Well, I included this in the Justin Houston article I wrote last week, but I feel like it got lost in the article. As this is just an idea of mine, I’m really curious if other cap-heads think that these projections are logical and if they have anything they would change.
I’m also hopeful that this will spark some discussion in the industry and I believe that understanding exactly where the salary cap is going is something that every team in the NFL should be very concerned with. I find it to be such an important topic that it will have a chapter dedicated to it in the first book of the Caponomics series titled, Management Theories.
Think about this, in any industry, information is king in this flattened world that we live in. It’s of vital importance to understand where your industry is going and how you can capitalize on this information. I’ve never thought of myself as a stock market guy, but as I write these books I see that so much of these theories translate directly to the stock market as it’s about proper valuation and having an understanding where future markets are moving.
Over the course of the salary cap era, it’s increased at an average of 108.0% per year, but only 104.6% since the 2011 CBA.
Using those figures, I created two tables that carry us through the 2021 season, which is the last season under the current CBA.
I realized that I made a mistake after the fact that I need to correct and that is, I didn’t calculate the decrease of $3 million from the 2009 to 2011 salary caps. With those included, here’s what we found.
As I said previously, I like the larger data set, so I’m going to use the 107.5% increase. This is also because I believe the NFL is prepared to grow even more than in the past due to new opportunities created by technology. One understated opportunity for the NFL is the increase in advertising dollars they will see as DVR has become a staple in American households and sports are becoming the only appointment time television.
Think about The Walking Dead and how you watch that, if you’re like me and you don’t appreciate sitting through 30 minutes of commercials for a 60 minute show, then you wait until at least 9:30 to start watching it because you know you can fast forward through the commercials. Not only DVR though, this winter, I would skip watching shows like The Blacklist, Scandal, and Arrow at night because I’d watch them on Hulu on my treadmill in the morning. As I’ve gotten busier, I’ve decided to stop watching shows until the season is over or even waiting until the whole show is over, I have become completely turned off to the idea of watching commercials or waiting on a week to week basis for a show. Eventually, the system of cable television will have to change and take a more customer centric approach. Gone are the days where consumers are content with a corporation telling them when they can watch something, they would rather you make it available on Hulu, which has some commercials, all at once and still show the shows at it’s designated time slot, and then be given the opportunity to decide how they want to watch it. As online streaming becomes more mainstream and starts being built into our televisions, our televisions are going to look more like your iPhone or Android does with various apps that you can use.
If you’re in the stock market, buy content creators as they will soon be able to completely cut out the middle man, the television networks, and be able to go straight to the consumer with their content through online streaming and get the advertisers themselves. It’s a model that’s already working in podcasts as they’ve done away with the radio time slots and just make their content available on iTunes, Stitcher, and YouTube for their consumers to consume it whenever they want. Like with television, gone are the days of appointment radio and missing a show and never getting to hear it. I used to hate getting out of the car when one of my favorite radio hosts was on a good topic because I knew that conversation would be gone forever, but now, I can listen to podcasters on my time.
With that in mind, the NFL will eventually take the same approach that companies like Netflix, Hulu and HBO have in that they will no longer need the networks to distribute their product and rather than accept the billion dollar television deals, they will be distributing the product directly to the fans and getting the advertising money themselves.
In the meantime though, networks like CBS, NBC, Fox, ABC and ESPN are dying for advertising dollars and the NFL is one of their biggest cash cows. With the decreasing eyeballs on their other shows through what I just described, the advertising dollars that are coming through the NFL games will become ever more important. The amount of people watching these NFL games is always increasing as well, so not only will the games become more important from the advertising standpoint, but the amount of eyeballs will be increasing as well.
The NFL is testing out it’s first online streaming game this year as Yahoo will stream the Bills against the Jaguars. Even if the NFL decides to stick with it’s television network partners, they have not sold away their online streaming rights, so someone will be buying those in the near future for a lot of money. I think that this also means that the NFL isn’t prepared to distribute their own games entirely and are going to continue building up that side of the business through NFL Network for an eventual complete takeover of distribution within the next 15-20 years. The NFL is in no way prepared today to do what CBS and Fox do for them every Sunday, but one day, they will be and they’d be foolish not to cut out that middle man when the time comes.
