- John Clayton, NFL senior writer
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The Packers recently released their financial report and the news was stunning. In a league of giants, the little guy won.
According to the annual report, the Packers produced $200 million of revenue in 2004, an 11.7 percent increase from 2003. Expenses jumped from $149.9 million to $166.3 million, including $98 million in player costs. After taxes, the Packers, a publicly owned team with 111,000 shareholders, made $25.4 million.
In sports, front-office executives tend to grow silent when their companies announce a profit. Some fans hold that against a team in part because of the high ticket prices and other expenses associated with sporting events. Nevertheless, no organization should have to apologize for making a profit. Profit means the organization is functioning efficiently, and the Packers' financial statement endorses an impressive management team, headed by president Bob Harlan.
Maybe I'm being the optimist, but I look at the Packers' financial statement as the best news in the stalemate to get a collective bargaining agreement extension. The NFL faces a crisis ahead, similar to the one the NBA conquered this month. Though the CBA doesn't expire until 2008, the league faces an uncapped year in 2007, and the impact will be felt in 2006 when teams lose the ability to cut players after June and account for remaining signing bonus proration the following year.
The window for getting a deal done with the union is closing. Unless a CBA is figured out by late fall, the players could see the thrill of an uncapped year in '07. It will be hard for owners to get the players to focus on keeping a salary cap when they control the cards after this season.
However, the high-revenue teams that don't want to share with the low-revenue teams are holding up the process. That's where the Packers' financial statement comes as great news. The Packers rank 10th, making them a high-revenue team. The nine teams above them gross up to $260 million of revenue, and that number will surely come close to $300 million in 2006, once the new network television contracts kick in.
When the bottom line is profit, owners naturally turn into businessmen rather than sportsmen. Cowboys owner Jerry Jones doesn't want to surrender his hard-earned millions to the Cincinnati Bengals when they don't maximize their revenues. It galls the high-revenue teams that the Bengals don't receive money for naming rights to Paul Brown Stadium.
But profit ultimately will lead to a settlement among the owners. The reason is simple. If sportsmen are going to act like businessmen, they will want the one thing that turns a profit fixed costs. Considering the biggest cost is the players' salaries, no good businessman will want to lose a salary cap.
Consider the plight of two rich, smart owners Robert Kraft of the Patriots and Jeffrey Lurie of the Eagles. Because their teams' annual statements aren't for public consumption, economists have to guess at their financial structure, but it's well acknowledged that they are in the top five for revenue, putting them well above the $200 million grossed by the Packers.
At the moment, Kraft and Lurie oppose an enhanced revenue-sharing plan to help the teams at the bottom. They worked hard and contributed to the building of new stadiums that put them atop the league's revenue scale. They still pay off tens of millions in interest from their purchase of the team.
But let's look at the reality of the salary cap and what it does. The Eagles offer the best explanation of why in the end these two owners will switch over when the deal for enhanced revenue sharing is right for them.
Because the Eagles were proactive in re-signing key free agents last year, they stand to make a huge profit in 2005 because of lower player costs. Their payroll will be well under the $85.5 million salary cap, figuring to be in the $70-75 million range. They earned that right last year because, according to the NFLPA, they had the league's second-biggest payroll at $104.97 million, second only to the Redskins.
Part of the beauty of the salary cap for a businessman is it gives him the ability to manage his money and manage the costs. The model surely works in Philadelphia. They have been to four straight NFC title games and one Super Bowl, and they have the talent to be favored to return. The biggest player cost is at quarterback, and Donovan McNabb is signed through 2010.
There are roughly $17 million in benefits paid by each team, and who knows the operating costs and interest payments paid by the Eagles? Still, if their payroll is going to be under the salary cap, it's safe to assume the Eagles are going to be pocketing a significant profit.
Forbes Magazine estimates the Eagles would make $44.3 million in profits, and usually the teams complain that the estimates are wrong. Forbes estimates the average team earns $26.6 million. Regardless of the team's reaction, the NFL is a profitable business, and part of the reason is the salary cap gives owners the ability to manage the flow of money to pay players.
That's why the good business people at the top of the revenue scale aren't going to lose this system. It helps them to wait for the right deal because additional sharing of revenue comes out of profit.
Here's what I see happening: For the next three months, the league will work on a plan fronted by Steelers owner Dan Rooney and Jaguars owner Wayne Weaver. The plan calls for sharing the local revenues, including those generated from suites, club seats and stadium signage rights. There were some thoughts the revenue sharing would start at 34 percent, but the number will probably fall into the 15-20 percent range.
One of the reasons the percentage can shrink is because the league is about to hit the jackpot on sponsorships. They have a five-year, $200 million deal with Sprint for cell phones that show game highlights. The league can use the Sprint deal and others to start a pool for the lower-revenue teams.
The worst thing that could happen to the NFL business model is having an uncapped season and competitive chaos. The system in place works for the players and the teams. The NHL had to lose a season and all credibility to get a salary cap.
Good businessmen aren't going to do that. The Packers' $25.4 million profit showed a team can hustle and compete with the bigger cities. Revenue from the Packers Pro Shop and the new Atrium at Lambeau Field accounted for $23.1 million in local revenue. They made another $18 million through marketing. They maximized revenues by being aggressive and smart.
Once the NFL comes up with a formula that doesn't strip too much money out of the high-revenue teams, the NFL should get a deal with the players' association in a month. No one wants to lose $5-8 million of profit, but those teams stand to lose more if they can't control salaries in uncapped years.
More than ever, it appears a collective bargaining agreement extension will be hammered out before the end of the year. It makes too much sense. The alternative is losing money.
John Clayton is a senior writer for ESPN.com.
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