Are NFL Players the target of predatory lending?

April 14, 2011

With the National Football League (NFL) owners current locking out the players, many players have little or no source of income or any type of benefits.  More than a year ago, I discussed how the NFL Player’s Association (NFLPA) was warning players on how to prepare for the lockout.  This including things such as: not purchasing houses, not buying boats or expensive cars, and trying to save money and leave within one’s means.

Pro Football Talk reported last month that many players were seeking high interest loans to help them through the lockout period.  Now ProFootball Talk and Yahoo Sports are both reporting that a number of players from at least 16 teams have had to set up these high risk loans.  It is noted that these loans have interest rates in the range of 18 to 24 percent, with a 36 percent rate in the case of default for some of the loans.

NFLPA representative and Arizona Cardinal kicker Jay Feely noted:

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd.”

However, as noted in the Pro Football Talk article, many players do not have the credit history or collateral needed to back the large loans that many of them are needing to get through the lockout period.

Yesterday, I noted that the NFL owners had made a new offer to the players.  Considering the fact that players are already going out to get risky loans, I’d think that the owners may be in a good negotiating position now.  They have made concessions which will give more money to players who are more likely to be NFLPA representatives, and with the number of players potentially needing a paycheck growing everyday, it may be that some players will start putting pressure for the rest of the players to negotiate a new collective bargaining agreement sooner rather than later.

On a final note, I imagine these lenders who are making these loans must be smiling in joy at the lockout, and probably hope it extends longer so that they can hook more players with these high interest rates.

H/T to Shawn for sending me these articles.

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd

New NFL offer to players would change rookie compensation

April 13, 2011

The National Football League (NFL) owners and players have been engaged in contract talks over a new collective bargaining agreement for quite some time, and has been discussed several times in previous posts here on the blog.  While things have been somewhat quiet for the last week, ESPN is reporting that the league has made a new offer, which would essentially put a rookie compensation structure into place, and that some of the revenue being taken away from rookies would go to compensate veteran players.

Specifically, the new deal would take about $300 million a year away from first-round draft picks and move that money to veteran player salaries and benefits for all players.  This new offer is said to free up around $1.2 billion in the next five season, and would help to reduce payments to rookies which have been quite high over the last several seasons.  In 2010 alone, over half a billion dollars was paid by NFL owners as guaranteed money to the 32 players who were selected in the first round of the draft.

This new proposal would not be setting a rookie wage scale, but rather would be capping the maximum salary allowed to be paid to a new player entering the league.  Of course several agents for potential first round draft picks in this years draft are already coming out public with how unfair this new system is, as it may cost them and their clients millions of dollars in guaranteed salary.

Agent Peter Schaffer might be the brightest of the group with his comments, he notes that bringing in a new system would be “scouting insurance” in case a team made a bad choice on a first round draft pick.  He also notes:

“It also makes the rookies more valuable when you reduce the amount you are paying to the young guy, This will eliminate the veteran middle class because teams can have younger players who are making less and are under fixed contracts.”

Personally, I think its about time the NFL tried to make this concession in the labor talks.  I figured that they would try to take a bigger piece of the pie, but try to compensate the veterans (who are a big group of those representing the players in the negotiations) by pulling money from rookies.  Though it would be interesting to see how such a change in the rookie wage scale, might cause teams to try and get rid of veterans earlier if a rookie with comparable skills and ability can replace them for a much cheaper price than before.

NFL Lockout Projections

October 14, 2010

The NFL season is going strong, and earlier in the season many teams had unanimous votes to decertify the player’s union, a move which would allow players to sue the league if a lockout occurs.

The current collective bargaining agreement (CBA) is set to expire on March 3rd, 2011 and the owners want to put a new agreement into place.  The Wall Street Journal reports that the NFL has claimed that the league will lose about $400 million in March when season ticket packages and renewed, and a further $500 million if preseason games are canceled (doing the quick math that comes out to about a $4 million a game average revenue per team for preseason football).  In all, the NFL projected total losses of over $1 billion.  That said, there are things the NFL is not mentioning, including how the league is guaranteed at least $1 billion from DirectTV whether games are played or not.    The NFL Player’s Association came out and said that the owners announcing these projections was a publicity move, and that the owners had no one but themselves to blame for the current financial status of the league.

Looking at the numbers, it is clear that the NFL has seen a decline in profits since the most recent CBA was put into effect in 2006.  The previous CBA adjusted the percentage of revenue which players received to the current split of 60% for players and 40% for owners.  The owners are not looking to actually change this percentage as they had done in previous CBA’s, rather the owners want to reduce the size of the pie that is split between the players and owners.  Currently owners deduct about $1 billion of revenue before it is split to cover costs, the big sticking point with this new CBA is that the owners want to increase the amount pulled out to cover costs by 18% as stated in the graphic to the right.  As pointed out by poster DP, the graphic to the right is somewhat misleading, as owners will have a  130% increase in their deduction, and the 18% refers to the amount by which the pie will shrink.  This would mean where the players and owners are splitting $8 billion now, the agreement the owners want would have them splitting the about $6.5 billion in 2011.

Both sides seem pretty locked in for battle over this CBA, and both sides seem set to lose quite a large chunk of potential revenue in not having a new CBA negotiated.

Image Courtesy from the Wall Street Journal.