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January 30, 2012
MEMORANDUM TO NFLPA CERTIFIED AGENTS
INTRODUCTION One of the most exciting and successful NFL seasons is coming to an end. Given the lockout and the uncertainty surrounding this off-season, the fact that there was a season, the quality of play, and the number of teams that remained in contention near the end of the regular season is a tribute to the men who play the game. Unfortunately, players' excellence was not matched by the quality of their leadership in the NFLPA. As the renewal of DeMaurice Smith’s contract is being considered, the men he represents are entitled to accurate information and truthful answers. I am mindful that expressing my concerns and observations can be dismissed by some as “sour grapes.” This would be a diversionary tactic. My role in our business has not changed and my responsibility to protect the interests of the men who play professional sports applies whether those interests are threatened from the outside or from within. De is not required to answer to me. But, he is required to answer to you and your clients. I believe that certain matters warrant your consideration and should be discussed with your clients as they assess De’s performance. De should be required to explain important decisions he made that will affect the lives of over two generations of NFL players over the next 10 years. Just as they did in 2008, the players will decide who leads them in 2012. I offer this memorandum to aid in that decision.
3399 PEACHTREE ROAD SUITE 400 ATLANTA, GA 30326 404.601.2860 (office) – 770.969.2381 (fax) email@example.com – www.dnkcornwell.com
-2My observations about the new Collective Bargaining Agreement and other matters are provided below.
DISCUSSION CBA The topic on which players are entitled to the most information is the new CBA. Revenue Sharing As players were being asked to vote on the new CBA, they were advised that the new CBA paid players 47% of "All Revenues." They were not told that the new CBA defines the revenues that are shared with players as “All Revenues,” but not all revenues are shared with players. All Revenues are defined in the CBA as every revenue source, except for roughly 16 categories of excluded revenues, taxes, credits, etc., and an annual 1.5% stadium credit. Consequently, “All Revenues” in the new CBA is analogous to net revenues in the prior CBA’s during the salary cap era (e.g., Defined Gross Revenues from 1993-2006 and Total Revenues from 2006 -2011). Players were not advised of this distinction and NFLPA-sponsored communications improperly compared the 47% of net revenues that players will receive in the new CBA with the 50% of gross revenues that players had received in the expired CBA. By comparing the apple of gross revenues and with the orange of net revenues, players were given the misimpression that the revenue sharing roll back in the new CBA was only 3% and not 12%. The appropriate apples to apples comparison reveals that players received 59% of net revenues in the prior CBA and will receive 47% of net revenues in the new CBA. "True up" is defined in the new CBA as a credit or reduction against the salary cap when actual AR is greater or less than projected AR. The difference will be deducted or added to the salary cap in the following league year. This process is the same as the accounting procedures in the prior CBA’s. The use of the term “True up” is misleading. In March 2011, “True up” applied to the pegged cap system that was being discussed and was the mechanism by which players would have closed the gap if the pegged cap was smaller than an agreed upon percentage of net revenues. Using the term True up in the new CBA creates the illusion that the NFLPA prevailed on an issue that caused it to walk away from bargaining in March 2011. But, the True up at issue in March 2011 applied to the pegged capped system and the True up in the new CBA is a traditional accounting method. This illusion is exposed by the fact that though there is a pegged cap in 2011, there is no True up in 2011. Revenue Buckets
The NFLPA has highlighted that the new CBA grants players 55% of television revenue, 45% of NFL Ventures, 40% of local team revenues. The media and others have mistakenly concluded that players will receive "55% of every dollar" from television. This is inaccurate. Players get 55% of every dollar from television up to a 10 year average of 47% of net revenues. By comparison, under the 2006-2011 CBA, players got 100% of television, 100% of NFL Ventures, and 100% of local revenues up to 59% of net revenues. The revenue buckets are a red herring. This labor dispute arose out of the NFL’s inability to resolve internally the challenges created by the disparity between high and low revenue teams. The reduction to 47% of net revenues coupled with limiting individual team cash spending guarantees to an average of 89% of the cap over the last 8 years of the CBA (broken down into two 4 year segments) means that players sacrificed significant revenue to solve an internal dispute among team owners. Nonetheless, the overall league wide actual cash spending requirement of an average of 95% of the cap over the last 8 years of the CBA (broken down into two 4 year segments) could be a win for players. Players’ should have a clear understanding of future revenue expectations legitimate revenue expectations. You and your clients should be provided with the revenue projections upon which the NFLPA relied in accepting the revenue sharing structure in the new CBA. Rookie Cap As early as the 1960’s, players have fought through strikes and litigation to remove restrictions on free agency. One restriction that was targeted for decades was the option clause that added an extra year to the length of every NFL contract. In 1993, the NFLPA finally won and the option clause was removed from the NFL Player Contract. The new CBA reversed this hard fought gain and provided NFL teams with a 5th year option for rookies selected in the first round. The NFL claimed it needed a new rookie wage scale to avoid the JaMarcus Russell problem. Leaving aside whether all players should have provided all teams with insurance against a few potential mistakes by scouts, the new rookie compensation rules went much further than solving the JaMarcus Russell problem. It also a strips new rookies of the opportunity that players from Drew Bledsoe to Sam Bradford had to adjust their rookie contracts to match their actual contributions on the field. Under the new CBA, there will be no more busts, but there also will be no more deals with escalators, voids, buy backs, option bonuses, etc., that enable players who outperform their rookie deals to be compensated for their performance. The CBA provides that the rookie cap is intended to “set an absolute maximum limit on the total amount of compensation” paid to rookies over the entire term of their rookie contracts. The NFLPA claimed that there is no “rookie wage scale” in the new CBA, but with salary escalators removed from the system, the rookie cap depresses rookie salaries and
