Monday, July 20, 2015

4 comments Jason Reid Examines the Cruelty of the Salary Cap in Sports

Welcome to the blog, Jason Reid! Reid used to write for "The Washington Post," but seems to have taken a job with Good for him. It's nice to move up (it's considered "up" so I'll just say it's "up" because the pay is most likely increased) in the world. Jason Reid is one of the brave souls who is willing to speak about the cruelty of the salary cap in sports and how it causes professional athletes to be grossly underpaid for the services they provide. There are also professional athletes who are grossly overpaid for the services they provide, but those aren't as much fun to talk about. Let's conveniently ignore those athletes. Instead, Reid focuses on how the salary is cruel to superstars like Russell Wilson and LeBron James. Yes, he uses the word "cruel" in this context. As if limiting LeBron James to earnings of $22 million in a year instead of his real free market value with no salary cap is on par with other cruel acts that take place in the world. I think Jason Reid needs some perspective and he also needs to stop using some slightly fuzzy math.

Let's talk about the myth that superstar athletes in the NFL and NBA are compensated fairly.

Let's talk about your definition of "fairly." Is it "fairly" compared to the rest of the free world and the average compensation of a worker? Or is it "fairly" compared to their skill set and how easy it is to find a similar skill set among other citizens of the free world? In and of themselves, professional athletes have a difficult skill set to replicate simply by existing as professional athletes. Because Russell Wilson plays in the NFL, this means he has a skill set that most other people do not. So what is "fair" should be relative to other NFL players. If anything, the rookie salary cap, not the NFL's overall salary cap for each team, is what has caused Russell Wilson to not be compensated fairly during his career.

The first issue with this column is that the salary cap is not cruel. It's a matter of fact. Just as state employees have a cap on how much they are able to earn in their respective field, for example a great teaching administrator can only earn so much in that position, the NFL and NBA have a cap on how much players can earn. Is it cruel that I earn more than someone who works as an administrative assistant to a City Manager, even though he/she has the exact same skill set in their field as I have in mine? No, it's a matter of fact for the field that we are both in. So for Russell Wilson and LeBron James it's not "unfair," it's a matter of fact in that player's chosen sport.

The second issue is nobody wants to hear about how NFL and NBA players are not compensated fairly. If there were no salary cap in these two sports then these players could earn more money. Using words like "fairly" and "cruel" overshadows and diminishes the point Jason Reid wants to prove by making it seem like he's trying to evoke sympathy for these players. He's not doing a very good job of proving his point.

The truth is, the best players in those leagues are grossly underpaid because of the salary cap. For Seattle Seahawks quarterback Russell Wilson, that's a bad system.

Relative to football players, the rookie salary cap is why Russell Wilson is underpaid. Once Wilson gets a chance to hit free agency or accepts a contract offer from the Seahawks, he will no longer be underpaid. This comparison across different leagues isn't a very good comparison because each professional sport has it's own salary structure and revenue-sharing which can determine the salary cap and money available to pay these athletes. It's like saying I am underpaid in my profession compared to an investment banker. Sure, I am underpaid compared to an investment banker, but I'm not an investment banker. If I were an investment banker and earned what I earn now, there is a chance I would be underpaid compared to what others in my field earn. Similarly, stating because I'm an investment banker who earns $100,000 a year, then claiming I'm underpaid because a financial planner earns $250,000, wouldn't be a correct way to frame the argument in my opinion. To say, "Oh, well, if there was a different salary structure in place that had no salary cap then Russell Wilson would earn more money" may be a good point. To say he is underpaid compared to other athletic professions because this separate salary structure with no salary cap does not exist in the NFL is not a good point. Wilson should be compared to other NFL players to determine if he is underpaid. 

Seattle knows what it has: Wilson is a keeper. But at what salary? Like all teams, the Seahawks must balance their desire to reward Wilson with the need to maintain cap flexibility. Obviously, those issues are at odds.

Even if there were no salary cap, the Seahawks would have to balance their desire to reward Wilson with the amount of money the organization can afford to spend on Wilson. There is a reason even MLB teams, who play in a sport with no salary cap, can't go out and spend $100 million on a free agent. So even when there isn't a salary cap, there is still the profitability issue and spending ability related to this profitability issue that exists which prevents a team from rewarding their own players at maximum market value. Assuming every NFL team's spending ability is equal and endless is a faulty assumption. So there will always be some sort of budget professional franchises have where the player's reward must be balanced with payroll flexibility. It's shocking to Jason Reid that a salary cap designed to level the playing field does in fact level the playing field.

Although Wilson is a face-of-the-franchise performer, the former third-round draft pick won't be paid what he deserves for his role in the NFL's ongoing economic boom. 

He will be paid what he is worth compared to other NFL players.

