NFL Salary Cap – It’s a matter of trust…and a Special Purpose Letter

So perhaps we learned a few things with the last few posts on Player Cost Amounts and Player Benefits that we didn’t realize were the responsibility of NFL ownerships.  Quite a bit of the NFL owners’ revenues go into the various programs set aside for past veteran players, and for continuing research on concussion and head trauma. Money is poured into the funding of new stadium efforts and to ensure careers cut short by injury aren’t just swept under the rug.

Money Buckets

TGC 3 Money BucketsBut make no mistake; the NFL is about maximizing revenue opportunity.  Despite only 16 regular season games and 4 weeks of playoffs, the National Football League is the “Goliath” of professional sports in generating income.  This last CBA extension was all about the NFLPA ensuring that the players (who at times play the role of “David”) got their fair share of the money buckets.

With so much on the line for both the NFL’s owners and the NFL Players’ Union, who decides how large the cash pie actually is?  Is it the legal arm of the NFL through Management Council, or is it the long arm of the lawyers that fill up the Union?  The answer is really both and neither.

The Purpose of the Special Purpose Letter

4.1.1It’s a shared responsibility that is delegated to an independent accounting firm approved by both sides.  This firm is tasked with reporting the AR (All Revenues), Player Cost Amount, Team Salary, Cash Spending, and Benefits of each Club and the NFL for that League Year, utilizing information reported by independent Club and League accounting firms, and information obtained by the Accountants through its review procedures.

Both the League and the Union share the cost of the services of the accounting firm, and both must agree upon the annual reports submitted by the Clubs and the League to the firm for review (year end March 31).  This information will culminate in a “Special Purpose Letter(s)” used to determine the annual Salary Cap and League-wide cash spending requirements.

NFLPA to NFL; “We trust you but…”

This system is effectively set up to ensure accuracy on both sides and to provide opportunity for adjustments should errors be found in the reported revenue and spending (real and estimated).

Other mandatory duties include;

  • RTGC Goodell and Smith 2eviewing the “reasonableness” of any Club estimate of revenues versus actual amounts received, then adjusting accordingly.
  • Access to and the review of local accountant workpapers and or financial audit documents.
  • Access to any contracts or documents between the League, Club(s), or Club affiliate and any third party revenue source.
  • The requirement to notify the League/Union prior to submitting the Special Purpose Letter with questions regarding revenues and or adjustments.
  • The responsibility of resolving any disputes between the NFL and the NFLPA regarding any adjustments made.  *Note – the NFL or the NFLPA has the right to seek arbitration if adjustments in aggregate are $5M or more.  If between $5M & $10M then a hearing to decision must be reached within one day, or otherwise agreed to continue on a day to day basis.  Either side that doesn’t prevail in the hearing is responsible for handling the expenses of the other in the proceeding.  This rule doesn’t apply for disputes of $10M or more.

Even after the issuance of the Special Purpose Letter, the Union has a right to an individual audit of the findings using their own auditor.  The NFL conversely has the right to send a representative to “observe” any procedures undertaken by the NFLPA’s auditor on site.  These Union’s auditor must make “best efforts” to complete their work within 60 days prior to the next scheduled Final Special Purpose Letter.

Confidentiality and a “need to know”

Guess the fans and media don’t have a “need to know”. 

TGC ConfidentialWithin the CBA are extensive guidelines as to the confidentiality of the information obtained and decisions made by the Union’s auditor.  The release of such information is highly restricted and should the Union’s auditor determine violations were indeed made in developing the original Special Purpose Letter under the agreement of the CBA, the Union has four business days to notify the League of any further proceedings and to advise the League of the alleged violation.  Both sides, but specifically the NFL, went to great lengths to keep this information from being used as media leverage in efforts to settle the dispute.

Perhaps nothing here is of surprise to those NFL fans wise in the ways of the cantankerous relationship between unions and management.  After all, we see this type of news almost on a daily basis; teachers unions, automotive unions, public workers.  But hardcore NFL fans don’t seem to care too much about the behind the scenes “head banging”.  They just expect EVERYONE to show up on Sunday; Special Purpose Letter or not.

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