ANALYSIS: The Salary Cap and List Management - by Cannibal

The Salary Cap and List Management
Third in a series of in-depth analyses by "Cannibal".


Salary Cap and List Management
CFC Salary Cap in a XL file.

roduction

Heading into the trade and draft period, it is timely to review what we have been paying our playing list, to gain insights into what we can afford to do to strengthen our list heading into season 2005.

Season 2004 was a major disappointment for 'Pies fans. Two Grand Finals in a row 2002/03 and ever-increasing expectations of the establishment of a Magpie dynasty had supporters waiting avidly for the year to unfold bringing further, perhaps even ultimate, glory. But it was not to be; injuries, suspension and an inability to strike form, left the 'Pies struggling in the bottom half of the ladder all season.

As the season crawled to an end, the cry went out for new blood. Every player with a modicum of form, a "name", coming out of contract at another club, became the target of well-intentioned cries, "Grab him!"

Whilst we all want the club to improve next year, my two earlier analyses, of our current stage of development and our trading/drafting strategies of the last five years, both concluded on the basis of unarguable facts that we were on the right track by drafting young kids, supplemented by only strategic trading for the best talent available.

However, one aspect of this was left untouched - how can we afford to recruit the "best" talent, when, like most clubs, we have a $6.1m salary cap to comply with? In this analysis, I hope to provide some insights into Collingwood's cap and list management.

Collective Bargaining Agreement

Under the Collective Bargaining Agreement between the AFL and the Players Association, all clubs except Sydney and Brisbane were restricted to making total player payments (hereafter called the "cap") of $6,115,000 in season 2004. The CBA provides for increases in seasons 2005 and 2006, and a formula for striking the cap in subsequent years.

The cap is determined from total AFL revenue. The AFL, Players Association and the clubs are committed, via the CBA, to sharing both the revenue and any decrease which might arise beyond the timeframe of the current agreement. The CBA also commits the parties to furthering the interests of the AFL and clubs ie increasing match attendances, membership, participation in the game, and of sponsors, all of which either directly or indirectly increase revenue, through player involvement in promoting the game.

This is an important point to note. The AFL, Players Association and the clubs are committed to maintaining, and improving, the financial stability of the competition, a principle which forms the cornerstone of the agreement. Without such financial stability, it is unarguable that some clubs will go out of business.

Some expenses are specifically excluded from coming under the cap. The major ones are:

(a) the allowable discount for players qualifying as "veterans",
(b) match payments for rookies temporarily elevated from the rookie list in place of a player placed on the long-term injury list,
(c) payments under a marketing agreement (also "capped" at $427,000 for 2004), and
(d) match payments to players if the club plays in finals.

There are other clauses, but these are the most relevant for the purposes of this analysis.

In this analysis, I have completely excluded taking into consideration payments which might be made for other services eg marketing. I think the club would spread this amongst a great many players, whereas I can imagine other, less prudent clubs might allocate the lion's share of it to one player, just to ensure they can pay him what he wants both inside and outside the cap. That would not be sensible.

The CBA also prescribes minimum fixed salaries and match payments, which I have taken into account in estimating what players might earn. Some players will be on fixed contracts ie $150,000 per year, whilst others will be on a combination of fixed salary plus match payments. Initially, I was going to apply some formula along these lines but quickly abandoned it in favour of the all-in approach. It was too difficult to assess whether player A was sufficiently entrenched as a senior player to warrant a fixed contract, and whether player B, perhaps taken in the same draft, maybe even higher than player A, but having played fewer matches to date, wasn't and should be on a base plus match payments.

Please understand that player contracts are subjected to considerable scrutiny. The player, the player's agent or guardian and the club must provide a statutory declaration (legally binding document averring to the truth) that it is complete. In the event that it is not, ie other payments not forming part of the player's contract are actually made, the AFL will strike sanctions against the club. In the most recent example, Carlton were fined and lost draft picks for two years as a consequence of making "under the table" payments to certain key players.

The Playing List

Although I am neither employed by a football club nor in any way familiar with how clubs structure their lists and strike contracts with their players, much of what I am about to say is just basic good old-fashioned financial common sense.

The fundamental principle is that you cannot consistently pay out more than you earn. You may feel like laughing at my saying this, but look at the number of Melbourne-based clubs now receiving long-term financial assistance from the AFL, most recently Carlton. Whilst some, like Footscray, are in this position because they lack the membership strength to underwrite their playing ambitions, others have allowed sheer ambition to get in the way of that common sense.

The second principle is that you should never pay a player more than that player is worth. It is entirely understandable that a player would seek to maximise their salary. Their careers are short and, despite the significantly above-average salaries they can earn during their career, it can never compensate them for a long-term career in one of the professions. However, clubs have to look to their long-term financial security before the interests of one individual. It must be easier to concede to a player's demands for more money than undergo the public scrutiny accompanying a player leaving for another club but I doubt that it is better in the long-run or in the club's best interests.

Third, back-loaded player contracts are financial suicide. There have been too many recent examples where clubs have put themselves into dire straits by opting for the easy solution of back-loading a key older player's contract only to find themselves in the bind of having to pay significantly above the odds for a player who cannot perform at the level required to justify his salary. Shane Crawford is but the most recent example of this. By over-committing funds to such a player, a club will find itself unable to pay emerging talent their due worth because they have not got the cap room and thereby risk them leaving for another club. Some clubs opt for the short-term strategy of seeking pay cuts from their senior players but there must be a limit to how often a club can drink at that well before players refuse to cooperate.

The Analysis

I have made my assessments of what I believe Collingwood has likely committed to paying each player on its senior list. I may be close or I may be well off the mark, however, I have attempted to apply some logic towards how the club will assess, and pay, its players.

