NFL 'faces a critical business challenge'

KAPALUA, Hawaii – Normally, NFL commissioner Paul Tagliabue is upbeat when he addresses owners to open the annual spring meeting. On Monday, he was down, saying negotiations for a new collective bargaining agreement have "exhausted themselves" and are "at a dead end."

Tagliabue also predicted that so much time would be spent trying to find a solution and coming to consensus that not a lot of time would be spent in the Maui sun this week. The clock is ticking. The collective bargaining agreement expires in 2008. There is an uncapped year in 2007. Long-term deals are becoming more difficult to do because signing bonuses can only be prorated for five years, and that term drops to four in 2006.

"Today, the entire league faces a critical business challenge – not unlike others that we have successfully addressed in the past two decades," Tagliabue told the owners. "The challenge is how to restructure our leaguewide economics to extend the CBA with the [NFL] Players' Association to ensure the continuing competitive quality of our game and to continue the construction of superb new stadiums. And we must achieve these three critical goals in ways that take account of the escalating costs of club operations and that are within reach of all 32 teams."

Tagliabue sounds concerned, and he should be. To get a new agreement, owners first have to restructure their business models. Currently, the players get 64 percent of designated gross revenues, which was $3.07 billion in 2004. But other revenue streams take that total to about $3.5 billion, meaning about 12 percent of revenues aren't designated to the players. That's roughly $418 million, a huge chunk of money.

The league and the players have agreed in principle to go to a total revenue formula. In the future, total revenues should grow to $5 billion-$6 billion with new stadium deals and increases in the television packages. But owners can't agree with other owners, and therein lies the biggest part of this dead end.

High-revenue teams such as the Redskins, Cowboys, Texans, Eagles and Patriots have a huge edge in revenues over the lower-end teams such as Arizona and Indianapolis. The differences in total revenues can be more than $100 million in some cases, and the NFL has always been a league that shares. Right now, chances of getting a settlement among the owners in Maui is bleak.

"It's true because we can't get anything done in here," Steelers owner Dan Rooney said. "We cannot get a labor deal without any arrangement in here. It's impossible."

The bad part about this pessimism: Rooney is often the voice of optimism with regard to labor issues. It was Rooney who used his positive relationship with union president Gene Upshaw to help save the 1987 season, which could have been canceled because of a lingering strike. It was Rooney who has helped push and reform the salary cap.

"There are significant differences between the players and the league," Upshaw told The Associated Press. "But there are also differences among the owners. We'd like to get things resolved, and I think we can, but they may have to decide first what they want to do among themselves."

Tagliabue's opening statements were pointed and direct. The NFL is rolling in money, but the longer the league goes without resolving its future labor issues, the greater the problems that lie ahead.

If the league goes into an uncapped year with these differences, expect chaos. Competitive balance would fall apart. Threats of a work stoppage might resume. The timing of this CBA extension is coming at a critical time.

"We should be clear about one thing," Tagliabue told the owners. "Our own recent history tells us that a failure to come together now and agree upon solutions – both internally and with the players' association – will produce alternatives that are far more negative for all clubs, all players, the league and the players' association than the cost of a solution will be to any one club, group of clubs, player or category of players."

The NFL needs 24 owners to pass a CBA extension, and the five richest owners can find enough supporters to block any plan that doesn't meet their needs. The Dan Snyders and Jerry Joneses have succeeded because they've maximized their revenues in new stadium deals or by just hustling other owners. They don't want to give it up in a form of a tax of their revenues to share with other teams.

Houston Texans owner Bob McNair is considered a moderate, but he owns one of the five NFL teams with the most revenue. His debt service is high because of the expansion fee he paid and his contribution in building Reliant Field. He wants to help, but it has to make financial sense to his franchise.

"It's sort of like the old joke about the guy who had the hog and he figured he could live forever by going out and slicing a little bit off his leg each year and the hog would keep living," McNair said. "If he went out there and took too much, he'd kill the hog. You need to take a small enough slice to keep him living."

McNair thinks it would be wrong to take away incentive for clubs to increase their revenues. He formulated his financial plan when he was awarded the expansion team, but if the Texans are taxed too much, it could be a problem.

"There is a limitation as to what we do and how we do it," McNair said. "It all has to make sense. If demands are so severe it undermines the business model – it jeopardizes the future for everyone."

Two major differences exist between the owners and the union. First, both sides have to agree on the growing amount of debt service being used to fund new stadiums and how that is discounted against the total revenues. Tagliabue estimates that number is three percent of total revenues, which would be $180 million if revenues reach $6 billion. Remember, new stadium projects are being developed for Indianapolis, Kansas City, Dallas and the two New York teams, the Jets and Giants.

The second problem is agreeing on a percentage figure with the union. But talks won't go anywhere unless the owners are on the same page, and they aren't. Rooney said there aren't 24 votes to pass any kind of a collective bargaining extension. He sounds frustrated, but he says he's not surprised.

"Not in the least," Rooney said about the CBA extension stall. "They [the top revenue owners] don't have a gun to their head. As soon as they put a gun to their heads, maybe it will change. They are not at that position yet. But the clock is ticking. Maybe they will get brains soon."

Stephen Jones of the Cowboys says the league has always been good at working out compromises, and he's hopeful the information from this meeting could advance the cause. But nothing is close yet.

Tagliabue was asked about an analogy to the NHL.

"I'm not going to answer any questions that compare the NFL to hockey in terms of labor relations," Tagliabue said. "I said the negotiations have exhausted themselves, not the negotiators. And we're at a dead end."

After those statements, Tagliabue and the others tried to break the roadblock. Surprisingly, the NFL labor situation has its first developing crisis in more than 10 years. A lot of work is going to be needed to get it fixed.

Notes from Hawaii
NFL owners seem to like Arizona businessman Reggie Fowler, who has a $625 million bid to buy the Vikings. Though he's not attending these owners meetings, his bid is simple. If he sells his company SATCO, valued around $300 million, he will have enough cash to fund the 30 percent investment he needs to buy the Vikings. Until the company is sold and the money is in the bank, the NFL owners can't vote on him. Nothing is expected to happen until May at the earliest. ... The Dolphins will present a proposal to make Miami, Tampa and a couple of California sites as part of a regular rotation of Super Bowls. The Dolphins' plan is to build permanent facilities around their stadium that can further develop events surrounding the Super Bowl. The interesting part of Miami's proposal is that New Orleans isn't part of the plan because of the problems in getting a new stadium deal for the Superdome. ... Tagliabue said the league is very aggressive in fining or punishing team employees involved in illegal selling of Super Bowl tickets. He's awaiting a report on Vikings coach Mike Tice, who has admitted to selling Super Bowl tickets for profit.

John Clayton is a senior writer for ESPN.com.