-4the 5th year option may significantly impact the veteran salary market. When the 5th year option is exercised in 2015-2020, the salaries for this year’s veterans will be out of the NFL and 5th year option salaries in 2015-2020 (based on the Transition Tender) will progressively be based on salaries established under the rookie cap in 2011-2015. Consequently, instead of shifting money from rookies to veterans, the rookie cap and the 5th year option may depress the veteran salary market in 2015-2020. Group Licensing I know the least about this issue, but I have been told that as an adjunct to CBA, the NFLPA granted group licensing rights to the teams. If this is accurate, then the NFLPA traded the right to 100% of the revenue from group licensing for the right to 40% of the local revenue teams generate exploiting group licensing rights, up to 47% of net revenues. Similarly, I am told that in at least one recent commercial agreement, the NFLPA did not include the traditional minimum spending requirement that in the past had enabled the NFLPA to pass millions of dollars to players through appearances, shoe deals, and other opportunities that flow from the NFLPA’s relationship with its sponsors and licensees. Again, this is the area on which I have the least information, but, other than the 5th year option in rookie contracts, the treatment of group licensing rights and the spending requirements for commercial partners may have the most significant long term impact on the business of playing professional football. The 1987 labor dispute was waged as a battle for group licensing rights because they are the life blood of the union. Group licensing rights are a source for additional earning opportunities for the rank and file and the primary source of revenue for the NFLPA’s “war chest.” Depending upon how the NFLPA has handled this issue, the NFL may have already won the next labor dispute. Though I may not be fully informed on these issues, players are entitled to understand these issues and they should insist that they be fully informed before they are asked to vote of De’s continued leadership. The following relates to matters that I have handled in the last year in which De was also directly involved. Terrelle Pryor Terrelle Pryor announced his decision to turn pro on June 7. I was retained to represent Terrelle on August 1. Between June 7 and August 1 there had been no activity surrounding Terrelle’s bid to become eligible for the supplemental draft. Upon being retained, I advised the NFLPA of my involvement and invited the NFLPA to participate or assist in the process. I did not receive a response to these communications and when I called De, I was told that he was on vacation for the month of August.
-5I developed a strategy to get Terrelle eligible for the supplemental draft, arranged two interviews between Terrelle and NFL Security, and commenced negotiations with the Commissioner's office regarding including Terrelle in the supplemental draft. And then, De intervened. De made a single request for information. His questions were misplaced and curiously irrelevant. We responded to De’s inquiry and then, without any further follow up with us, De advised us that he had accepted a five game suspension for Terrelle. De never discussed his decision with Terrelle or me. Shortly after Terrelle’s five game suspension was announced, I received calls from members of the media advising me that the NFLPA was advising them that the NFLPA had urged us to reject the deal. I was perplexed by this spin campaign. The next morning, I stated on Mike and Mike in the Morning that we would appeal the decision to “give the NFLPA the opportunity to make its objections on the record.” Shortly after I made my comments on ESPN, De directed Terrelle’s agents not to appeal the suspension and demanded that the agents provide De with a letter promising in writing that the suspension would not be appealed. Obviously, since I did not represent De or the agent, I appealed the decision on Terrelle’s behalf. The NFLPA’s spin campaign distancing itself from De’s acceptance of the five game suspension and De’s effort to explain to some players why the suspension should not be appealed was baffling and deceptive. Despite his repeated public statements that he would fight for the men who play the game, Terrelle’s situation was the first of multiple situations in which De fell far short of his promise to fight on behalf of all players, not just the perfect ones. NFL Drug Policy During collective bargaining negotiations, De requested that "players who tested positive during the lockout" be granted amnesty. No player could have tested positive during the lockout because players were not tested during the lockout. When De was informed of the status of testing during the lockout, his reaction has been characterized to me as embarrassed and piqued. In any event, after making this mistake, De reportedly never raised the post-lockout treatment of players in the program again. Despite having ignored the issue, numerous players reported that the NFLPA had advised them that after the lockout ended, the drug program disciplinary process would be phased in as it is in Stage I of the program. After the lockout ended, I was retained to represent a player facing suspension for violations allegedly occurring before and after the lockout. I discussed with the NFL the concept of “reintegration” whereby the disciplinary provisions of the drug policy would be phased in during this season. An abrupt end and abrupt restart to the program ignored legitimate issues regarding reintegration that are accepted by clinicians and other treatment professionals involved in workplace drug testing programs. In an email to me, an NFL lawyer acknowledged the legitimacy of the reintegration issue but rejected it
