Business Aspects
Death of the Territories
Cap in Hand
Introduction
Russell Wilson might be the most recognizable and successful player in the NFL. The quarterback of the Seattle Seahawks has led them to a Super Bowl win and regular playoff appearances in his first five seasons in the Seahawks uniform. Because of his commercials, Wilson is instantly recognizable to tens of millions of football fans. His dating life is the stuff of non-sports curiosity, too. His divorce and subsequent relationship with singer Ciara have engaged people who might not know a thing about sports.
Wilson is the ideal package for the media-savvy NFL. And the league is doing everything it can to turn him and his Seahawks into losers.
Jonathan Toews is the star captain of the Chicago Blackhawks. A three-time Stanley Cup champion, he embodies all the virtues that the NHL loves in a player. Hard work, success and charitable ventures off the ice — Toews couldn’t be more perfect for a league always short on star power. He’s bilingual, too, speaking English and French flawlessly.
The NHL should want one hundred Toewses in the league. But it does everything it can to make sure that he doesn’t win another Stanley Cup.
Steph Curry, the star of the Golden State Warriors, is the face of the modern NBA. He’s revolutionized the game with his outside shooting, defying the traditional notion of the NBA as a big man’s league where titles are supposedly won under the hoop. Boyish, but with a killer’s eye in big games, he’s taken the Warriors to the NBA Finals multiple times, winning in 2015. He holds the record for most three-point shots made, breaking Ray Allen’s record of 269 with 272 in 2012–13, 286 in 2014–15 and a mind-boggling 402 in the 2014–15 season. Off the court, he’s in demand for commercials, charitable events and promotions across the globe.
Steph Curry is the NBA’s vision made real. The transcendent son of a former player and coach, he has turned a generation of young people on to the league. But the NBA is putting every impediment it can in front of him as he tries to author a legendary career.
Why are pro sports leagues in North America — leagues that live or die with their promotional savvy and communications genius — doing this to their most marketable stars? Moreover, how are they stunting the legacies of players known internationally for their star power?
“I don’t know of any space other than the world of sports where there’s this notion that we will artificially deflate what someone’s able to make, just because,” said NBPA director Michele Roberts talking about a collectively bargained policy that has constrained team spending in the NBA since 1984–85. “It’s incredibly un-American. My DNA is offended by it.”
The answer is called parity. These leagues are propping up a business model from a generation ago with a system of parity that holds that every town with an owner rich enough deserves a team. And that every owner also deserves a fair shot at holding the Vince Lombardi Trophy or Stanley Cup or Larry O’Brien Trophy.
That’s a complicated task in a world where, as Boston GM Harry Sinden once told me, there are 30 teams and just one Stanley Cup. Keeping team owners, players, fans, broadcasters, sponsors and others happy is a tricky business. Because just a few markets are large enough, or just a few owners are wealthy enough, to do whatever it takes to assemble the best team, the rampant capitalists of pro sports felt they needed to create a drag on the worth of their star employees. A handicapping system. A way to make sure every dog could have his day.
The latest, and supposedly greatest, leveler is called the salary cap. And it’s the most regressive thing that could have happened to the product in the NFL, NHL or NBA. Or to Russell Wilson, Jonathan Toews and Steph Curry. In the service of parity, salary caps dismantle successful teams, reward inept management and rob the fan of the chance to see the very best play the very best without armies of mediocre players and stultifying coaching strategies.
Put simply, the salary cap uses a Soviet-style scythe to level competition in the service of parity. Owners and players decide on a figure for league revenues and then cap salaries by placing a limit on spending by the teams. Each league’s salary cap has nuances and differences that only a lawyer could love. In the case of the NHL, teams are given a maximum amount they can spend and a minimum amount that they must spend — a “salary floor.” The NBA gives teams previously employing a player a “hometown advantage” to re-sign that player and maintain continuity. The NFL has provisions for a “franchise tag” that allows a club to keep a player for one more year if they pay him the average of the top five players in the league at his position.
