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Thursday, February 21, 2008
NFLPA Says NFL is Colluding

Last November, the NFLPA launched an investigation into whether the NFL’s decision to lower the debt ceiling of its 32 clubs constitutes collusion to reduce competition for players or players’ salaries (which I previously posted on the blog). In October, NFL owners voted to lower the debt ceiling (how much money a team can borrow) by $30 million, which reduces the debt ceiling to $120 million from $150 million, and to cut $1 billion of league and team debt over the next three years. This morning, Street & Smith's SportsBusiness Daily reports that the NFLPA plans to announce later today that it is has asked Special Master Stephen Burbank to overturn the NFL’s decision last fall to lower teams’ debt cap, which the the union contends is designed to dry up the cash teams need to spend on players' salaries, charging that the league violated the anti-collusion provisions of the CBA.

The league takes the position that reducing the debt cap was essentially a "business decision" in light of the current turmoil in the economy. As I noted in my November post, the NFLPA takes the position that lowering the debt ceiling could have a chilling effect on team spending for players because clubs frequently finance player compensation and signing bonuses with debt. Essentially, the union views the debt limitation as a restriction on free agency.

The NFLPA has two very strong claims in support of its position. First, the union can argue that imposing the debt limitation constitutes a breach of the anti-collusion provision in the CBA. The anti-collusion provision, which essentially prohibits the teams from acting in concert with each other with respect to the players' exercise of their free agency rights, is a necessary prerequisite in order for free agency to work properly (i.e. player salaries determined by an uninhibited free market). There is precedent that collusion does not require a "common agreement" among teams to suppress player salaries. Therefore, if, as a result of the agreement among the teams to lower the debt ceiling, teams are not able or willing to spend as much on salaries as they otherwise would in the absence of such an agreement, then the agreement violates the anti-collusion provision.

The second argument the union can make here is what I mentioned in the comments within my November post. It can be argued that lowering the debt cap constitutes a mandatory subject of collective bargaining that must be negotiated with the union and can't be unilaterally implemented by the league. Based on precedent interpreting what constitutes "wages" for purposes of mandatory subjects of collective bargaining, I don't see how the NLRB or any court could conclude that lowering the debt cap does not impact players' wages. But even if it's a permissive subject, then the league could be exposed to an antitrust lawsuit here. As a side note, MLB negotiated, and agreed to, its debt service rules with the MLBPA.


Professor Karcher,
Do you feel that the union's argument is weakened by the fact the reduction of the debt ceiling has zero effect on the salary cap or on the salary floor? I know many owners take advantage of the debt ceiling in order to finance the large signing bonuses that players command today. However, I don't feel that paying a player $20 million through a salary spread out over a couple of seasons instead of $20 million in a one-time signing bonus can necessarily be considered a chilling effect. $20 million is still $20 million. I know the union will argue that the salary dollars are not guaranteed whereas a signing bonus is, but I think the union will be hard pressed to find any language in the CBA that requires a player contract to contain a certain amount of guaranteed v. non-guaranteed money, with the obvious exception of minimum salary amounts based on seasons played.

As to your second point, I am curious as to whether or not the union has ever cried foul when the debt ceiling was raised. I am going to guess that each time the league has raised the debt ceiling, the union has not challenged such a move by way of claiming a mandatory subject of collective bargaining. If this is the case, does the union lose their right to challenge the lowering just because it is not in their favor for a change?

Anonymous Brad -- 2/22/2008 4:42 PM  


I don't think the union's argument is weakened by the factors you mentioned. Salary caps and salary floors, on their face, undoubtedly affect wages. While on its face reducing the debt ceiling does not speak to wages, it undoubtedly affects wages, which is arguably sufficient to establish collusion, as well as constituting a mandatory subject.

A simple analogy would be when you go to obtain a mortgage to buy a house. How much the bank permits you to borrow impacts how much you may be willing and able to spend for a house. So how much the league says a team can borrow impacts how much that team may be willing and able to spend on salaries. Whether there is a floor, or a cap, or guaranteed or non-guaranteed money, does not change the fact that restrictions on borrowing restrict salaries.

