Editor’s Note: We are pleased to welcome Mr. David Webb and his first post to the Sports Law Society (SLS) Blog. David, originally from Dallas, Texas, is a rising 3L at Marquette Law. He is also an SLS member and Sports Law Certificate candidate, as well as an Alternative Dispute Resolution (ADR) Certificate candidate. 

As NBA free agency continues to wind down, much has been said about the large contracts players are signing, especially in comparison to what NFL players are making. After a few of the major deals were announced, Twitter was flooded with tweets from current NFL players who were in disbelief about the value of some of these contracts.

In particular, it seems that many NFL players, such as DeAngelo Williams, were having trouble dealing with the fact that not only did 8 NBA players sign contracts worth $90+ million dollars, including Memphis Grizzlies point guard Mike Conley’s record setting $153-million deal, but also the fact that a number of extremely lucrative non-max deals were handed out to NBA players who are average at best.

Admittedly, the value of these contracts are somewhat puzzling when you consider that five NBA free agents, who have never been selected to an All-NBA team or even made an All-Star Game, were able to negotiate their way into receiving max contracts that earn them more money annually than any active NFL player with the exception of Andrew Luck. Perhaps even more puzzling is how players that primarily ride the bench, such as New Orleans Pelicans center Solomon Hill who played less than 15 minutes per game and averaged just over 4 points, will be making money comparable to Minnesota Vikings running back Adrian Peterson next season.

Now, although I do not think I can tell you with a straight face that Hill and Peterson are comparable players in their respective sports, what I can tell you is that the contract he received, and the contracts many other players signed during free agency, has more to do with the differences between the two leagues then it has does with the quality of player. Moreover, what many fail to see is that these differences make it much easier for NBA players to gain leverage in contract negotiations and, as a result, make more money.

Thus, even football is more popular and generates more revenue than any other American sports, assuming current trends continue it appears unlikely that in the future the highest paid NFL player’s salary will surpass the highest paid NBA player’s salary absent a drastic change in circumstances.

Basic Math and Fundamental Economics Principles: The Influence of the Draft and Team Size Has on Players’ Ability to Gain Leverage in Negotiations

First, as every good negotiator knows, being able to differentiate a good deal from a bad deal necessarily requires that a party have a clear understanding of their best alternative to a negotiated agreement (BATNA). Although a NFL or NBA team’s BATNA can always be to pursue another free agent, their other option is to replace a player through the draft. However, although the process is very similar, because of the fundamentals differences between the NBA and NFL draft, NBA players inherently have more leverage than NFL players in contract negotiations.

Obviously, at least structurally speaking, the NFL draft has five more rounds than the NBA draft which increases the supply of players in the labor market and allows NFL teams replace highly paid veterans with cheap rookies. This is because not only are their more players in the NFL draft but also they are generally of higher quality and already possess the necessary skills to play at the professional level.

With the exception of picking a quarterback and barring injury, typically an NFL team knows they are going to get a quality player with their first and second round pick and teams who have done their due diligence can find gems in rounds much later than that. On the other hand, unless an NBA team has a top pick, the NBA draft a proven to be much more of a crap shoot.

Although it is somewhat unclear if the one-and-done rule is solely to blame for allowing players to turn pro before fully developing their game and limiting an NBA team’s ability to scout players, what is clear is that only a handful of players in each draft will develop into high quality players who become permanent stays in the league. As a result, given the uncertainty that comes with replacing a player through the draft, NBA teams have a much weaker BATNA than NFL teams do and thus have a much greater incentive to pay a proven player than bet on a rookie.

Second, although the NFL’s salary cap is 60% larger than the NBA’s, the problem lies in the fact that the number of players NFL teams have on their active roster is nearly 4.5 times larger than NBA rosters. Moreover, when you take into account special teams, the problem with salary cap distribution is compounded when you consider that there is six times as many starters on an NFL team than on an NBA team. As a result, the fact so many starting positions exists makes it extremely difficult for any non-quarterback to garner leverage in contract negotiations even when they have proven to be among the league’s best at their position.

Don’t believe? Ask Washington Redskins’ Josh Norman, who was the best cornerback in the NFL last season; when it came time to negotiate a long-term deal, he was unceremoniously kicked to the curb by the Carolina Panthers. The team simply decided their cap space would be better spent elsewhere.

