It seems like every year pro athletes in the NFL, NBA and MLB are signing
new record breaking deals, but not all athletes are pulling in big
contracts. In fact, a lot of one athlete will earn over his career depends
to a surprising degree on the league they play in.
The National Football League had some of the flashiest contracts in 2019.
That makes sense, since the NFL is one of the biggest and most profitable
sports leagues in the U.S.
But on average, it's not paying its players nearly as much as those in the
MLB and the NBA.
There are three big reasons why NFL players make less on average league
structure, salary caps and guaranteed money for players.
As for the NBA, well, their players have an especially good.
In addition to having a higher average pay per player, they also make more
money off the court than their peers in the NFL and MLB.
That's partly because NBA players have a bigger fan base outside of the
U.S. as of 2019.
It's the second most popular sport in the world.
NBA star LeBron James land won the biggest endorsement deals ever with
Nike. That could pay him one billion dollars over his lifetime.
So why do players in America's three biggest sports leagues make wildly
different salaries in order to answer that?
First, we have to understand how sports contracts work.
Player contracts are partly based on how a specific league is structured.
The number of games in the season.
The number of teams in a league and the number of players on a team.
NFL teams have 53 players on an active roster, the MLB has 25, and the NBA
has 15. The NFL season is the shortest of the three.
There are 32 teams that play 16 games throughout the regular season.
In total, there are 256 games played collectively.
The NBA has 30 teams across its league that play 82 games in the season,
bringing the total amount of games played to 1,230.
Then there's the MLB, which has the most amount of games played of the
three leagues during its regular season.
There are 30 MLB teams that play 162 games in a season totaling to 2,430
games played collectively.
Even though teams across all three leagues tend to prioritize their
spending on star players in terms of average salary per player, the NFL
ranks dead last out of the three.
A lot of it boils down to basic math.
The NFL plays the least number of games in a season and and employs the
greatest number of players.
There are 1,696 active players in the NFL.
In the MLB, there are 877.
And for the NBA there's 439.
Then there's the number of teams.
Every league has a common pool of cash that is divvied up among teams
every season. The more teams there are, the smaller the cut of the pie.
The size of the cash pool has a lot to do with the TV broadcasting field
signed by each league.
Ironically, more games doesn't directly translate to bigger TV rights for
leagues. So when you take a look at the data that we look at, you know,
the NFL has the highest percentage of avid fans across the world.
Call the big four, which is the three other stick and ball leagues next to
the NFL. Their fan base is massive.
It's almost it's almost half of the U.S.
population sort of reports some interest in the NFL.
The length of season thing is actually kind of interesting because if you
think about it, scarcity of games.
Right, could potentially work in the NFL favor.
There's just a concentrated level of interest across a shorter number of
games. Each year, the NFL receives an estimated 6.5
billion dollars. The NBA gets an estimated 2.6
billion dollars and the MLB makes an estimated 1.9
billion dollars. And so the players receive today 51 cents out of every
dollar. And that is 51 cents out of the entire 8 billion dollar franchise.
That is the NBA Enterprise.
That is the NBA. And that certainly does include the broadcast agreements,
the local agreements, the national agreements, digital international on
any type of broadcast agreement is included in our overall cool of
basketball related income.
51 cents of it is delivered to the players through the vehicle of our
salary cap slash luxury tax system.
But player pay isn't all about league structure.
It also has a whole lot to do with how well a player performs for a team
and the rules. Each league sets through the collective bargaining
agreement with player unions.
Every league has its own set of rules around how it decides to pay its
players. It's called a collective bargaining agreement.
The CBA is a set agreed terms made by the league's players association and
the league itself. It covers everything from the number of games, rookie
wages, practice requirements, health care and player contracts.
Each league has its own CBA and in turn, each league has a different set
of standards of how player contracts work.
One core component of the CBA is something known as revenue sharing.
Every league has a common pool of cash that split among teams and players
each season. The bulk some of that money comes from television and media
rights deals. Another key component of the CBA is the salary cap.
It is the total amount of money each team in the league is allowed to
spend on player salaries.
In 2019, the NBA salary cap was set to 109.14
million dollars.
The NFL salary cap was set to 188.2
million dollars. And the MLB technically doesn't have a salary cap.
They have a tax system in place but we'll get back to that.
The salary cap helps create competitive balance among teams because it
prevents, richer teams from signing all the best players.
The NFL has a hard cap, meaning that teams in the league can't go over the
salary cap no matter what.
The NBA is a little bit more lax.
It has a soft cap.
The league issues a base salary cap number, which teams can go over as
long as they pay a luxury tax.
But there's a limit to how much a team can go over that soft cap.
You are able to exceed it for a variety of reasons.
You're able to exceed it to resign your players.