-6saying it would have been a “good debate to have with the union if they had bothered to ask for a period of reintegration during [CBA] negotiations.” The NFLPA failed to raise the issue in collective bargaining. A well-accepted medical/administrative issue (reintegration) in work place drug testing programs had been reduced to a chip in collective bargaining that, according to the NFLPA, fell through the cracks. Conduct Policy An ongoing issue during the lockout was how the drug, steroid, and conduct policies would be applied after the lockout. I kept abreast of the status of collective bargaining and I was concerned about, among other things, how the resolution of conduct policy issues would apply my client, Cedric Benson. On August 5, 2011, I sent De an email regarding the final resolution of conduct policy issues and the application of the resolution to Cedric Benson. I did not receive a response. Ultimately, the NFL, not the NFLPA, advised me of and provided me with a copy of the August 4 side letter agreement in which De granted the NFL the authority to discipline Cedric and other players for conduct occurring during the lockout. The side letter was signed the day before my email inquiry to De. Thus, De ignored my inquiry about Cedric the day after he granted the NFL the authority to discipline Cedric. The NFLPA also refused to testify on Cedric’s behalf in his appeal hearing. De never spoke to Cedric or me regarding his decision to expose Cedric and other players to discipline under the conduct policy, but De spoke to other players about the side letter agreement and apparently attempted to distance himself from it by telling them that he did not actually sign the letter. Given the history of how players have been treated under the drug, steroid, and conduct policies, the failure to win substantial changes to these policies is unconscionable. Players will have to live with problems in the application of these policies for 10 years because issues fell through the cracks. The reason that these issues fell through the cracks may lie in the NFLPA’s public declaration that it would not be judged by how it handles player disciplinary matters. Agent Regulations I represented an agent in connection with his dispute against a former client and the agent who may have interfered to sign the player. My client is new to the business and has enjoyed significant success in starting his business. My client filed an interference claim against the rival agent and provided the NFLPA with a 12 page letter detailing numerous potential violations of the NFLPA regulations by the rival agent. The rival agent is very high profile and has been publicly supportive of De. The NFLPA never processed the grievance and, despite the detailed letter, NFLPA leadership recently claimed that it had no knowledge of or information relating to the rival agent's alleged violations of the regulations.
-7CONCLUSION I was one the first people to pledge my support for De when he was elected. I respected the decision of the player representatives and, though I was skeptical, I allowed for the possibility that De’s unique perspective could in fact be an effective approach to the challenges that confronted players. Despite my greatest hopes, my personal experience reveals that De’s vision in 2008 was little more than an inside Washington political campaign -- high on style, low on substance. De's grandiose pronouncments did not translate into meaningful progress in the business of playing football. Rather than advancing the partnership between players and team owners, the new 10 year CBA relegated NFL players’ status to mere employees. I started working in the NFL when I was 27 years old, two days before the 1987 strike ended. Almost 25 years later, I am stunned at what the NFLPA has become under De’s leadership. Employees walk on eggshells and some day-to-day functions have ground to a halt. By substituting slogans for substance, De’s presentation has been compelling, but the results of his leadership are dangerously inadequate. Promises of congressional intervention were unfulfilled, a public relations campaign was poorly conceived and quickly abandoned, demands to open the books were abandoned, and chants of war were nothing more than cover for capitulation on rights that players fought for decades to win. De managed to reduce serious legal challenges to superficial ploys. The two most powerful weapons in any sports union's arsenal, decertification and antitrust challenges, were duds. After walking out of collective bargaining in March 2011 and decertifying the NFLPA, De advised NBA players not to decertify. The most recent collective bargaining negotiation was an opportunity to make significant progress in the partnership between players and owners. De pledged to do so during his election campaign and promised to seize partnership opportunities once elected. Instead, De misrepresented proposals from NFL owners to create the illusion of progress in collective bargaining. He turned player safety issues that should have been won without massive concessions into subjects of negotiation and then left key issues relating to ingame and career ending concussions unresolved. He either ignored or forgot to press for changes in the NFL’s disciplinary policies. At the end of the process, De traded substantive issues for photo ops and he failed to keep all players truthfully informed of the decisions he made in negotiations. In the end, it seemed as if the terms of the 10 year CBA did not matter as long as no games were lost. NFLPA's spin campaign was curious and misleading and raised more questions than it answered. Players were not fully and fairly informed about the new CBA. In addition to providing misleading information about revenue comparisons, the revenues buckets, and the rookie cap, the NFLPA engaged linguistic sleights of hand with the terms such All Revenues and True up. Players deserve truthful information about the state of their business, including information about the alleged lockout insurance (i.e., premium cost, premium paid, etc.) Despite his public profile before the deal was finalized, De has avoided scrutiny of his decisions by being in virtual hiding since August. Players deserve answers before De’s contract is renewed.
