The Dallas Cowboys are expected to devote an extremely large portion of their salary cap to Dak Prescott on his next deal, but what happens if the cap suddenly drops amidst the current pandemic.
The Dallas Cowboys and the rest of the NFL make their money each year a variety of ways: television revenue is the primary income source but live audiences (tickets, parking, and concessions) and local sponsorships are significant revenue streams as well. It’s those last two that are almost surely going to crater and their effects would have a major impact on the Dallas Cowboys salary cap going forward.
Jonathan Jones at CBS Sports did a thorough three-part series on the impact COVID-19 will have on the NFL. He analyzes league revenue sources, quotes current and former executives, and draws from the current CBA. Since I’m applying that heavily in how it impacts the Dallas Cowboys I’d be remiss if I didn’t direct and encourage everyone to carve out some time to read his work.
Annual Changes to the Dallas Cowboys Salary Cap
The NFL bases their salary cap on league-wide revenue. The more money the NFL makes, the more money teams like the Dallas Cowboys have to spend on player salaries. For the past decade the NFL salary cap has rose roughly $10 million each year. NFL teams have adjusted to the predictable forecast accordingly. This year the cap is set at 198.2 million.
But given the current circumstances regarding COVID-19, this trend is destined for change in 2021. If they can’t fill their stadium, the Dallas Cowboys stand to lose as much as $100 million in lost revenue this season and they aren’t alone; Jonathan noted all NFL teams stand to lose between $70-$100M without their local revenue streams in place.
With the league-wide loss in revenue, this reality will directly impact the salary cap across the league. And if the salary cap drops, large contracts going to elite players will have catastrophic effects on team cap space (see also Dak Prescott, Amari Cooper, DeMarcus Lawrence, and Ezekiel Elliott).
The Dallas Cowboys’ Local Revenue
Obviously without fans in attendance (or at a greatly reduced compacity) the Dallas Cowboys stand to lose ticket money, concession stand money, and parking money. Local revenue is sure to take a hit since the vast majority of local ads are placed to target fans in attendance. With little to no fans in attendance, the Dallas Cowboys may not contractually be meeting their obligation regarding exposure. And even if they did, local businesses are feeling the pinch of the current pandemic as well. They also have lost revenue they must deal with and may not be able to meet their commitments in advertising
National advertisers aren’t above this either. Most companies nationwide are feeling the pinch of the current pandemic. No one’s eager to spend money if they don’t have to. NFL teams are well aware of the expected hit to their revenue stream and already raised their debt limit over 40 percent.
“To me, right now, nobody’s going to have revenue growth,” an NFL executive said. “No one’s going to replace lost revenue.”
What if the Dallas Cowboys Cap Drops?
I’ve often called the NFL Salary Cap “fake news”. It gives the illusion of a hard and fast restriction all while offering tremendous flexibility through savvy accounting and continued growth. But if the Cap drops significantly, there will be nothing fake about it and the biggest player contracts threaten to destroy rosters everywhere.
In other words, if Dak Prescott is trying to sign a deal that would pay him 18% of the Dallas Cowboys salary space this year, it could balloon to 30% of cap space in 2021 under a reduced salary cap. Knowing the salary cap is going to explode in 2022 when a TV deal is in place will encourage many teams to push money back on their high-profile players.
But if Dak signs an abnormally short deal this season, the Dallas Cowboys would be handicapped in their ability to move the money back. Dallas would probably have to cut some players they otherwise wouldn’t.
Looking at the league as a whole, this problem isn’t unique for the Dallas Cowboys. Just about every team would be crippled with their large contracts. That’s good for Dallas. The more teams that are kneecapped by this the more likely a workaround is found.
The CBA appears to have a structure in place for a workaround (Article 12, Section 1) that speaks to circumstances where revenue is significantly reduced. It states “good faith negotiations” should take place between the league and the Players Association.
That mean teams aren’t forced to just suck it up and gut their rosters to fit under the cap, but rather adapt to the temporary change in league-wide revenue.
Dan Ruppert just discussed this week the new TV deal coming in 2022 is going to boost the salary cap considerably. Taking that into consideration, the two parties could decide to have a flat cap for the next 3-4 years that would balance the extreme peaks and valleys that are in the forecast.
Other solutions for the NFL and the Dallas Cowboys: Find new revenue streams
No successful business person simply accepts “the new normal” and takes the loss, so we probably shouldn’t expect the NFL’s billionaire owners to either. While I haven’t personally seen any new plans in place, I suspect things are being considered (that wouldn’t otherwise be considered).
Things change and businesses find ways to adapt. We see it everywhere these day. While the current set-up all but assures losses, there remain opportunities to replace lost revenue in other ways. Jonathan Jones discussed loosening sponsorship visibility is one way the NFL can adapt: Currently there are restrictions in place to keep ads off the camera. A temporary lift could provide a financial Band-Aid.
“You’re going to be more intentional on sponsor exposure through the cameras and on TV,” a former NFL team executive said.
A fun way to boost revenue is to loosen restrictions on uniforms. Allowing teams to roll out fun new threads would surely boost retail sales. Another way uniforms could make money is through NASCAR-like advertisements. Plastering company logos on uniforms may be tacky as H-E-Double Hockey Sticks, but it’s widely accepted worldwide. Now, I can’t honestly see the NFL doing this but it shows there are untapped revenue streams out there that would save the NFL’s bottom line.
The Future for the Dallas Cowboys
It’s safe to say, barring an unforeseen solution the cap will not go up in 2021 like it has in the past. How much it declines depends on how creative the league gets with adding new revenue streams and how the NFL and NFLPA handle future negotiations.
On paper it looks like the Dallas Cowboys are going to get kneecapped with a reduced cap in 2021, but since the issue is league wide and players and team both stand to lose enormously, a solution should be expected and an economic/team-building catastrophe will be avoided.
So to be clear, the Dallas Cowboys shouldn’t hesitate in locking Dak Prescott up to a 4-year deal because the NFL is, in a sense, “too big to fail”. Everyone’s pain ensures workarounds will be found, we just don’t know exactly how.