When NFL teams develop their building plan, they must be cognizant of the ever-present salary cap that places a limit on player compensation. To that end, we at SalaryCapCrunch.com have developed a model to project the salary cap for the future seasons covered by the current collective bargaining agreement (CBA), i.e., the 2016–20 seasons. Every December at the owners meetings, the NFL provides owners with a projection of what the League Office expects the salary cap will be for the upcoming season. Toward the end of February or in early March, before the beginning of the free agency period, the League provides an updated final amount of the salary cap to teams. This past December, the League told teams to expect a salary cap between $150 million and $153.4 million.
The salary cap is based on the projected “All Revenues” (AR) of the upcoming League Year during which the salary cap will be effective. AR includes almost all revenues generated by the NFL and its clubs with limited exceptions.
There are three main “buckets” of AR.
Media — Revenue the NFL earns by selling the rights to broadcast games on television and radio. Currently the NFL has television broadcast agreements with NBC, CBS, FOX, and ESPN. The right to operate Sunday Ticket, which allows subscribers to watch out-of-market games, is held by Direct TV. Radio rights are held by Westwood Media and SiriusXM. The NFL also receives nominal payments from the Copyright Royalty Board (CRB) for the re-transmission of certain games.
NFL Ventures, L.P. — Income generated via the NFL corporate entity NFL Ventures, L.P. This entity is responsible for all NFL revenue generated at the national level, excluding TV and radio broadcasting revenue. This bucket includes revenue generated by the NFL Network, sponsorship, licensing, NFL productions, and miscellaneous smaller revenue sources.
Local — Local revenue generated by individual teams via gate receipts, luxury box sales, concessions, parking, local sponsorship and advertising, and any other team-generated revenue.
Projecting All Revenues
As the NFL and its 32 teams (with the exception of the Green Bay Packers, more on them later) are private enterprises projecting the amount of money they earn takes a bit of detective work. Furthermore, as with any company, forward-looking projections are by their nature built on conjecture and don’t have the benefit of knowing future unforeseen business changes. Nevertheless, utilizing the financial information available and sports industry trends, one can develop a respectable projection of future NFL revenues and league-wide salary caps for the duration of the CBA.
NBC, CBS, FOX — These three networks signed on for nine seasons (2014–22) of broadcasting NFL games for a combined price of $27.45 billion. Year-over-year growth rates of 6–7 percent were reported by the media for these deals; this level of growth suggests low starting points on these contracts, however the growth in the salary cap in the 2014 and the 2015 seasons suggests a higher starting point. A hybrid growth rate was utilized.
ESPN — ESPN is paying the NFL $15.2 billion to broadcast games from 2014–21 (eight seasons). No growth rates were reported by the media, but utilizing similar contracts, one can project the yearly amounts to be paid by ESPN.
Direct TV — Based on media reports, Direct TV will pay $1.5 billion a year, or $12 billion in total, for the 2015–22 seasons (eight seasons), with gradual escalation built in.
Thursday Night Football — On February 1, 2016, the NFL announced the expansion of Thursday Night Football to include 10 games, with five games each to be broadcast by CBS and NBC. The total to be paid will be $450 million in 2016 and $475 million in 2017.
Industry data was utilized to project the revenues related to Westwood Media, SiriusXM, and CRB.
In summary, media revenues are projected to look something like this:
NFL Ventures Bucket
When looking for confidential sports information, one can always rely on Deadspin for help. In 2013, Deadspin got their hands on the NFL Ventures, L.P. audited financial statements for the fiscal years ending March 30, 2009 and 2010, which capture the revenue generated during the 2008 and 2009 seasons, respectively. Despite the age of these financial reports they provide a baseline to work with as well as comparative financial information so one can see the growth of revenue from one year to the next. These financials, along with other industry data, were utilized to “roll forward” (estimate) NFL Ventures revenues through 2015 and then to further project the revenues through 2020.
Looking at the income statements of NFL Ventures, one sees the following sources of revenue:
Satellite television — This refers to the Direct TV Sunday ticket package, which is included in the media bucket and discussed above.
Affiliate fees — This is subscriber revenue earned by NFL Network from cable providers. We project a compound annual growth rate (CAGR) or an average annual growth rate of 9 percent from the 2009 amount.
Advertising fees — This is advertising revenue generated by the NFL Network and NFL.com. Again, we project a CAGR of 9 percent.
Sponsorship — This is sponsorship revenue generated by the NFL’s partnerships with other companies, the most notable being a $400 million deal with Microsoft that made the Microsoft Surface the official tablet for players and coaches to use on sidelines to analyze game film. We project a CAGR of 13 percent here, as this is a much broader revenue space and is more connected to the NFL’s ratings growth on Sundays than the NFL Network.
Licensing — This is a mature stream and is not something that is seeing much growth industry wide. We project a CAGR of 3 percent.
Digital media — This consists of the Verizon NFL mobile app, which was a tiny source of revenue for the 2008–09 seasons. The most recent deal with Verizon was for $1 billion over four years (2014–17). This stream in the financials also includes the Sirius XM radio contract, which is grouped in the media bucket for AR purposes, and other miscellaneous income.