Players who produce at a high level while leading their teams to championships provide the foundation of a league that reportedly generated about $10 billion in revenue last season.

Yes, the NFL earned that amount of money. Each individual team didn't earn $10 billion last season.

In contrast, this season's salary cap is set at $143.28 million per team. That's a small slice of a very big pie.

So Jason Reid's point is that the NFL makes a lot of money and each individual employee of the NFL or employee of an NFL team doesn't see a big slice of this very big pie? Much like how my company earns a lot of money and I only get a small slice of a very big pie? So the NFL players are being treated like 99.5% of American employees are treated to where they only earn a small subset of what the company earns as a whole. Excuse me if I can't quite muster up some more sympathy for Russell Wilson when he wants $25 million per year and is only being offered $18 million per year. I'm guessing Jason Reid earns a very small slice of what ESPN makes every single year. Does that mean he is underpaid? Does that mean Skip Bayless is underpaid because he only earns a few million of what ESPN earns every year? Of course not.

Even if Wilson receives a record package -- with an average salary of $22 million, Green Bay Packers quarterback Aaron Rodgers is the NFL's highest-paid player -- he'll still be a bargain based on the league's immense profitability.

This is a remarkably stupid comment. People can get their panties in a wad over CEO compensation, but compared to how much Bank of America makes annually in revenue, that would mean Kenneth Lewis was actually underpaid when he made $24.8 million while being bailed out by the federal government. As long as you use the logic that Jason Reid uses then the idea Lewis was underpaid may make sense. Who knew Lewis was so underpaid at the time?

The buzz is that the Seahawks, despite Wilson's impressive accomplishments for a quarterback at the outset of his career, would rather not break new salary ground because they don't have to (Wilson is under the team's control for at least three more seasons). 

And, of course, if it wasn't such a cruel fact of life that there is a salary cap in the NFL then Russell Wilson would be able to earn untold millions on the free market over the next three seasons, right? Wait, that's not right at all. Even if there was no salary cap and 15 NFL teams were looking to pay Russell Wilson $500 million to be their quarterback, Wilson can't even hit free agency for another three years. Not to mention, during two of those years Wilson would be one of the highest-paid players at his position. So again, Jason Reid is trying so hard to make it seem like if it weren't for the salary cap then Russell Wilson would be rolling in dough right now. That's not entirely true. Though, he could be rolling in dough compared to other athletes at his position if he were franchised for two straight seasons.

However, the argument that Wilson is nothing more than a game manager is ridiculous. That became clear after Wilson rallied the Seahawks to victory over the Packers in last season's NFC Championship Game.

Whether Russell Wilson is a game manager or not is irrelevant. Argue the point, don't try to create a whole new discussion because the topic for this column is inherently weak.

And ask yourself this about Wilson: How much could he command in free agency if there were no salary cap?

Ask yourself this about this question: Do you know the answer to the question or are you just speculating in order to prove your point? Ask yourself this as well: If the NFL had no salary cap would it improve the game?

With elite signal-callers in high demand, the list of bidders, undoubtedly, would be long for a charismatic winner who won't turn 27 until November. There's no way of determining how much Wilson would receive in such a scenario. 

I would disagree that the list of bidders would be long. Just like the list of serious bidders for an MLB free agent isn't long, there would be an even smaller list of NFL teams who would pursue Russell Wilson if he were a free agent in an NFL without a salary cap. The teams that would seriously pursue Wilson would be teams that don't currently have a starting quarterback under contract and would be willing to pay the amount of money Wilson would want.

In fact, I think I could make an argument that the list of bidders for Wilson would be higher with the salary cap and non-guaranteed salary structure the NFL has. If the 49ers want to pursue Russell Wilson then it's a lot easier to do that knowing that they don't have to pay Colin Kaepernick his full contract AND Kaepernick would have (under Reid's theory) gotten an even bigger, guaranteed contract if the NFL was a free market when the 49ers re-signed him. This means the 49ers would have a more difficult time of moving Kaepernick in a trade or would have to eat a lot of the contract if it were 100% guaranteed. This would obviously affect their ability to sign Russell Wilson. Under the non-guaranteed salary structure, the 49ers could cut ties with Kaepernick and sign Wilson, fully knowing they aren't on the hook for Kaepernick's entire salary.

I'm getting off-point. My point is the list of suitors for Russell Wilson wouldn't be as long as Jason Reid thinks because NFL teams who have a quarterback and don't want to pay for Wilson's contract demand won't be in the running for his services.

Wilson's situation is a glaring example of why the cap doesn't work for superstars, sports attorney David Cornwell says.

"Why should a Super Bowl-winning, and two-time Super Bowl-appearing, quarterback be fighting for money?" Cornwell, who represents 2015 No. 1 pick Jameis Winston, said in a phone interview the other day.