That's the Larry Bird exception.
You're able to sign a player off the market, a free agent.
Under the mid-level exception, you're able to trade for players who will
bring you higher over the salary cap under the assigned player exception.
So we have a lot of exceptions to the cap and it keeps it soft.
And that encourages owners and teams to give guarantees, to give long term
goals and encourages them to be able to give generous deals and not
necessarily. Choose between one player or another.
Luxury tax limit helps prevent bigger teams and bigger markets like New
York and Chicago from overspending on players.
And so we agreed to put in place this luxury tax back in 1999 following
our six month lockout so that if you exceed that tax threshold, which is
usually about 20 million dollars over the cap, that's about where it is
right now. Then you're going to have to pay for it.
You can do it, but you have to pay.
And the tax is pretty significant.
It's more it used to be dollar for dollar and now it's more than dollar
for dollar. And it allows those teams to feel as if they really need to
go. They have a window.
They're going to take Iran. They're able to do it.
They're able to pay that tax and still take these players.
As for the MLB, they have something similar to the NBA soft salary cap,
but it works a bit differently.
Historically, the MLB has always seen big payroll disparities between big
market teams and small market teams.
In 2003, the MLB CBA implemented a luxury tax similar to the NBA soft
salary cap. It's called the competitive balance tax.
MLB teams that exceed the predetermined payroll threshold are subject to
this tax. Unlike the NBA, there's no luxury tax limit.
So a team can pay over as much as they want, as long as they pay the taxes
and are okay with facing league penalties like lower draft picks.
For 15 years the New York Yankees weren't too concerned with the payroll
threshold or loss of draft picks.
The team paid over 341 million dollars in tax penalties alone from 2003 to
2017. Another very important part of the league, CBA, is guaranteed
contracts. A fully guaranteed contract ensures a player will receive the
full value of their contract no matter what.
Unlike the MLB and NBA, not all contracts in the NFL are fully guaranteed.
Even though on paper, NFL players sign big flashy contracts, that doesn't
mean they'll see all the money they've been promised.
Unlike the NBA and MLB, guaranteed contracts aren't really a thing in the
NFL. Take the Oakland Raiders quarterback.
Dereck Carr's contract is a five year 125 million dollar contract.
Of that 125 million dollars, little bit over 70 million dollars is
guaranteed. Compare that to the MLB as Yu Darvish.
The pitchers contract is a six year, 126 million dollar contract that is
fully guaranteed. That means no matter what happens to him, he's taking
home all 126 million dollars.
Generally speaking, across all three leagues, there are basically two
kinds of contracts, rookie and veteran contracts.
Once a player completes their rookie deal, they can renegotiate for a new
contract as a free agent for the NFL.
Most first round rookies in franchise tag players have fully guaranteed
contracts. If you're looking at a big time like quarterback or wide
receiver guys, you're looking at five year, sometimes six year contracts.
And the first two to three years on those contracts could be potentially
fully guaranteed. But pass that you get in an area where the only thing
protecting that player against being released is a pro-rated signing
bonus. So signing bonuses, so you have a 20 million dollar signing bonus,
the preparation, which you think an accounting tool for the salary cap
where that 20 million is divided by five.
If it's a five year contract or even if it's a six year contract, only
prorated contract over five.
So other than first round rookies in franchise tagged players, there are
no regulations forcing a team to guaranteed every single dollar on a
player's contract. Of all veteran contracts in the NFL, only 13 have fully
guaranteed contracts.
Five of those contracts are worth over 10 million dollars and only one
contract is for more than one year.
Despite the NFL being famous for not paying their players contracts in
full, the MLB and NBA are known to have massive contracts with hundreds of
million dollars. They're 100 percent guaranteed.
MLB contracts are pretty straightforward since they are fully guaranteed.
The value of the contract is typically divided evenly through the
contracts length. So let's say you and the team don't agree on the number
you're going to come up with one number in your agent or whatever.
The team with another number based on Rosa Autistics.
It's not like you're gonna be at 100 made a difference.
So it's gonna be based on a good, good amount of statistics.
And then with that they own the team could either accept the team or deny
they go to arbitration. So it's like a panel and the panel goes and
discusses after February, I believe.
And then with that, they either pick the teams or they pick yours it's not
in between or anything.
So they kind of based on the statistics of other players at your level in
the league and they're going to pick one or the other.
So it's how you put yourself in a position to probably get a higher
contract or you're going to get some of the worst.
Nba contracts are very similar to them obese contracts.
The Golden State Warriors player Steph Curry signed a five year 201.2
million dollar contract in 2017, meaning that he makes over 40 million
dollars each year. So even if he gets injured, Curry is still taking home
40 million dollars.