What I mean with all of this is that the NFL is doing well and it will continue to do well. I think that even 107.5% could be a low figure to project future salary caps when we look back because not only is the game growing in popularity like it was from 1994 through 2014, but there are bigger opportunities for revenue growth than there were in the past. There are huge untapped possibilities with the Internet through streaming as well as fantasy football, which the NFL will eventually have to take over the rights completely as the players are not being properly compensated for what has become a $508.2 million industry. There is a huge marketing campaign for the NFL to take care of that includes improving the fantasy football platform on NFL.com to beat competitors like ESPN and Yahoo, but also educating the fan on why they should use NFL.com because the revenue generated on NFL.com goes to the players, unlike ESPN and Yahoo.
On the other side, the headlines about concussions and the concussions themselves are a huge threat on the industry. As self-experimenter, author, body hacker, and all around one-percenter Tim Ferriss told UFC fighter Brendan Schaub on The Fighter and the Kid, we have all these new technologies that are 3D-printing things like meniscuses and other breakthroughs that can replicate things like lungs and heart tissue, but we haven’t been able to figure out the brain yet. His point being, if there’s one thing to protect, it’s your brain because there is no solution on the horizon for CTE and other brain trauma.
Bringing it back to the projected cap figures, I found something very interesting when writing the Justin Houston article in regard to Roger Goodell’s goal of $25 billion in revenue by 2027. The estimate that I found was that if the league increased by 107.31% every year, which obviously, is not going to happen, but is a decent estimate, then the league will reach that $25 billion by 2027.
Here’s what those figures look like if you have an average increase of 107.5% each year.
Those two estimates are very close in revenues, much closer than estimates using the 108.0% increase from before, and the two 2027 revenue figures are only $582.1 million apart, which is $18.2 per team. That may sound like a lot, but both these figures are small when you get to the revenue we’re talking about. For example, $582.1 is only 2.3% of $25.5 billion. The salary cap difference is about $8.5 million, which is 2.3% of $376 million. As I said in the Justin Houston article, the salary cap number is approximately the projected player’s slice of the revenue from the previous year divided by 32. So as we see in 2015, the salary cap is $143.28 million and using the estimated revenue that was reported as $10 billion, then multiplying that by .47 to get the player’s share, then dividing it by 32. The result is $146.875 million, only $3.595 million more than the actual salary cap for 2015, and $3.595 million is only about 2.5% of the current salary cap, so the projection is not far off, thus making it a pretty solid way to get an estimate of your own if you’re trying to figure out your own method for projecting the salary cap.
This all leads me to confidently state that I think that an average increase of about 107.5% of the salary cap is in the NFL’s foreseeable future. Regardless of any positive or negative influences that occur within the industry over the next decade or so, I feel the NFL will continue to grow.
Using the other method, which is the one that’s more important to us because it’s focused on a figure that’s set in stone, the 2015 salary cap. Using that $143.28 million cap number, then increasing it by 107.5%, 103.2% and 107.31% to project future salary caps. I only projected through 2021 as, again, that’s the last year under the current CBA, so it could even be an uncapped year like in 2010. Here’s what we got:
Obviously, the 107.5% and 107.31% increases are very close to each other, so in my opinion, that becomes a solid range of where the cap will end up. Below are the figures for those two next to each other and then next to each other with the figures rounded to the nearest half million.
For the rest of my projections of contracts that you’ll be seeing on Over The Cap, I will be using the figures that are a result of the 107.5% cap increase unless (or until) someone has a better idea or approach for this. If you have any thoughts, please sound off below as I’d love to see if we can improve on this. Also, if anything is unclear in this article, please let me know what you’d like for me to explain further in the comment section.
As I said before, I think that understanding the future of the salary cap is one of the most important things an NFL front office should be aware of, so they can make sound decisions far off into the future. Of course, NFL agents should be aware of these projections as well, so that they can capitalize on the increases and ensure they get their client fair market value in terms of percentages of the salary cap.
Like I wrote in the Russell Wilson article on his contract, if I’m the agent of a player like that, especially a quarterback, I’m using these projections to construct a contract that gets them the most amount of money, while giving their team a chance to win. So much of our perception of quarterbacks is tied into if they won a Super Bowl or not and, if they won, then how many they won. Like with Peyton Manning, since he’s only won one and Brady’s won four, the argument is that Brady is automatically better. Well, as I wrote in the Manning vs. Brady debate article, there’s much more to explore than that.
I’m very encouraged by this projection idea, so I’m hopeful you guys will have some feedback in the comment section and that it encourages YOU to e-mail Caponomics @ gmail.com and join the e-mail list, so that you get a chapter on the 2000 Ravens from book three of the Caponomics series! You’ll also get updates of when articles like this one go up on OverTheCap.com!
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