So a sports attorney who represents NFL players think that these NFL players should get paid more, meaning the attorney representing that NFL player would get paid more? No way! So David Cornwell holds this opinion based on his own selfish need to make as much money as possible and this affects whether his opinion truly has merit or not? You don't say. Who would have thought that money and having a stake in how money is distributed could affect a person's opinion on a topic? Certainly not me. 

"If [teams] can cut players when they don't perform to their contracts, why can't we have a system where players are guaranteed to benefit [as much as they should] when they perform?"

Because the NFL union didn't negotiate guaranteed contracts into the latest collective bargaining agreement. Had they chosen to do so, then perhaps the players would be guaranteed to benefit when they perform. Also, guaranteed contracts are an entirely different issue from the cruelty of the salary cap. Jason Reid's shaky writing skills are combining these two issues, but they are two separate issues. The NBA does have fully guaranteed contracts and they still have a salary cap. So it's not the NFL owner's fault the players don't have fully guaranteed contracts, because the players chose not to negotiate this into the latest CBA. I understand the point, but I get a little tired of the players and ancillary figures to the players bitching about non-guaranteed contracts. They could have negotiated this into the latest CBA and chose not to. David Cornwell nor Jason Reid should talk about the unfairness of non-guaranteed contracts when it was the NFL players who chose not to pursue this. 

NFL players are compensated spectacularly (the league's starting salary is $435,000). Anyone who suggests otherwise should be ridiculed.

(points at Jason Reid and then begins ridiculing him)

But relative to the revenue they generate, superstars have been exploited historically.

Relative to the revenue they generate nearly every employee is exploited historically. There's no point in running a business if the employees eat up all the profits with their compensation. It sort of defeats the purpose of the business if all revenues go to the employees doesn't it? Relative to the revenue the NFL generates, even Roger Goodell is exploited using Jason Reid's logic. 

And the salary cap, designed to foster competitive balance among teams, has improved the owners' bottom lines much more than it has benefited their most important employees.

And of course because there is no salary cap in baseball, the owners are poor and can't make any money of their teams. Right? Speaking of bottom lines, even if there was no salary cap, NBA and NFL teams still have bottom lines that they must meet in order to make money. This is yet another point that Jason Reid is missing, that professional sports organizations still have budgets and a set amount that they will spend on their most important employees.

 "As a general proposition, there's a strong argument that can be made that, when properly applied, a salary cap can be good for the overall good of the game," said Cornwell, who worked for the NFL early in his career.

"But there are so many moving parts to determine if it's properly applied. And, there's no question about it: The current salary-cap structure is especially harmful to the best players."

And notice how David Cornwell doesn't make mention of when the salary cap is good for the overall good of the game. He says, "Sure, a salary cap can be great, but this one is super-bad," without mentioning when a salary cap could be "properly applied." If there is any salary cap, then there is a good chance the best employees won't be receiving their top market value, but this also doesn't mean these employees are underpaid. 

One issue that David Cornwell doesn't address is how the salary cap treats the 95% of the NBA players who aren't superstars. There are far more NBA players who aren't superstars than there are players who are superstars. Wouldn't the true test of a salary-cap structure be how players in that sport are compensated over all skills levels, not based simply on how much money superstars can earn?

Cleveland Cavaliers forward LeBron James has dominated the NBA over the past seven seasons, winning four league MVP awards and twice being selected the NBA Finals MVP. Yet, James, who this week became an unrestricted free agent for the third time, has never had the NBA's highest salary.

Who did have the highest salary during this time? Other superstars who are exploited by the salary cap in the NBA. I like how Jason Reid is all, "Superstars should be compensated like they are superstars. See, LeBron hasn't ever been the highest paid player in the NBA," then ignores who was the highest paid player in the NBA over this time. I'm guessing it's probably another superstar who is supposedly held down by the salary cap. Whoops.

By signing contracts that have included escape clauses, James has maximized his earning potential, re-entering free agency and receiving new deals as the cap has increased. Unfortunately for James, cap rules limit how much he can earn based on many factors. There's no telling what teams would offer James if the salary cap were not a factor.

There is no telling. What I believe I can tell is that whatever team offered James this contract also has a budget they can spend on other players which will be greatly affected by how much James earns.

NBA revenue is about $5 billion.

NBA revenue is $5 billion, but every NBA team doesn't have revenue of $5 billion. I feel like Jason Reid is seeing this $5 billion figure and saying, "Hey, LeBron James only earns $20+ million of this! Look at his value to the league!" This isn't the best way to argue LeBron James is underpaid. If James earned $100 million this season on the NBA's $5 billion in revenue then he's still only earning 2% of the overall revenues of the NBA. Is LeBron James more important to the NBA than that? I'm sure Jason Reid would argue he is. 

