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09/23/92

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Players' salaries, winning football not necessarily linked, economist says

STANFORD -- Expect many National Football League players to change teams and get higher salaries in the next few years, and expect a few team owners to lose millions of dollars as they fail to adjust to the economic consequence of a jury verdict earlier this month.

The pocketbooks of fans, however, shouldn't be affected, said Roger Noll, a Stanford University economics professor who recently spent six days testifying as an expert witness in a lengthy antitrust trial against the NFL in fed eral district court in Minneapolis.

The court's decision is not likely to have any effect on fans, he said, but if there is one, it will be that more cities will see their home team in the Super Bowl in the years ahead.

An eight-person jury of non-football fans ruled Sept. 10 that the NFL and its team owners had acted as an illegal cartel by devising rules that prevented most players from selling their services to the highest bidder. The jury awarded a total of $1.2 million in damages to eight players who had sued the league.

The NFL has lost antitrust lawsuits before, but this was the first time since 1976 that a jury awarded damages large enough to prompt the league to change its practices, Noll said.

The amount of damages the players won sets a precedent that could lead to more than $200 million in additional damages to other players for the 1990, 1991 and 1992 seasons, he said. That's because more than 1,000 players in eac h of those years have been restricted by the league's "Plan B" player allocation system, the plan the jury found illegal. If all of these players sue the NFL, the only issue that now can be argued in court is the amount of damages to w hich each player is entitled.

"The bottom line is that over the course of the next few months, the rules regarding player contracting in football will be substantially revised," Noll said. "Football is almost certain to go from being the most restrictive sp ort for players to the least restrictive one."

That spells trouble for team owners who run their teams with more "ego involvement" than business judgment, he said.

"Most teams in all sports are owned by extremely wealthy individuals who view the ownership of the team as a hobby. They do not want to be full-time owners and most do not want to delegate management to somebody else because th ey like rubbing noses with athletes, other owners and the press," he said. "I think that's the source of teams' problems in having to adjust to the new environment."

After free agency came to baseball and basketball, Noll said, "several owners were basically forced to sell their teams because they just didn't know how to operate in the new environment. Several baseball teams spent enormous amounts of money to no effect. The most notorious case was the New York Yankees, but a similar fate befell the Texas Rangers, the California Angels and the San Diego Padres."

Impact on win-loss records

If football follows the same pattern as baseball and basketball, another consequence of the court decision might be that fans in more cities will get to see their team in the Super Bowl during the decades ahead, he said. The le ague's lawyers tried to argue during the trial that the player allocation plan was necessary to keep the teams competitively balanced, which, in turn, they argued, was necessary to maintain a healthy market for their product - game tic kets and broadcast contracts.

Noll testified on behalf of the players that free agency for players has had no negative effect on team balance or revenues in baseball and basketball, and would be unlikely to destroy balance in football.

His analysis focused on whether the statistical differences in team win-loss records changed after 1976 in baseball, when players in that sport won free agency, and after 1967 in basketball, when the arrival of a successful new league made that sport competitive. He also looked at the pattern of championships, pennants and team revenues before and after these changes.

"It's absolutely clear that in baseball free agency, if anything, had a beneficial effect by any way you measure the sport - in terms of attendance, television revenues and the uncertainty of who wins," Noll said. "Twenty-three of 26 teams have won division championships since free agency was introduced."

The National Basketball Association also has had more championship winners since free agency, he said, although the change is less dramatic.

Noll expects the price of football franchises to drop by $25 million to 50 million from their current value of $125 million to 150 million each, because "the owners will make less profit. The whole point of an antitrust case is to introduce competitive conditions that take away monopoly profits."

Team revenues, profits

Fights between owners and players have become "more vicious" in recent years, he said, "because there's more money to fight about."

"During the past 15 years, the popularity of all team sports has grown enormously. Revenues in football have been growing at the rate of about 15 percent per year. Baseball is similar, and revenues have been growing even faster in basketball."

Professional teams are relatively small businesses in total revenues but with high profit margins on a per-person basis, he said. "Between 25 and 45 people running around on the grass for an afternoon, plus a handful of coaches plus a general manager, can bring more than $50 million a year. That's more than a million dollars per person."

Many of the news stories on Noll's testimony during the trial focused on what he called a "side issue" to the legal issues at stake in the case.

"It became apparent a few days after the trial started that the primary strategy of the NFL's lawyers was to convince the jury that, because players are paid a lot, one should not worry about whether the market for them is comp etitive," he said.

The judge allowed NFL lawyers to cross-examine players on the size of their salaries. Then, he permitted players' attorneys to question Noll on the size of owners' salaries and profits.

"As with all closely held corporations, in which ownership and management are not separated, what the bottom line says on the books is not indicative of the financial viability of the business," Noll said he told the jury. "If you are the owner, the president and the chairman of the board rolled into one person, you have lots of options about how you take income from the team.

"Many items on the books really don't measure anything that is related to the financial health of a team," he said. "And several teams are not profitable because they are just very poorly managed businesses."

Noll divided the teams into four groups of seven based on their business statements. "The seven most profitable teams, on average, actually have a losing record," he said.

"The reason that they are more profitable is simply because their expense items show that they spend less money. They don't have more revenues than less profitable teams, but they don't buy airplanes and pay owners or players b ig salaries. There is actually a negative relationship between how much teams spend on players' salaries and how many games they win."

Baseball next battleground

The next major confrontation between owners and players is likely to occur in baseball, Noll said. Baseball players currently become free agents after six years, but the collective bargaining agreement that provides that expire s after the 1993 season, and the owners can reopen the agreement this winter if they choose.

Baseball team owners have more clout than football or basketball owners because a court granted baseball an exemption from antitrust laws more than 70 years ago, Noll said. The factual basis for the decision has changed but cou rts have been unwilling thus far to overturn this earlier decision.

"It's a very strange situation that makes the players in baseball much more nervous about their status than basketball and football players," he said.

"I think baseball still has to go through a traumatic and decisive event. Until it does, there's going to be war all the time, and it has nothing to do with anything except dollars."

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