention the NFL has to approve any ownership changes. It's not like some owner could implement this kind of a scheme in short order.

Additionally, Adam mentioned it was a rolling 3 year value, making it harder to pull off. Unless I'm mistaken, it would be pretty impractical to even try.


1st Period

2011: 75%
2012: 97%
2013: 98%

2nd Period

2012: 97%
2013: 98%
2014: >74%

3rd Period

2013: 98%
2014: >74%
2015: Whatever %

And the whole contractual commitment would make it even more difficult to select a year to tank.

Seems highly unreasonable that anybody would ever try to tank a season just try and earn more, sell the team and get out. I mean, the cash difference between 70% and 90% is 24 million dollars (going off a 120M cap). In the grand scheme of the NFL, 24 million is a pretty small amount of money to get out with. If you're selling the franchise, you're probably pulling 40X that amount.

First, appreciate you using math there. Makes it much easier to discuss logically. But let's use real dollar amounts instead of percents.

Let's use a 100mil cap for simplicity's sake.

2011: 97 Mil
2012: 98 Mil
2013: 75 Mil

This is EASILY doable... because in real money you sign big contracts as you see fit. You renegotiate players early if you so desire. You put off signing anyone if you so desire. And notice this was without EVER exceeding the cap. In fact a good percent of the NFL will hit 97/98% of cap cash yearly as of recent history.

I am not arguing that EVERY owner does this or even every cycle. I am arguing it grants owners flexibility they would love! and int he end doesn't mean much of anything to players when we look at real world salary cap totals from the past 5 years.

Outside a handful of teams they remain at 90% or higher cap totals. Many at 95-98% of the cap.

In short the cap ceiling isn't a big issue.

Adam makes many valid points. But you have to carry them to their logical conclusions. Teams want good players. They will have to compete to get them. Players od want Time-valued deals. BUT they want most of all GUARANTEED money be it now or over 5 years.

Teams right now CAN use phony incentives to reach cap minimums. But that's isn't a big issue. Those teams are few and far between. You do not succeed that way.

And of course the way to increase player revenue is not to make those 4 teams give players raises... it is to have the other 28 teams have more cap room so they can give players raises... as they have been shown willing to do.

Jerry Jones has come off like a shark in this deal but at the same time we all know he'll be freely spending to cover holes. I want him to lose because I want him to win later; on the field, where it matters to me. I could care less if he goes from 200 Billion to 300 Billion in personal wealth over his remaining lifetime. I do care if he hoists a Lombardi again... you know like he did before there was a firm salary cap!

 

[jterrell]

Seems highly unreasonable that anybody would ever try to tank a season just try and earn more, sell the team and get out. I mean, the cash difference between 70% and 90% is 24 million dollars (going off a 120M cap). In the grand scheme of the NFL, 24 million is a pretty small amount of money to get out with. If you're selling the franchise, you're probably pulling 40X that amount.

Actual businesses due this sort of thing frequently. And we have seen various owners whose personal fortunes tanked that needed to cut things close and underwent franchise sales. The NFL has stepped in to help and buoy teams like this.

And of course the flexibility can be used far differently. It could be used as self-correction. you overspend one year and hit 98% then 99% and then realize you have a young Bucs team so you build cheap the next couple seasons. No 80% requirement now.

Franchise sales generally aren't big news outside their own towns because owners really don't matter all that much.

 

[Hoofbite]

Actual businesses due this sort of thing frequently. And we have seen various owners whose personal fortunes tanked that needed to cut things close and underwent franchise sales. The NFL has stepped in to help and buoy teams like this.

And of course the flexibility can be used far differently. It could be used as self-correction. you overspend one year and hit 98% then 99% and then realize you have a young Bucs team so you build cheap the next couple seasons. No 80% requirement now.

Franchise sales generally aren't big news outside their own towns because owners really don't matter all that much.

There currently isn't a requirement as it is, just a cap number.

And really, what does it matter if a team stays at 90% for 3 years or varies over the course of 3 years as long as they are spending as much as every other team?

Where'd you get the numbers for the 4 teams under 100M? I've seen some numbers but it seems like so many numbers are thrown out that it's hard to keep track.

 

[AdamJT13]

Cash floor of 90% but only every 3 years.

This means you could see significantly lower than 80% the first year or any year a team wants to tank or become more profitable for the sale of say selling the team. It gave the owners more flexibility.

That's the status quo, except that the owners can use phony incentives to reach the minimum.

All that a cash minimum would do is force the owners to spend money during a certain period of time instead of counting money that was spent four years earlier or counting bogus incentives as money spent.