When one the greatest players in NBA history fails to get close to fair contract value because of the salary cap, major change is needed.

Jason Reid is all over the place. One minute he's talking about the NFL's salary cap, then he's talking about the NFL's non-guaranteed salary structure and now he's back using his fuzzy math discussing how the overall revenues of the NBA are $5 billion and he thinks LeBron James should get a larger piece of this. All while not realizing each NBA team (and there are 30 of them) doesn't earn $5 billion each year. 

"It's indefensible that LeBron James exposes himself to the risk of injury by opting out and taking one-, two-year deals to get higher salary-cap numbers," Cornwell said. "And it's not just an issue for the Cleveland Cavaliers.

David Cornwell seems to really struggle with personal responsibility and how these NFL and NBA players are partly responsible for their situation. LeBron James doesn't have to sign a one or two year contract. I bet the Cavs would love it if he signed a longer deal, but LeBron chooses to sign these contracts to max out his earnings. So I don't know if it's "indefensible" that LeBron has to opt-out and take these shorter contracts, but it's something he has chosen to do in order to capture a few extra million dollars that he doesn't need to live his life. It's really hard for me to feel bad for LeBron James because he opts out of a contract in order to earn a few extra million dollars. That's not something I can relate to. LeBron chooses to opt out to capture as much money as possible. That's his choice.

"All of the other owners shouldn't want him to do it ... because a rising tide lifts all ships. That's what the superstar players provide. Why would anyone want to risk [losing] those players because of the salary cap?"

I don't understand. Where would these players go to earn more money playing basketball? Is Cornwell saying that LeBron would leave the Cavs because he keeps opting out of his deal? Because I'm pretty sure the other NBA owners would like that very much, because it means they have a shot at signing LeBron James. Also, if I'm not wrong, James can get the most money by re-signing with the Cavs. So I'm not entirely sure where the risk of losing these players may exist.

That's a good question.

Is it a good question? Where would a superstar player go instead of playing in the NBA with a salary cap?

But with revenues ballooning for owners in the NFL and NBA under the salary cap system, it's a risk they're apparently willing to take.

Yes, revenues are ballooning from television deals and the like, which is why the salary cap keeps rising in both sports. A salary cap prevents star players from earning their maximum potential on the free market, but it's not a "cruel" system, these players aren't really underpaid, and the fact the NBA have revenues of $5 billion doesn't mean that each of the 30 teams has unlimited money they are able to spend on their employees. Sure, the NBA teams make money even if they claim they don't, but even MLB teams (and they have no salary cap) have a budget they must meet. Revenues are ballooning, which is why the salary cap is rising, but I don't feel bad for LeBron James or Russell Wilson because they have a limit on how much they can earn. A salary cap structure isn't an ideal system to maximize a player's earnings, but it's not a cruel system either. Get some perspective.


Chris said...

Reid writes about Lebron taking the two year deal as though he were forced to by the cruel hand of fate and Dan Gilbert and "expose himself to injury." In reality it wasn't a choice forced on Lebron but a calculated one that he made on his own because he knew the best way to maximize the money he will command based on the projections of how much the NBA's salary cap will rise.

It may just be me but I never like hearing NFL players or agents bitch and moan about teams allowing to cut guys who underperform relative to their contract. It's not being unfair in my opinion it's just a fact of life. If I underperform or don't perform at all my job then I get fired. It's the same principle in the NFL. And I will agree with what has been pointed out before many times. If the players wanted some protection from this or guaranteed contracts then they should have negotiated for it in the lockout negotiations.

Anonymous said...

"Ask yourself this as well: If the NFL had no salary cap would it improve the game?"

I think this is an important point that many people miss. Salaries are as high as they are because of the competitive structure of the league. It could be that the salary cap is an important component of that.

Bengoodfella said...

Chris, Jason Reid argues it's wrong for LeBron to have to risk injury and play on one year contracts. I'm not sure how it's cruel though. LeBron chooses to not sign a long-term deal in order to squeeze out more money when the salary cap rises.

I'm sensitive to the idea NFL players need guaranteed contracts, but this is something they should have negotiated into the last CBA and did not. I can't really feel bad for them when they complain. They wanted it, but not so bad as to miss a few paychecks to hold out for it.

Anon, I think an NFL with no salary cap would not be an improved game. I think these players need guaranteed contracts, but I also believe what makes the NFL so great is the salary cap structure where teams have to look 2-3 years down the road to make decisions.

Snarf said...

I agree. It's like wanting their cake and eating it too. They have the opportunity to negotiate these things into the CBA. It rings hollow to me when they appeal to the public about things being unfair.