With the NFL Lockout Just About Over, a Sports Economist Weighs In

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If there was any doubt as to how valuable the NFL is, all you had to do was flip to ESPN on Thursday night. The cable network ran an hours-long, special lockout edition of SportsCenter following news that the owners approved a proposed collective-bargaining agreement. From a ratings standpoint, it probably wasn’t that hard a call: the prime-time program the network broke into was a softball game between the U.S. and Czech Republic, which got bumped to ESPN2.
The NFL players still have to ratify the deal, and have until next Tuesday to do so. If they sign, free agency and training camp would begin on July 27, not soon enough to salvage the Hall of Fame game. One clear loser in this whole lockout situation is the city of Canton, Ohio, which according to Fox Sports Midwest, will lose out on millions of dollars of economic impact.  As I thought about the broader implications that the four-month lockout has had on the country’s most lucrative professional sports league (the NFL brings in $9 billion of annual revenue), I fired off some questions to sports economist Dave Berri, who was kind enough to offer some quick responses.

Three quick questions on the NFL CBA:
1. Will the lockout impact consumer demand?
2. How does this deal impact the returns to owners and players?
3. What will free agency look like once the deal is ratified?
1. Martin Schmidt and I have looked at the impact of strikes and lockouts on demand in professional sports. Much to our surprise, when these events resulted in the cancellation of games there doesn’t appear to be much of a penalty imposed by consumers. In other words, strikes and lockouts don’t really cause attendance to change in professional sports.  So even if the NFL had to cancel regular season games – and not just the Hall of Fame game – we would not expect demand to change. The NFL will be popular in 2011, just as it was last year.
2. The owners’ position – which I think was fairly good under the old CBA – is even better now. If the players ratify the deal the owners ratified on Thursday, we can expect the owners to increase their profits. This is because this deal calls for the players to accept less money. In 2009, the NFL payroll cap was $128 million and the players received 50.6% of league revenue. This deal calls for players to receive 48% of revenue and a payroll cap of $120 million. Because rookies are going to receive less, it is likely NFL veterans will see their paychecks go up. And since it is veterans who get to vote on the deal, that’s why the players will probably accept this agreement (or something very close to this deal). But overall, players are getting less, and therefore, owners are getting more.
3. Free agency is going be chaotic and messy. Once the deal is finally ratified by everyone – and we are not sure when that is going to happen — then we are going to see a very rapid free agency period. Some teams are over the cap right now. Because NFL contracts are not guaranteed, some players – who will be voting for this agreement – will suddenly be out of a job. Teams that are looking to fill holes will now be looking at free agents. And the time they have to look at these free agents is very short, so I would expect some mistakes are going to be made in the next few days, i.e. overpaying for talent, passing on talent you should keep, etc… Furthermore, teams are also going to be looking at all the undrafted free agents – players who would have been contacts by teams last April – at the same time. So however your favorite team’s roster looks like right now, it could look very different in just a few weeks.