You may have noticed that we haven’t mentioned Major League Baseball yet. America’s pastime, that bastion of “tradition” and “unwritten rules,” is more progressive than its competitors, if only marginally. It doesn’t use the salary cap. Despite the strenuous efforts of MLB owners through eight labor stoppages dating back to the 1970s, baseball has settled for something called a luxury tax. This system sets a top end for team salaries but also allows clubs to go over that figure if they pay a tax on the overspend. The NBA has managed to create a byzantine system that has both a salary cap and a luxury tax, but it really operates more like the capped leagues.
The salary cap was touted as the best way to allow for even competition among small and large markets. But in the leagues that have harnessed themselves to the salary cap, the percentage of small- and medium-market teams that win is similar to the MLB’s. So there appear to be more ways than salary-cap parity to get desired results.
The impetus for salary caps was the franchise model that leagues embraced back in the 1960s. Before that time, leagues would be comprised of teams in no more than a dozen cities. Fans accepted that teams in big markets had advantages. But mostly they recognized that the best managers and the best players should win most of the time. The business model for pro sports ownership before the ’60s was an eclectic mix of sponsorship by regional beer companies, cars and men’s products (like razor blades), combined with whatever tickets could be sold at the gate. National revenues were almost nonexistent.
But the media and communications revolution of the ’60s presented fertile new ground for sports owners looking to expand their profits. Thanks to the ability of new jetliners to carry people from coast to coast in five or six hours, new horizons presented themselves. If the established teams — largely huddled in the northeast corner of the USA — could build toward a continent-wide presence of regional markets, they might just get TV and radio networks to pay impressive figures to broadcast the games nationally, not just regionally. Where once it was only the World Series that commanded a national audience, now leagues could attract advertisers to a regular “game of the week,” shown nationally, which could come from three time zones away.
Major League Baseball began the experiment, pushing the New York–based Dodgers and Giants to California, establishing a truly national footprint with franchises in Los Angeles and San Francisco. The NFL, too, went west to establish a beach head on the Pacific coast. As the leagues hoped, the TV money came rolling in. Soon, the NBA and the NHL — eager for the TV money — made it to the west coast, too. By the 1970s, there were fans in over 20 more cities rooting for a local team.
Better than the flood of TV money to established owners was the lure of hefty expansion franchise fees from millionaires anxious to have their own teams in the big leagues. The dream was sports as IKEA, spreading the brand of football, basketball, baseball or hockey to eager consumers as if it were cheap Swedish furniture. Look at the result: An NHL expansion team went for $2 million in 1967; it cost $500 million for the new Las Vegas owners in 2016. (All dollar amounts in this book are in U.S. dollars unless otherwise specified.) There have been no new NFL teams since expansion to Houston in 2002, but there have been relocations. Even the fees for relocations are astronomical, with the NFL’s Rams and Chargers paying $600 million each to move to Los Angeles in 2016 and 2017 respectively and the Raiders paying $350 million to move from Oakland to Las Vegas. Values for teams can range from $935 million for the Buffalo Bills to $3.2 billion for the Dallas Cowboys. The NBA’s L.A. Clippers sold for $2 billion in 2014.
The only problem with expanding to as many as 30 or 32 teams is the inequity it creates between markets. How could Kansas City or Winnipeg compete evenly with New York City or Los Angeles for players? Who wants to lose all the time or play in a smaller market? In a free market, the established wisdom was that all the best players would gravitate to a few prestigious teams.
In the early years of sport — until the 1950s and ’60s for all professional leagues except baseball — teams were allowed to restrain on players through the reserve clause, a system initially supported by the US Supreme Court. In particular, MLB was granted an exemption from American antitrust laws in the 1920s by that court — a situation that persists to this day. With the approval of the judges in several landmark cases brought by athletes, the leagues were able to skirt laws on restraint of trade and monopoly status. Using the baseball example, sports with antitrust exemptions were allowed to define player contracts as open-ended documents, tying players to a team in perpetuity, killing their market value. Although Babe Ruth was able to command a salary driven by his value in the 1920s, few athletes enjoyed the same leverage for the next half century. Any competition for players was quickly stomped out by the leagues.
The 1950s and ’60s brought a new generation of athletes and their agents (another innovation). They saw the leagues’ increasing profitability and were determined to get a piece of the action that reflected their importance to the product. They sought to shame the courts into enforcing the laws. The players in the NFL, NHL and NBA were successful. Oddly, the most famous of these pioneers were the ones that were unsuccessful before the courts: MLB Players Association director Marvin Miller and star outfielder Curt Flood, who challenged baseball’s reserve clause in the courts in 1969, losing before the U.S. Supreme Court in 1972 — an event that we’ll cover later in the book.
