When the players take to the field for the 2020 NFL season in September, it is very likely that while what we see on the field looks similar, the surroundings will look somewhat different. As it stands, there is a slim hope that we could see NFL stadiums at full capacity, but it is much more likely that we see NFL teams playing in front of empty or half full stadiums for the majority of the 2020 season. While a lack of or reduction of fans presents a challenge for teams on the field next season, it is the impact on the salary cap in 2021 and beyond that will be the major concern for the 32 NFL teams.
Adam Schefter reported this week on the My Sports Update podcast that NFL teams are bracing themselves for a large drop off in the 2021 salary cap from the $198 million in 2020.
Something to monitor: The salary cap in 2021 could potentially take a massive hit due to COVID-19. "The various estimates I've gotten from executives to owners is that the cap could be down anywhere $30M to $80M in 2021" — @AdamSchefter
— NFL Update (@MySportsUpdate) May 5, 2020
A drop in the 2021 salary cap of $30 million would represent a 15% decrease in the 2020 cap number. Meanwhile, an $80 million decrease would be a whopping 40% drop in the cap from year to year. That would return the cap back to the pre-2011 collective bargaining agreement levels when the cap topped out at $123 million in 2009. Any drop in the cap will be a tough pill for teams to swallow, especially given that the cap has grown by at least $10 million per year ever season since 2013.
In this article, we will take a look at how the salary cap is calculated, why the 2020 season may lead to such a drop, and how it might affect different teams in the 2021 season.[sv slug=”mocksim”]
How does the salary cap work?
There is a lot of math that goes into calculating the salary cap. But when you boil it down it, is actually a reasonably simple process. The salary cap is set based on two elements.
Firstly, the leagues’ expected revenue in the upcoming season is calculated, with the previous season’s revenue against expected taken into account. In order to then derive the cap number, the percentage of that revenue that is dedicated to the players in the CBA is used. Over the course of the last CBA, the players have had anywhere between 47.5 and 48.5% of the revenue portioned to them. That revenue comes in two ways, the first is the salary cap and the second is in their benefits.
Therefore, to calculate the salary cap the following calculations are performed:
- Revenue calculations x CBA percentage = Players revenue share
- Player revenue share – projected benefits = The amount available for salaries
- The amount available for salaries/number of teams = Base salary cap per team
The final element of determining cap space comes in the form of adjustments. The biggest of these is the salary cap “rollover”. This “rollover” allows teams to bring their unused cap from the previous season into the current season. For 2020, the Indianapolis Colts led the league rolling over more than $41 million from 2019, with a total of seven teams rolling over more than $20 million. These numbers are then added to the base salary cap, $198 million in 2019, to give each team a final cap number.
Teams are limited from stockpiling huge cap numbers into one or two years by the NFL’s 89% rule. The 89% rule means that in any four-year period a team must spend more than 89% of its cap in “cash spending.” There are ways around this for teams, including paying players big upfront bonuses that count as a “cash spend” in that season while sharing the salary cap hit across the life of the contract.
With all of those calculations in mind when it comes to determining the salary cap for teams, that leads us to the concerns for the league with the current climate of sports in America. If the NFL’s revenue drops in 2020, as it looks likely to, that can only have a detrimental effect on the salary cap.
The potential impact of the 2020 season on the salary cap
The league’s revenue has many elements to it, but there are essentially two main revenue streams. The first of those is the league’s national revenue generation, including lucrative television deals, merchandising, and advertising revenue. That national revenue is split evenly among the 32 teams and was reported to be around $255 million in 2018, based on the Green Bay Packers’ annual report that year.
The second revenue stream comes in terms of what the team themselves bring in from their local endeavors. The majority of that money comes in the form of stadium revenue, with smaller amounts coming elsewhere. Therefore, with the league still planning to start training camps and the season on time, as reported by Pro Football Network Insider Tony Pauline back in May, this is where concern now focuses for NFL teams. While this locally generated money is not shared between the 32 franchises, it does count towards the league’s overall revenue calculations.
To give you an idea of just how large the problem is in terms of lost revenue, Forbes recently reported that the stadium revenue was valued at $5.5 billion for the league in 2018. Naturally, all 32 teams generate different amounts of stadium revenue, with the Dallas Cowboys leading the league at a huge $621 million, over $300 million more than the second-placed New England Patriots ($315 million).
However, 2020 was also supposed to be a big year for the NFL in terms of a bump in in-stadium revenue. The league’s lowest two teams in terms of stadium revenue, the Oakland/Las Vegas Raiders ($77 million), and the Los Angeles Chargers ($93 million), are due to move into brand new stadiums this season. These moves should have seen those two franchises eclipsing $100 million in terms of stadium revenue in 2020, further boosting the value of the NFL. Now it looks likely that not only will they not get those bumps, but they could be facing a massive drop in stadium revenue, even if they can have stadiums 50% full.
This loss of stadium revenue has not been accounted for in the 2020 salary cap. That is because the calculations for the upcoming season’s cap were made prior to the realization of the effect that the current situation would have. Therefore, the lost revenue from expected in the 2020 season is going to have to be accounted for in subsequent years, resulting in the significant drop in salary cap that Schefter reported this week.
This potential drop in the salary cap could be devastating to some teams who have not been careful with their contracts, expecting the league’s revenue to continue growing at the impressive rate it has over the last 10 years.