Impending NFL TV Rights Deals Are Impacting Contract Negotiations

The biggest story in the NFL right now is what's going on with the Cowboys and Dak Prescott's contract negotiations. Reports indicate he wants a four-year deal and they want a five-year deal. Common sense suggests he should take the extra year and the extra money that comes with it. Common sense, however, is woefully uninformed in this case.

In March, while most of our collective attention was focused on the developing coronavirus pandemic sweeping the country, the NFLPA and NFL agreed to a new 10-year collective bargaining agreement. A big reason it was ratified by the NFLPA was the players are now guaranteed 48 percent of league revenue, up one percent from the previous deal. That can increase to 48.5 percent if/when a 17-game season begins (expected in 2021) and a media kicker applies. The NFL estimates players will receive an additional $5 billion over the course of the deal.

Where, pray tell, will they get that extra money? From the additional television revenue that will be generated with new deals to be struck over the next few years.

ESPN's deal with the NFL to broadcast Monday Night Football expires in 2021. CBS, FOX and NBC's deals to broadcast Sunday games expires in 2022. So does Direct TV's deal to distribute the NFL Sunday Ticket package. Fox also pays $660 million per year for the Thursday night package, with that deal expiring in 2023. All told, those deals account for over $6 billion in yearly revenue for the league.

Because the new CBA includes a potential 17-game schedule and additional playoff games, plus the fact that the NFL has established itself as the largest viewership driver in live TV (which equates to higher advertising deals) the expectation is the cost to broadcast NFL games will substantially increase when the new deals are reached. According to Alex Sherman of CNBC, CBS and FOX may need to pay $2 billion per year and ESPN may need to pay $3 billion. That story was written pre-corona, and it seems likely the pandemic will negatively impact those figures. But it's clear players and their agents don't think so, or at least that it won't be substantial, based on various contract negotiations from this year.

Because the yearly salary cap increases based on how much the league makes in a given year, and because broadcast rights account for a large part of total revenue, there is expected to be a large spike in the salary cap after the 2022 season. It's impossible to project how much right now because those deals are still being discussed (privately). Yet, that's just what agents for players are trying to do: they're projecting how much the salary cap will be three years from now and negotiating accordingly so their player doesn't feel underpaid when that spike happens.

For agents of elite players, who command more of the salary cap, it's a much more complex issue. It's also the reason players like Prescott are reluctant to sign long-term deals. Get the money based on the current salary cap, and then get a piece of the new, increased salary cap as soon as possible.

Right now, the five highest-paid quarterbacks in the league account for between 17-18.9 percent of their team's respective cap sheets. If Prescott were to accept a deal based on the current salary cap that runs through 2025, he would make significantly less money in years 4-5 than he could if he signed a new contract in 2024. Of course, it's a little bit of a risk because Prescott could get hurt or regress, thus resulting in a lower deal after this one is completed. But players tend to bet on themselves, and Prescott and his agent are doing that now while also betting on the fact that the salary cap will grow astronomically in three years.

Pescott isn't the only one looking short-term. Laremy Tunsil just signed a three-year, $66 million deal. He's one of the best tackles in the NFL and likely could have gotten more if he wanted. He chose the shorter deal for a reason, and he did all that without an agent.

Overall in 2020, only 11 free agents signed for four years or more. In 2019, 30 signed for four years or more.

Future premium free agents like Joey Bosa, George Kittle, Chris Godwin and Jalen Ramsey could be looking at the same thing if the TV rights deals aren't finalized before the 2021 offseason. They'll likely want short-term deals anyway because it will give their agents more clarity when they go to the negotiating table again in 2023 or 2024.

This is what happens when TV rights deals come to an end and a new collective bargaining agreement is signed. The lack of clarity makes it harder for elite players to agree to new contracts because it's harder to predict how exactly to maximize their earning potential. Once the broadcast deals are agreed to, the haze will dissipate and long-term deals will be easier to sign. Until then, expect stars to want short-term deals and teams to want long-term deals, even though common sense would suggest otherwise.