Another key difference is that some NBA players can make even more money
off the court in 2018.
Three of the top 10 athletes in the world with the highest earnings from
endorsement deals were NBA players.
No player in the top 10 played for the NFL or MLB.
Endorsement deals are huge for NBA stars.
It allows them to make a steady flow of cash outside of their contracts.
Players can sign endorsement deals with pretty much any company and these
deals can prove to be very profitable.
Well, after a player retires, take Shaquille O'Neal.
He retired back in 2011.
Please continue to lend multi-million dollar brand deals.
Since then, brand endorsement deals have tend to favorite NBA athletes
because basketball has more of an international reach than baseball and
football. And NBA stars have a huge following on social media.
As for the MLB, Mike Trout has the highest paying contract in baseball
history, worth over 426 dollars over 12 years.
Trow also makes an estimated 2.5
million dollars from endorsement deals.
Compare that to NBA star Kevin Durant.
D has a four year 164 million dollar contract with the Brooklyn Nets.
But when you count in sponsorship dollars, the pay divide is bigger.
In 2014, Durant signed a 10 year deal with Nike worth an estimated three
hundred million dollars.
And sneaker deals are huge for NBA stars.
LeBron James annual income from his sneaker deal is worth 32 million
dollars a year. For comparison, back in 2017, Odell Beckham Junior signed
the biggest sneaker deal in the NFL, worth 25 million dollars over five
years. So LeBron just went looked at his personal Instagram account.
His most recent post is a picture of one of his Nike pairs of sneakers.
So really strong promotion quality.
It's a product placement thing, single use of a hashtag or mentioned.
And it generated about 1.6
million total. Interactions on that post.
So because of the quality of the promotion and level of engagement that
it's getting. It could be worth anywhere from 500 thousand to about 1
million dollars in an adjusted add value based on the quality that
promotion and engagement that it generated.
And LeBron James has a lifetime endorsement deal with Nike worth a rumored
1 billion dollars over time.
The super max contract is unique to the NBA and it's one of the biggest
contracts in sports.
Players like Steph Curry and Russell Westbrook have super max deals over
200 million dollars.
It essentially boils down to this.
It's a way for teams to extend players who have been in the league for
seven to nine years to a four or five year contract.
The super max contract is valued up to 35 percent of the salary cap for
that year. It begins. And then there's an 8 percent increase in salary,
which is tacked on to each of the subsequent years of the contract.
Super max contracts were introduced in 2017.
It was the league's solution to the problem of players upgrading to bigger
market teams or winning teams.
These contracts were designed to incentivize star players to stay put with
the teams that drafted them.
But before a player qualifies for 200 million dollars super max contract.
They must meet a laundry list of requirements.
Plus, players need to receive high performance accolades and two of their
most recent seasons or be named the MVP of any of the three previous
seasons. Klay Thompson missed out on being part of the all NBA team and
was ineligible to get a supermax deal.
Players who have signed super max deals are often huge financial burdens
on a team and can cripple the team's ability to sign or reassign talent.
If you make it so that one star takes up a larger part and it's going to
be harder for you to be able to go out and fit in two or three star
players. And so absolutely, I would say that you more
salary that you're paying to any individual player, the harder it's going
to be to attract other players, because usually when you attract stars,
you're doing it using room under the salary cap and less room, you have
less ability. You have to go out to the market and bring in more players.
Essentially, if a team decides to offer a super max contract, it can take
up to a third of the team's salary cap space for that season, leaving
roughly two thirds of the team's salary cap space to be distributed among
14 other players.
So far, only five players have signed super max deals, so time will tell
if super max contracts are here to stay.
So what does the future hold for sports contracts?
It all depends on the changes that are being made and implemented by each
league's collective bargaining agreement.
Just take the NFL.
It's the most profitable league compared to the MLB and NBA, but its
players are not seeing the same guarantees as those leagues.
But new changes are about to be made with the NFL CBA that's set to expire
at the end of the 2020 season.
The NFL Players Association and the NFL teams are working to establish a
new CBA for the 2021 season.
For most the last 10 weeks, about every Monday or Tuesday I've been in
Chicago, are a park nearby.
Negotiating with the Players Association about our future labor agreement.
The MLB CBA is also set to expire in 2021, which can see changes like
adjustments to the competitive balance tax.
As for the NBA, the league reached an agreement on the CBA back in 2017.
The deal will continue through the 2023 to 2024 season through a lockout
for six months in 1998.
There was no basketball until February of that year.
We were locked out again in 2011.
There was no basketball until Christmas Day.
And so we've certainly demonstrated that, you know, we're going to fight
for what's right. We have the ability and the wherewithal.
I think it's expected that we're going to stand up and exert whatever
leverage and ability we have.