Time out called on hopes of a Steelers TV revenue windfall

US PRESSWIRE

In retrospect the NFLPA made many questionable decisions during the CBA negotiations in 2011. One in particular is eerily reminiscent of the Steelers’ contract restructuring decisions. As a result, the new television contract could be the ambulance that runs over the Steelers instead of healing them of their self-inflicted salary cap wounds.

Over the last several years the Steelers GM Kevin Colbert and his salary cap guru Omar Khan have worked assiduously to keep core players under contract by practicing a form of "borrowing from Peter to pay Paul". In other words, the Steelers renegotiated the contracts of Ben Roethlisberger, LaMarr Woodley, Lawrence Timmons, Ike Taylor and others to free up cap by deferring money owed to these players into later years. This "solution" has been criticized far and wide by many in professional football as being short-sighted or even highly risky.

As it stands now, the list of players coming to the end of their current contracts is rather extensive and include for 2014 such stalwart players as Brett Keisel, Troy Polamalu, and Ryan Clark as well as young veterans such as Ziggy Hood, Emmanuel Sanders, Jason Worilds, Isaac Redman, Jonathan Dwyer, Stevenson Sylvester, LaRod Stephens-Howling, David Johnson and Al Woods. The situation doesn't get much better in 2015 from a contract standpoint as Maurkice Pouncey, Cameron Heyward, Cortez Allen, Curtis Brown, Matt Spaeth and Marcus Gilbert will for the most part command market prices from the Steelers to retain them.

However, many in Steeler Nation have dismissed such criticisms as being alarmist. The "Don't Worry Abaht it" crowd have had for several years fervent faith that the NFL's impending $3 Billion television contract will be the lifeline thrown to the Steelers just in time to meet all those contract demands. The question is, will it?

Not exactly.

The new CBA gives players a 55 percent share of the revenues from the new television contract which is projected to increase the media portion of the salary cap by $1.17 Billion, from $1.93 Billion to approximately $3.1 Billion. However, this will only happen over the life of the contract. Since the media loves to report only "absolutes", all everyone has been hearing is how the players' share of the television revenue will increase to $3 Billion, but that figure won't be reached until 2022.

This is because the networks are expected to increase the fees they pay the NFL by only 5 to 7 percent per year; there is no pot of gold awaiting the Steelers come 2014.

But wait, it gets worse.

The players' share of that much ballyhooed $1.17 Billion total increase is only $629 million. That equates to $19.7 million per team over the life of the television contract based on initial 2014 projections, or an average of only a $1.97 million increase in the salary cap to deficit spending teams like the Steelers.

But wait, it gets even worse.

It seems that when the chief negotiators of the NFLPA realized what the salary cap was going to be in 2011 and 2012 under the new CBA and in order to validate what they had accepted on behalf of their constituents, they reached an agreement with the Owners to allow them to "re-allocate" money that had been earmarked for players' benefits (for example, medical coverage and pensions) over to the salary portion of what became the $120.3 million 2011 salary cap.

At the same time, they realized the 2012 salary cap would only be around $113.5 million, so to protect the 427 free agents scheduled to flood the open market that year from teams not having enough cap room to bid up salaries, the NFLPA borrowed a page from the Steelers contract restructuring playbook; they added financial burden to future years' salary cap to address their immediate needs, or to protect their jobs.

The NFLPA made what could be construed as a bargain with the devil and borrowed $227 million from the Owners ($7.1 million from each team) and agreed to have it charged against future years' revenue under the new television contract in order to increase the 2012 salary cap to the $120.6 million level it reached so the Owners would have enough money to spend freely on the free agent market.

And when you strike a bargain with the devil, you have to give the devil his due. That $227 million loan has to be paid back. So using what information is available, I've reconstructed what I believe to be a viable scenario for explaining how the new television revenue is going to impact the salary cap.

Admittedly my calculations are based on several assumptions (length of payback period, the NFLPA's understanding of the concept of compounding interest), but in my worst case scenario, the figure I arrive at is alarmingly close to the latest 2014 cap increase projections from several media sources and Bob Kraft, the owner of the New England Patriots. Kraft, one of the principal architects of the new CBA, has made repeated statements warning of modest salary cap increases, and several media outlets project that modesty to be in the range of $300,000 for 2014 and growing modestly from there least through 2015. Currently, the 2015 salary cap is projected to be lower than it was in 2009 when it hit $123 million.

Let's assume the Executive Board of the NFLPA, in keeping with their short-sightedness in other areas of the CBA (granting the Commissioner unilateral disciplinary powers, waiving any right to contest the League taking away $46 million in salary cap space from the Dallas Cowboys and Washington Redskins, using benefit money meant for players' medical coverage and retirement for 2011 salaries) decided not to start paying the Owners back the $227 million they borrowed until the new television revenues start flowing in 2014. I ran the calculations on the basis of the NFLPA being smart, but the results don't match up with the pronounced projections.

I set up an amortization table in keeping with the language of the CBA (amortization to be calculated on an annual compounded basis), using the interest rate of 0.17 percent as specified in the CBA. I then took the six years of payments necessary to repay the loan within the term of the TV contract, deferring payments until 2014, and set it against the corresponding six years of the players' share of the increases in television revenues.

The good news is the loan can be paid back by 2019. The bad news is the payments on the loan eat up $1.7 million per year of the new television revenue. The end result of this calculation shows for 2014 each individual team will only have $323,281 left over from that year's bonanza of additional television revenue, after subtracting the loan payment.

Given the nominal interest being charged on this loan, especially against the 6 percent I used to mirror the annual projected growth of the television fees charged the networks, the annual increases in the amount of revenues the players will actually see hit the cap are impressive, averaging 26 percent per year. However, by starting so low at $323,281, the salary cap won't realize a sizable single year increase ($1.01 million) until 2019 when I've projected the loan will be paid off.

Granted the television revenues are only one of three components of the salary cap, but the new contract has been eagerly awaited by fans of all the teams, not the least of which being Steeler Nation, and has been hailed as the "cure all" for what ails the Steelers and other teams mired in cap purgatory.

Sadly, until or unless more information becomes available to alter my reversed-engineered calculations, I think we all need to call a time-out once and for all on any hope of seeing a televised windfall come the Steelers way.

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