Film rights, productions, and other —These lines capture revenue from the production and licensing of content via NFL films and other miscellaneous items, such as the NFL international series. We assume a 3 percent CAGR, and additional revenue is assumed for each season that an additional new game is added to the International Series. Amounts added are based on the amounts reported for the 2008 and 2009 seasons, during which $9 million and $10 million of revenue, respectively, were recognized for the single international game played during each of these seasons. Additionally, we take into account the provisions of the New Line of Business deduction.
NFL Ventures revenues project as follows:
The combined media and NFL Ventures revenue buckets are the “national revenues” generated by the NFL. The Green Bay Packers, because they are a non-for profit organization, release to the public general financial information related to their most recently completed season. One item disclosed is the distribution they received from the NFL League Office for national revenue. This disclosure allowed the general public to calculate that the NFL generated $6.006 billion and $7.244 billion in national revenues for the 2013 and 2014 seasons (2015 figures will be announced in July 2016). The actual national revenues for the 2013 and 2014 seasons, in combination with the rest of the data collected, helped us to develop growth assumptions for all of the individual revenue sources within NFL Ventures, not only for the 2013 and 2014 seasons but also for future seasons.
The final bucket of revenue consists of funds generated by teams in their local markets through ticket sales, luxury boxes, concessions, parking, and local advertising and sponsorship. Deadspin again proves to be a helpful hand, as they obtained the Carolina Panthers’ financial statements for the fiscal years ending March 30, 2011 and 2012 (the 2010 and 2011 seasons). As part of their annual disclosures, the Packers reveal their local revenue figures each year as well. Additionally, Forbes publishes an annual article that estimates NFL team values and revenues earned during the previous year. These sources, along with industry data, were utilized to develop our growth assumptions for local revenues. Local revenues tend to grow at a slower pace, and thus a 3.5 percent growth per year is projected for local revenues. Added growth is assumed for seasons in which an NFL team will be opening or moving to a new stadium (Minnesota in 2016, Atlanta in 2017, and the Los Angeles Rams in 2016 and 2019).
Local revenues project as follows:
Player Cost Amount and Calculating The Salary Cap
When calculating the salary cap, the media bucket is multiplied by 55 percent, the NFL Ventures bucket by 45 percent, and the local revenue bucket by 40 percent. The resulting number is called the Player Cost Amount. The Stadium Credit reduces the Player Cost Amount. Furthermore, the CBA specifies “bands,” or ranges, that are acceptable for the Player Cost Amount both before and after the application of the Stadium Credit. For the 2015–20 seasons, the Player Cost Amount must be between 47 and 48.5 percent of Projected AR before the application of the Stadium Credit. After the application of the Stadium Credit, the Player Cost Amount must be at least 46.5 percent and 46 percent of Projected AR for the 2016 and 2017–20 seasons, respectively.
Once the Player Cost Amount is settled, it is reduced by Projected Benefits, which are non-salary benefits provided by the NFL and its teams to the players; these benefits include pension costs, health insurance, and player medical costs. The resulting figure is divided by the number of teams (currently 32) to arrive at the salary cap amount.
Overall Calculation and Disclaimer
While we have a significant amount of data with which to project NFL revenues, AR, and the resulting Player Cost Amount, we don’t have the information necessary to project amounts spent on player benefits (Projected Benefits). The financial details around Stadium Credits utilized, adjustments to comply with Player Cost Amount bands, and adjustments to the cap to comply with the Guaranteed Player Cost Percentage, for example, are kept confidential by the NFL and are not publicly available.
More importantly, the NFL is continually developing new sources of revenue. One area that is expected to see significant growth is the broadcast of games on the Internet. Yahoo paid a reported $17–20 million to stream one game in 2015. The growth of this revenue stream is currently hard to predict. Our model uses revenues that are known and can be projected based on historical information.
Utilizing our revenue information and the salary caps in place for the 2014 and 2015 seasons, we can decipher that the salary cap was approximately 78.9 percent and 78.8 percent of the Player Cost Amount for the 2014 and 2015 seasons, respectively. Thus, we projected the salary cap for 2016–20 by multiplying the Player Cost Amount by 78.85 percent.
Here are our projected salary cap amounts for the 2016–20 seasons:
2016: $152.81 million
2017: $160.98 million
2018: $170.85 million
2019: $179.90 million
2020: $189.04 million
On February 22, 2016, it was determined that the NFL improperly deducted over $120 million in All Revenues from the NFLPA over the three previous seasons, and as a result, the salary cap for 2016 would be increased by over $50 million league-wide in order to incorporate the shortfall from the prior seasons and properly reflect AR for the upcoming 2016. The $50 million increase in calculates to approximately $1.6 million per team. After updating our projection for this change we projected salary cap of $154.4 million per team. On February 26 2016, the NFL announced the salary cap for 2016 would be $155.27 million, less than $1 million more than our projected amount.