Lockout Looming: Too Big to Fail?

Although the players and owners have spent a lot of time at the negotiating table the past two weeks, a number of key issues exist that will lead to a lockout in 2011. Brad Keller breaks down these issues.

Too Big to Fail: This point and sub-points came from an e-mail thread that I was in with a friend of mine, Nich Weidman. His original point was this (how I got the name for this section):

"I keep hearing that argument (that the NFL is too big, too important, and too lucrative for the owners and players to be stubborn enough to kill it)...which is the sporting equivalent of the banking world's 'Too big to fail.' Yeah, well, that never meant that they were so big it was impossible - it meant that it was too big to allow to happen. This lead to the public bailout, which we all know and love.

With the NFL ... that's not an option. Without a safety net, I refuse to buy into the "too strong to fail" argument. Do I think it's going to happen? I'd probably put money on it — and you know how I am with gambling. Do I think it's possible to avert? Yes I do ... It would just take near a miracle.

Continuing with the 'too strong' line of thinking, I feel that's part of what could come back to bite the NFL. Players, owners and networks all make so much money off of it, and they all think that they are the reason the money is rolling in. They also think that the other two camps know this, and will realize that they're boned without them. Because of this, they all have this rolling inertia that could keep their heads in the sand until it's too late."

The NFL is the most popular sport in the United States and the most profitable. Many feel that the league is making too much money and is too strong and too popular to fail. Well, there's no rule that says that the is required NFL to be the most popular and profitable sport in America, it just happens to hold that position at the moment.

Basketball was once more popular than football, but now they have a fraction of the popularity they once enjoyed. At one point, they were the major sport that was deemed "too big to fail" and then they had their own lockout. The game is recovering — as is hockey and as did baseball after the strike in 1994 — but it's not as strong as it once was and may never be again.

A side argument is that the NFL is so popular and has so many diehard fans that everyone will come back after a lockout as though nothing had ever happened and the money train will keep rolling. That may happen, but the NFL may discover that they have many more casual fans than they thought if all or part of the 2011 season is locked out entirely.

The assumption is that the owners and players are savvy enough to realize this. But, the longer things drag out, the more it appears that they are too full of hubris to believe it.

In line with the "too big to fail" argument is that everyone — the players, the owners, the networks — is making a great deal of money on NFL football and they'd be crazy to give all that up over a few, tiny percentage points. Maybe one side will make slightly less and the other side will make slightly more, but everyone will still be making huge sums of money, so they should all be able to share.

That was the basic thinking behind signing of the last CBA, which lasted only two years. The owners were in a horrible negotiating position in 2006 and, in their own way, all understood that the players were underpaid and needed a bigger piece of the revenue pie. Again, they looked at the situation and asked, "What's a few, tiny percentage points here or there when we're all making so much money?" They soon got their answer. A few, tiny percentage points is a lot of money when total revenue reaches $9 billion.

Now that both sides know how important every last bit of every last percentage point is, neither side will give up even a fraction of one percent easily.

The players have seen their salaries skyrocket the past decade, but they still feel as though they're underpaid. What the players don't seem to realize is that the market has proven that they're wrong. As Greg Aiello, the NFL's Senior Vice President of Public Relations, recently pointed out in a guest article on ESPN.com, the players have continued to state that they're not looking for anything more than they've already negotiated. In Aiello's mind, that means that the players know they negotiated a tremendously favorable agreement in 2006.

Before the current CBA was signed, the salary cap acted as a price ceiling, artificially lowering the price of labor, which resulted in the players being underpaid.

When the current CBA went into effect, it created a price floor, artificially raising the price of labor, which resulted in players — especially marginal players — being overpaid. The salary cap sets a salary minimum in addition to setting a salary maximum. Teams were required to spend more than they needed to order to get to the minimum.

The Buccaneers and Chiefs paid out future roster and workout bonuses — bonuses that were guaranteed, but hadn't come due yet — just to get to the minimum. This also meant that teams were outbidding each other and overpaying for players that filled a role on their team, but not a critical one, just because they needed to spend the money.

When the uncapped year happened in 2010, teams didn't have a maximum that they could spend, but they also didn't have a minimum. When the free market determined prices, players were signed to more reasonable contracts than before, but to better contracts than they signed when the price ceiling was in effect. Superstars like Julius Peppers will always get paid, Peyton Manning will eventually become the highest paid player in league history, but teams were handing out $15 million contracts to back-ups under the old cap because they needed to meet the minimum.

When they were no longer required to do that, owners tightened their purse strings to the point where the Players Association put together a collusion claiming that the owners got together and decided that no one was going to sign restricted free agents in the offseason.

An uncapped year was supposed to be the "Holy Grail" for the players — and it would have been if the current CBA was never put in place to inflate wages — but it ended up showing the owners that they could make more money in a free market system. The revenue sharing checks from the league didn't stop coming in just because there wasn't a salary cap. The owners still got paid and doled out what they thought appropriate to the players.

This situation is reminiscent of the writer's strike in 2007-2008. Most of the TV-watching public couldn't understand why the two sides couldn't come to terms when there was so much money to be made and so much money was being lost as a result of the strike.

The issue there was the same as the issue here. Both sides understand how much money is at stake and neither side wants to give up even a fraction of a percentage point at the negotiating table because they know how much money it represents. Rich people don't get rich by being careless with their money. When you have a number of them on opposite sides of a very considerable sum of money, neither side is going to throw in the towel without a fight.

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