Three big negotiations at three different stages. One deal.
On Monday National Football League (NFL) players voted to accept a deal to end the league’s 135-day lockout. Meanwhile, in Washington, debt ceiling negotiations drag on, with brief moments of optimism followed by accusations and name-calling. So why has the the US government failed and the NFL succeeded?
First, a quick primer. For the NFL, $9bn in annual league revenues were at stake. Players and owners engaged in a heated negotiation to figure out who was going to be rich and who was going to be a little richer. The owners ‘won’, with new deal giving them 53 per cent of revenues, a slight improvement on the previous near even split. As part of the 10-year deal, there will be additional funding for retiree benefits and medical treatment, changes to rookie compensation packages, and some changes to terms for free agents. This deal comes as the NFL season is rapidly approaching.
For the National Basketball Association (NBA), there’s $4.3bn in annual shared revenue on the table. Players currently get about 57 per cent of that pool. Owners want to move closer to a 50-50 split, along with a change in the salary cap. One thing here worth noting — the NBA does not have the same revenue sharing system as the NFL. Whereas a little more than 70 per cent of NFL league revenue is shared, the NBA’s system is closer to 30 per cent, meaning smaller markets are at a greater disadvantage.
As for the US government … well, nobody is really sure what is quite at stake. We know this story all too well already. The Republicans want deep spending cuts. The Dems want new tax revenue (or tax revenue from letting existing cuts expire, depending on how you view these things). Both sides have accused the other of playing politics with the situation (and both sides are almost certainly correct).
So what common themes are we seeing? Simply put, each situation has two sides who can’t agree as to why their organizations are having trouble managing money. In the NFL and NBA, teams claimed that players are receiving too much of it. In the government, Republicans claim the Democrats are spending too much of it.
All sides appear to be motivated by their respective deadlines. Posturing and grandstanding seem to be the norm until deadlines loom. But here we see three negotiations in very different statuses:
— (1) The NFL is finished/finishing, having come in right near a deadline that would cancel lucrative preseason games.
— (2) The US government is rapidly approaching the default deadline, yielding some last-ditch rival planning.
— (3) The NBA is relatively far from any hard deadlines, allowing each side to stand firm.
In the NFL, the players can hang their hats on the fact that they did not give up as large a percentage as had originally been sought by the owners, and they secured some major retirement and league structure changes while not moving to a longer season. The owners hang their hats on their larger stacks of money.
In the NBA, the league has perpetuated the notion that most teams are losing money and that player salaries are the driving force behind that. There have been some allegations that sneaky accounting has allowed profitable teams to declare losses, most interestingly by liberally claiming for “depreciation”. The conventional wisdom is that the NBA’s labor situation is worse than the NFL’s, with neither group ceding any ground at the moment. As we noted above, this is in the early stages and one might expect that the so-called “philosophical divide” between the groups might narrow as the 2011-12 season approaches.
So why can’t Washington find an agreement that might allow both sides to walk away as winners? Because Washington has one thing that the NBA and NFL doesn’t – elections. If it were just about the money, it’s hard to believe that this discussion wouldn’t have been put to bed with one of the major plans already suggested and in which each side could claim a victory. Instead, with the 2012 elections looming, politics, not fiscal responsibility, appear to be the name of the game.
The NFL has (and the NBA will soon) come to the realization that in any debate there is middle ground, particularly when the discussion is about money – lots and lots of money. But the debt ceiling isn’t necessarily about the money, it’s about winning. And there’s no middle ground in winning.
Winning this negotiation isn’t about getting what you want; it’s about making the other guys vote for it. The winner is whatever party’s plan is passed. Coming to a deal on the debt solution in a reasonable time frame with a plan of compromise would certainly benefit the American public and the rest of the world. But a deal might not necessarily benefit a politician’s 2012 election chances, especially if whatever side she is on is perceived as the loser.
The famous quote from UCLA football coach and popularized by Packers head coach Vince Lombardi comes to mind: “Winning isn’t everything; it’s the only thing.”
— By Jason Abbruzzese, FT.com