NFL/NFLPA Could Borrow Money From Future Seasons to 'Smooth' ’21 Cap

JohnWallStreet

The NFL salary cap is calculated based on a percentage of projected gross revenues for that league year. The 2020 cap has already been set at $198.2 million, but with stadium capacity bound to be limited throughout the upcoming season (and thus revenues all but certain to come in under expectations) speculation has begun to arise that the salary cap will drop in 2021 for just the second time since it was implemented in 1994 (the delta between projected and actual revenues would be deducted from the '21 cap). NFL Network’s Ian Rapoport recently suggested that the revenues lost in 2020 could result in a decline of “$40 million or a lot more per team” the following season.

Our Take: The NFL and NFLPA have not yet engaged in serious discussions about how they plan to manage the anticipated revenue shortfall in 2020 as the focus to date has primarily been on addressing player health and safety concerns. Once the two sides can agree on those protocols, the owners are expected to present the NFLPA with updated financial projections for the upcoming season (accounting for COVID's anticipated impact) and conversations about how to ‘smooth the cap’ in 2021 can formally commence. It’s unclear where Rapoport's $40 million estimate came from. The NFLPA has yet to see an official forecast of the projected lost local revenues.

The NFL collective bargaining agreement was ratified in 2020 (it now runs through 2030), so unlike with MLB where the players are concerned any concessions they make now could have an impact on upcoming labor talks, long-term peace exists between the two sides. That should allow the NFL owners and NFLPA to work towards a solution that would prevent a drastic decline in the ‘21 salary cap without having to worry about how it might impact the league’s economic model moving forward.

The NFLPA wants to avoid a significant fall off in the 2021 salary cap as it would all but certainly result in teams having to blow up their rosters (i.e. release highly paid veteran players). The players also want to steer clear of a scenario where next year’s free agent class is forced to absorb the full brunt of COVID’s economic impact on the game.

The NFLPA would like to reallocate money from either this year or from future years to 'smooth the cap'. Brian Murphy (CEO, Athletes First) says the most likely scenario is the two sides decide to borrow money from future seasons to offset the shortfall (remember, the league is expected to see a dramatic rise in broadcast revenues following the ’22 season). It reasons to believe the owners would prefer to finance their losses over several years - years when they'll be making even more money - than have to absorb them all in 2020. One solution the NFLPA is not interested in is a reduction in their share of overall revenues. The players fully intend on retaining 48% of the dollars coming in regardless of what the cap number ends up being in 2021.

Despite starting in the midst of a global pandemic, more money was spent in NFL free agency this offseason than any other. That would indicate the current freeze on free agent signings has more to do with the teams' inability to get players to their facilities than questions/concerns related to the 2021 salary cap (though that's certainly not helping). It’s believed once the clubs receive the green light to reopen facilities and players/agents have a better idea of what the cap will look like in future seasons free agent activity will resume. Murphy suggested that guys with one year left on their deals could also be among those looking to sign long-term extensions later this summer. “If next year’s salary cap is reduced, players may not be able to get the same deals that are available to them now. [Those guys] may be better off renegotiating [this summer] as they can eliminate all of the risk tied to COVID and the potential decrease in the salary cap" (nevermind injury or poor play).

Assuming the two sides can 'flatten the cap', the revenue losses suffered during the 2020 season should not have any impact on the clubs' use of the franchise tag next offseason. While the average salary of the top 5 players in the league at any given position might not increase in 2021, keeping the cap at the same level ensures the price of the tag won’t be dropping off either. (i.e. it’s not as if teams will be able to hold on to players at less than market value).

It's worth noting that the anticipated revenue shortfall is not the reason the 2020 rookie class has been slow to sign (just 2 first round picks are currently under contract). As Murphy said, “the rookie pool has already been defined and their cap space has been allocated by the teams.” It's more likely that the lack of urgency has to do with players still not permitted at team facilities and the NFLPA's opposition to some of the provisions teams are looking to include in rookie contracts.

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