Although it’s true that superstar players in the NBA have decided to leave their current team, such as Golden State Warriors forward Kevin Durant this offseason, when was the last time you remember an elite NBA player leaving because his current team wasn’t even willing to make him a competitive offer?

However, besides a simple numbers games, the decision whether to sign a player and under what terms is also heavily influenced by how the two leagues CBAs are structured.

Show Me The Money: How the Leagues’ Salary Cap and Free Agency Process Impact Player Salaries and Other Contract Terms

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Fictional Sports Agent Jerry Maguire (Source: Giphy.com)

Perhaps the most notable and important distinction between the two leagues salary caps is that the NFL has a hard cap whereas the NBA has a soft cap. Despite the fact that the NBA CBA does have some rules that limit the type of transactions a team over the salary cap can enter into, others rules such as the Larry Bird exception make it extremely easy for a team to resign their own players to extremely lucrative contracts even when they are already over the cap.

However, since the NFL is a hard cap, and teams are prohibited from spending any amount over the salary cap, teams not only have to think about how signing a player to a long term contract will affect their ability to build a winning team this year but in the years that following as well.

As a result, even when both the team and the player genuinely want to reach an agreement, the fact that the NFL has a hard cap makes a player’s interest in getting as much money as possible and a team’s interest in saving as much money as possible a zero sum game. Moreover, players and teams are also at odds when it comes it the length of a contract with neither side generally have a high tolerance for risk given the injury concerns and uncertainties that come with playing in the NFL.

Although NFL negotiations still have some room for the parties to reach an integrative solution over terms such as guaranteed money and performance bonuses, the fact that both parties primarily interest is so distributive greatly limits the zone of possible agreements and makes it easy to for the parties to reach an impasse.

Finally, since the NBA CBA limits the maximum number of years and amount of money a team can offer a free agent, NBA players are easily able to create leverage and drive up their value by forcing teams to bid against each other. For example, in retrospect does anyone still think Conley or Miami Heat center Hassan Whiteside set up meetings with other teams because they were actually contemplating joining a new team? Of course not.

The only reason why these meetings were held was so Conley and Whiteside could get more leverage in their negotiations with their current teams and simply say, if you don’t give me a max contract then I am going to leave and join a team that will. Thus, it’s a race to the top in the NBA, once one team is willing to offer a max contract to a player then a team vying for that player’s services has no other choice but to match.

Additionally, although both the NFL and NBA CBAs have mechanisms to help prevent teams from losing their players in free agency, they operate in very different ways. For example, in the NBA, players coming off their rookie contract are typically designated restricted free agents, which allows their current team the opportunity to match any offer the player receives from another team.

In particular, what is extremely beneficial for the players in this situation is that both the player and team have an incentive to agree to the most outlandish contract possible.

Obviously the player always wants as much money and as many years as possible but, under the circumstances, this becomes a shared interest when you consider that the team trying to sign the player wants to make it as difficult as possible for the player’s current team to match. This is exactly how the Houston Rockets were able to lure away Jeremy Lin at the height of Linsanity despite the Knicks desire to keep Lin in New York.

Thus, similar to how unrestricted free agents negotiate, but even more so, players who are restricted free agents don’t even have to negotiate with their teams. Instead players simply find the team that will pay them the most money, sign an offer sheet, and kick back to see what happens.

On the other hand, although the NFL does have restricted free agents, far fewer players qualify and the fact that teams who signs the free agent is are required to give up a compensatory draft pick greatly decreases the demand for these players.

Instead, in the NFL, when the two sides can’t agree on terms to a new contract teams frequently use the franchise tag to prevent their most valuable free agent from hitting the open market. Unlike like NBA restricted free agents, the franchise tag functionally gives NFL teams ability an additional BATNA and a strong one at that.

As a result, elite caliber players who should have the most leverage in negotiations, such as Von Miller this offseason, become the inherently weaker party. Obviously players don’t like the franchise tag because, despite the large salary, it forces the player to assume all of the risk going into next season.

To that extent, although players can attempt to regain leverage by threatening to hold out, this tactic hasn’t proven to be very effective as of late. Will that change? Only time will tell.

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Additional Notes

  • Solomon Hill: 4-year, $48-million deal
    • Comparatively, Adrian Peterson: 3-year, $42-million deal in 2015.
  • Josh Norman: 5-year, $75-million deal
  • Kevin Durant: 2-year, $54-million deal
  • Hassan Whiteside: 4-year, $98 million deal

Contract numbers via spotrac

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