As to your other point, I don't see how the union could be deemed to have waived the right to argue it's a mandatory subject just because the league has raised the debt ceiling in the past. First, I would argue that it is against the policy of labor law to even recognize a waiver of mandatory subjects under any circumstance -- those subjects must be negotiated, period. Second, while reducing the ceiling adversely affects the players, raising the debt ceiling benefits the players and doesn't adversely affect them, so it doesn't make sense that the players would ever object to raising it. Third, raising the ceiling is the natural thing to do as league revenue and salaries/bonuses have increased over the years, so it's questionable why they would reduce it.

Blogger Rick Karcher -- 2/23/2008 10:43 AM  

Professor Karcher,
Fair enough. However, I failed to mention another point. Is it too early for the union to be making this claim? How can Upshaw claim this will affect the players without any objective proof? The salary cap is not determined by the amount of money owners are allowed to borrow. The cap is set by the previous season's revenue. Just wondering.

Anonymous B -- 2/23/2008 11:03 PM  


You are correct that the salary cap is not determined by the amount a team can borrow. But, again, the salary cap is a completely separate issue -- a reduction in the debt ceiling impacts player salaries, with or without a salary cap.

You raise an interesting question about timing. When you say "objective proof," I assume you mean that the players haven't been damaged yet and so it's premature to assert this claim? I don't think timing has any bearing on a claim that it constitutes a mandatory subject that the league must negotiate. [And by the way, I should make clear that, while I think it's a mandatory subject, I have not read that the union has asserted this claim yet. If the union is unsuccessful on its claim that it breaches the anti-collusion provision, I suppose the union could then bring an unfair labor charge.]

But regarding the breach claim, that's an interesting question. The league has already voted and approved it, and so I would argue that the union is essentially seeking a declaratory judgment that it constitutes a breach (or it could even be viewed as a request for injunctive relief to prohibit the league from implementing it and damaging the players).

Blogger Rick Karcher -- 2/24/2008 8:17 AM  

Professor Karcher:

While I agree that lowering the debt ceiling will have an obvious negative impact on player salaries, I question whether a court could interpret this act as "wages", which would make it a mandatory subject. I'm under the impression that wages strictly includes "pay, fringe benefits, and bonuses". Is there precedent that allows such a liberal interpretation of the term "wages"?

As one who would want to advocate on the side of players, I would hope such precedent exists. However, I believe it difficult to argue that only allowing a team to borrow $120 million per year is a reason why any particular team couldn't pay the full $109 million in salaries.

I understand that large signing bonuses will cause a team to pay more than the cap allows in a particular year. It could be that some teams pay upwards of $150 million in a season. However, assuming that there has always been a debt ceiling, and assuming that the NFLPA didn't negotiate its structure in the most recent CBA, I believe a court would rule that the owners have a right to unilaterally adjust the ceiling according to a fluctuating economy.

Finally, would a similar unilateral reduction be a violation under the MLB CBA?

Blogger Edward Johnson -- 2/25/2008 12:03 AM  


Once you acknowledge that lowering the debt cap "will have an obvious negative impact on player salaries," it becomes problematic for the league on many fronts -- collusion, mandatory subject, and (if not a mandatory subject) antitrust.

Gene Upshaw said in a press release that "the deadline for Club compliance with the reduced debt limits coincides with the beginning of the Uncapped Year of the current CBA, assuming that – as expected – the NFL owners terminate the current CBA two years early (i.e., terminate the CBA after the 2010 season, instead of after the 2012 season)." If true, it bolsters the union's collusion argument.

I guess if I were an arbitrator, a judge or member of the jury, I would be very skeptical of why the league is doing this -- what's the business reason? -- especially when (1) club values continue to appreciate, (2) revenues continue to increase and (3) interest rates are dropping. These are excellent conditions for borrowing. While there may be "economic turmoil" in society in general, there doesn't appear to be any turmoil in the football business that's for sure.

Blogger Rick Karcher -- 2/25/2008 10:45 AM  

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