You’d expect a game with such obscurities in its rule book as “The Tuck Rule”, “Excessive Celebrations” and “Illegal Substitutions” to have similar complexities within its accounting system and the National Football League’s Collective Bargaining Agreement (CBA) doesn’t let you down. As we explore how the NFL’s Salary Cap is calculated we have to first understand the ingredients that go into the recipe. The equation is fairly simple; Player Cost Amounts – Player Benefits / 32 NFL Clubs = NFL Salary Cap. But there are numerous internal and external factors that ripple into the variables, specifically Player Cost Amounts.
So as I stated in The Football Educator’s last post, NFL Salary Cap – Getting a little “Stadium Credit” for the effort, the implementation of a few more necessities are in order before moving on to Player Benefits. The following list of rules applies along with any and all others that were applicable prior to the agreement of the new CBA (unless otherwise negotiated as non-applicable).
Multiyear Contracts/Lump-Sum Payments – These rules apply to lump sum payments made for sponsorship or other rights that apply over multiple years. Normally this would be considered “All Revenue” (AR) but can be allocated for in one of two ways; in equal yearly amounts over 5 years or for the length of the sponsorship (whichever is shorter), or over a similar 10 year period. Interest must be accounted for.
Sponsorship Revenues – Part of sponsorships frequently include the exchange of game tickets, and the face value of these tickets can be excluded from the portion of the sponsorship that is included into AR. Sponsors that give to charities on behalf of a NFL Club (as designated by the Club) must be reported as AR. Any national sponsorships that are required to be implemented at a local level but are not designated to over 20 NFL Clubs or to all 32 NFL Clubs, then this revenue will be included in the Local Revenue (AR) bucket. Significant because of its 40% calculation threshold (NFL Salary Cap – Calculating Player Costs).
Advertising-Barter Transactions – Revenue generated by barter transactions in exchange for advertisement is based on “rate cards” (A rate card is a document containing prices and descriptions for the various ad placement options available from a media outlet.) Any other non-ticket transactions are based on fair market value of the goods/services received.
In-Kind Provisions – In-Kind provisions made to the NFL (the CBA uses the example of NFL Ventures & airlines tickets) aren’t counted as AR. If the League distributes these In-Kind provisions to the Clubs then they will be counted as AR at the rate the Clubs actually use them. It’s up to each Club to keep track and report back to the League.
Luxury Boxes, Suites and Premium Seating – Revenues from the sale or the conveyance of the rights of revenue from this group that isn’t treated as a PSL is included in the AR and amortized over the period of the sale or rights.
Naming Rights/Pouring Rights – Naming Rights are what we associate and understand as the money paid to a Club in exchange to “name” its stadium; Lucas Oil Stadium, Sports Authority Field, Levi’s Stadium, etc… Pouring Rights give exclusivity to beverage companies for their products to be served within the stadium; Coke vs Pepsi, Budweiser vs Coors, etc… The revenues generated by both are included in the AR, except where stadiums are shared with Major League Baseball or Soccer, then only a proportion is designated AR.
Multi-Use Stadiums – NFL teams that own, operate, or lease a multi-use stadium (baseball, soccer, etc…) will have signage revenues calculated based upon the total attendance of these sports in the same year. The revenues generated from the sale of PSR & luxury suites, that include the right to attend non-football events such as Major League Baseball or Soccer, will be allocated proportionate to the weighted amount of revenue generated by the respective ticket prices of the multiple sports.
Off-Site Games – Reimbursements for travel of Clubs in off-site games is not included in AR.
Scrimmages/Training Camp/Coach’s Show – All revenue generated from this category is included as AR, unless otherwise contributed to charity.
Player Fines – Fines deducted before they are paid to a player are not counted as AR, fines paid directly by a player or deducted from his gross income are considered AR. Fines given to charities or spent on behalf of all the players at a Club are not designated AR. If an NFL Club keeps the fine monies then they are counted as AR. Any fines assessed and collected by the League are not included in AR.
In-House Media Pro Rata Allocations – Some NFL Clubs operate “in-house” media businesses that include both AR and non- AR revenues. The League and the Union are required to come to an agreement as to the amounts designated AR.
Charitable Auction Proceeds – Revenues generated by auctions and given to charities not affiliated with NFL Clubs are not considered to be AR.
Revenue Sharing – Revenue sharing pools established by the NFL are for the purposes of AR only counted once.
All of these obscure “revenue rules” play into the accounting of AR and thus the amounts added towards Player Cost Amounts. Bet you didn’t know your beer at the ballgame had so much affect on the NFL Salary Cap?