The challenge for players over the next 10 years will be to support the NFL to increase the size of the overall revenue pie that is shared with players while aggressively, yet smartly, identifying and creating new revenue opportunities that players do not have to share with the owners. The recent failed effort by the NFLPA to establish a pre-draft all star game is an example of being aggressive, but not smart. Past is indeed prologue and players should judge De's past in assessing his future. Given that the term of the new CBA is 10 years, you and your clients may conclude that they and two generations of future players are stuck with it. No doubt the major elements of the CBA are here to stay for the next 10 years. But, that does not mean that players are stuck with the man who negotiated the deal. If you have any comments or questions, I am available.
Wm. David Cornwell, sr~
SUMMARY OF REVENUE SHARING AND OTHER PROVISIONS IN THE CBA The new NFL CBA defines the revenues that are shared with players as “All Revenues,” but not all revenues are shared with players. All Revenues are defined in the CBA as revenues from every source except for 16 categories of revenue and other deductions. After these deductions from “All Revenues,” the CBA allows the NFL to deduct certain costs for stadium construction and renovation for each year of the CBA. After these deductions, the CBA guarantees players a minimum of 47% of defined revenues for 2012-2014, 46.5% of defined revenue for 2015-2016, and 46% of defined revenues for 2017-2020 and limits the maximum players’ share of defined revenues to 48% for 2012-2014 and 48.5% for 2015-2020, but players are guaranteed an average of 47% of AR for the 10 year CBA.
CBA Article 12 -- Revenue Accounting All Revenues (AR) equals all revenues, except (1) 16 "revenue" categories excluded (2) Limited expenses reductions allowed for new lines of business. This applies to the 45% NFL ventures/postseason - AR bucket (see below). Revenue Buckets AR is subdivided into 3 revenue buckets -- league media AR, NFL ventures/postseason AR, and local AR. For every year, other than 2011, total player costs ("Player Cost Amount") shall be calculated as the sum of 55% of league media AR, 45% of NFL ventures/postseason AR, 40% of local AR Minus 47.5% of the Joint Contribution Amount. If the Player Cost Amount BEFORE application of the stadium credit is greater than 48% of AR for 2012-2014, then the Player Cost Amount shall be reduced to 48% of AR.
- 10 48.5% of AR for 2015-2020, then the Player Cost Amount shall be reduced to 48.5% of AR. The Player Cost Amount shall never be below 47% of AR BEFORE deduction of the stadium credit. The Player Cost Amount shall be reduced by the stadium credit, provided that the Player Cost Amount shall not be less than 47% of projected AR for the 2012-2014 league years, 46.5% of projected AR for the 2015-2016 league years and 46% for the 2017-2020 league years The overall 10 year average of the Player Cost Amount shall be 47%. "Stadium credit" equals 50% of private costs for stadium construction or renovation (whether incurred by a team or the league) 75% of private cost in California for stadium construction or renovation 70% of revenues from PSL's and naming rights that were excluded from AR. 50% of capital expenditures that relate to the fan experience Stadium credit is capped at 1.5% of AR each year. League wide cash spending shall average 99% of the salary cap in the 2011-2012 league years 95% for the four year period of 2013-2016 95% for four year period of 2017-2020 Minimum Team Spending shall average 89% of the salary cap for 2013-2016 89% of the salary cap for 2017-2020 Rookie Cap Rookie Cap will grow at a rate slower than the Salary Cap if the salary cap grows at a rate greater than 5%. Rookie Cap is an “absolute maxim limit” on the total amount of compensation paid to a rookie class for the entire term of all players contracts in that rookie class. Prohibits escalators, option bonuses, voids, buybacks, etc. out of the system.
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No contingencies allowed for rescuing unearned incentives in one year and adding them to salary in future years. Limits annual increases at 25%. No renegotiations until 4th year of the contract. 5th year option in all first round contracts. 5th year option salary is based on Transition Tender (top 10 salaries at a player’s position) for the top 10 picks in the applicable draft and for the 3rd – 25th salaries for all other players in the first round.
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