Though unsuccessful in overturning MLB’s antitrust exemption at the time, Flood’s case was a signal for impending free agency in all the major team sports as leagues were engaging in collective bargaining with player unions. Within a decade, the expression “market value” was firmly implanted in the lexicon of the sports business.
Owners did not submit meekly as the first free agents were granted the right to negotiate freely. Faced with having to pay market value for players, the leagues first engaged in scare campaigns, telling the public that free agency was the end of competition as they knew it. If a star player could leave for another team after having completed his obligations under his contract, all the best players would gravitate to the biggest financial centers. The owners’ propaganda worked for a time. Fans and players both agreed that maybe this free-agent stuff was dangerous to the sport as they knew it.
But starting with Catfish Hunter’s free agency in 1975 (see part 2), the public saw free agency and liked the freedom of players to move to their favorite team. Players, at first reluctant to disbelieve what they’d always been told by owners, soon realized that someone had just opened a bank vault to them. In one sport after the other — hockey finally succumbing in the early ’90s after years of collusion with its union — free agency conquered the market. Stars became rich and owners became nervous about controlling the salary spiral.
In their desire to win as quickly as possible, owners were their own worst enemies, creating scarcity where none had existed before. Faced with a shot at a championship, they proved incapable of disciplining themselves when a premium player appeared on the open market, spending more than they ever had before. What was to become of competitive balance if the smaller markets lost all their players to large markets? With the courts suddenly of no help in interpreting contracts their way, owners would need something new to control the insatiable need for one more big contract to guarantee a title or even just a playoff spot.
Enter the salary cap. It allowed leagues the simulacrum of a free market while punishing the marketability of the Russell Wilsons, Jonathan Toewses and Steph Currys. As we’ll see, leagues only achieved the salary cap as part of bitter collective bargaining. Players accepted caps in exchange for freedom within the system — along with other perks such as independent arbitration in salary and disciplinary matters.
In their haste to get control of payrolls, owners didn’t much concern themselves with how a socialist-style system would affect the quality of play. In a bid to save themselves from each other, they left the details to coaches and general managers who were eager to save their own jobs first. Owners also didn’t pay attention to what would happen when the franchise model gave way to a new master: global communications. The sports economy has been changed by the communications revolution that carries games and players’ images around the globe. No longer does a league need a team in every town to spread its product.
Cap in Hand is about how the law of unintended consequences diluted talent and dispersed skilled players over too many teams. Sports executives also didn’t forsee that under a salary-cap system tied to universal drafts teams might actually deliberately lose — “tank” — for four or five seasons to corner the best talent. The recent example of how the Houston Astros went from worst to first — laughingstock to World Series champ — is sure to be emulated by other franchises who will subject their fans to a lousy product in the hope that they can replicate the success of the Astros.
Leagues are now dominated by coaches obsessed with video and game planning, not inspiration and creativity, who coach not to lose instead of to win. In the words of former Detroit Red Wings star Pavel Datsyuk, “There are not many creative players now . . . It’s less and less every year. There’s lots of talent, but teams are playing more systems . . . Hockey is so different now.” The same can easily be said for all the team sports except basketball, where the small rosters still allow for teams to concentrate stars on a team. No wonder the Golden State Warriors and the NBA have captured a worldwide audience.
Cap in Hand also proposes a way out of this mess. Soccer has demonstrated that the sports world has morphed from the overstocked inventories of the franchise model to one based on matchups of elite teams populated by elite players. Without a salary cap, the beautiful game has allowed for the growth of super-teams in smaller leagues. There is no parity in soccer, just the unending quest for the best product possible. As a result, the sport has finally made a breakthrough in North America with a new generation of fans intrigued by the great Lionel Messi, Cristiano Ronaldo, Paul Pogba and Harry Kane.
The story of the salary cap is one played out over generations of contracts and labor decisions. Perhaps the best way to understand the owners’ mania at suppressing market value in sports (as opposed to entertainment) is to follow the money. And the money started with Babe Ruth.