I started off by placing players taken in the drafts 1999-2003 in order of their selection.

Under the CBA, draftees are paid minimum salaries and match payments for the duration of their initial contracts, which must be for a minimum of two years. Whilst the AFL has advised that clubs can contract draftees for longer, it is not sensible from either a cap nor list management perspective to commit the club to untried players for longer than three years. For the purposes of this analysis, therefore, I am assuming two year "segments", working back from the last two drafts. It would take too long to review every media article on contract renewals to gain greater accuracy. I have also assumed some degree of "parity", as, whilst the CBA permits the club to pay players taken lower down the draft less than those taken high, I doubt if the club will apply these provisions rigidly.

I have assumed a minimum payment of $50,000 to 1st (2003) and 2nd (2002) year draftees who have not played any senior games or very few. The actual base minimum for a first round first year player is $44,300 plus match payments and a rising scale of bonuses after a number of games, so $50,000 struck me as being a reasonable number to use.

For 2002 and 2003 draftees who have started to turn themselves into senior players, I have applied a salary of $75,000. This is a combination of their base salary plus match payments. In Matthew Lokan's case, I have taken into account that he played every game in 2003 and, whilst he had a mixed season 2004, would still probably have earned more than any other recent draftee.

For players taken in the 2000 and 2001 drafts, I have applied a minimum salary of $75,000, rising to $150,000 for those who have established themselves as regular senior players.

All players taken in the 1999 draft have long established themselves as regular senior players. I have applied a minimum of $150,000 to each of them, with the exception of Josh Fraser, who, as an integral member of the leadership group, I have categorised amongst the very senior players.

In respect of the senior players, it becomes a matter of assessing their contribution both on and off the field. Following from my analysis of the 1999 draftees, I have applied a minimum of $150,000 to all the senior players, with escalations based upon my assessment of their overall contribution.

I doubt if anyone would criticise Nathan Buckley being the highest paid player at the club. His record speaks for himself, he is captain and an integral element of the club's public face. He ranks with Eddie and Lou Richards as the best known Collingwood personalities. I have allocated Bucks a salary of $750,000, but only half ($375,000) counts under the cap, as he is on the veteran's list.

To reach my conclusions on the remaining senior players' individual "worth", I have attempted to apply a "ranking" system. It is subjective, admittedly, but logical. Players are ranked in a manner which replicates their impact on the club's fortunes, but I have also applied another subjective measure based upon the position they play in. Forwards and goal-scoring midfielders win games; defensive players, no matter how solid they are, cannot. No matter how strong a defensive unit you have, and I agree we have one of the best, you still need to score more goals than the opposition to win games. 2004 made that fact crystal clear. We rarely scored more than 15 goals per game despite the defensive heroics of Jimmy and others. On that basis, I have ranked Burns, Rocca, Licca and Tarrant ahead of the other senior players.

In Woey's case, I have taken into account known information about the salary he was on at Melbourne and the agreement between Collingwood and Melbourne when trading for him, for Melbourne to pay some of his salary. The $3000,000 I have applied represents the Collingwood portion only. I believe Woey earned a total of $450,000 in 2003 and 2004. He may not, however, even get $300,000 next year, but this analysis is not about what players will be paid next season!

I have also had to take into account the fact that Collingwood drafted Shane O'Bree in the 2000 Pre-Season Draft and have had to apply the obvious conclusion that he is on very good money. I have ranked him as a $250,000 player, although I concede there is no possibility he has truly earned this sort of money in 2003 and 2004. It is, however, almost certainly what his contract is for. If anything, I may be understating it.

I have ranked the three defensive players, Jimmy, Presti and Wakes at the highest level I could justify in order to keep within the cap limit, ie $200,000.

I have ranked Holland and Lockyer at the highest level I can justify for them also.

The remaining senior players, Ben K, McKee and Williams would, I believe, have been getting the bare minimum I have assumed senior players would earn, as they spent most of their seasons at Williamstown and had done little in earlier years to justify paying them higher.


Conclusions

I have arrived at total player payments of $6.0m or 98% of the cap. In some earlier posts, I made a statement to the effect that I believed Collingwood was paying around the 97.5% mark, so this in-depth, detailed analysis bears out my broad assumption. I have not, by the way, "tweaked" it after applying my formula to achieve an pre-determined outcome; this is exactly as the cards fell.

This allows some room for possible contingencies, eg "bonus" payments, for example to Jimmy for winning the Copeland. It is almost impossible to factor in a 100% cap and financial prudence suggests it should be even lower than the 98% I have calculated.

It has been a terrific experience putting this together and emphasises how difficult it is to manage a list. I think we are fortunate in having a relatively young list. I have assessed 15 players ie more than 1/3 of the list, as earning $1m in total because they are on $100,000 or less per year, plus another 11 players earning $150,000 or less per year, totalling $1.6m. With 2/3 of the list accounting for less than half the cap, this allows us to pay the senior players very realistic and competitive salaries, but it comes with a warning: perform or else. We are in a dynamic situation. As some player performances improve eg Benny J, Ritchie Cole, they need to be paid accordingly, and we cannot afford to restrict our ability to reward our improving youngsters because too much cap space is taken up by under-performing senior players. So far, that does not appear to have happened but the club must remain vigilant to ensure it never does.

I have allocated more to our top 7 players ($2,125k) than to either of the two groups just mentioned and $3,375 in total to the top 13 players, but they have to justify their salaries year in, year out. At the top end of the scale, the only criteria is performance, in order to justify the higher salaries. Of the top 13 players, only Rocca, Tarrant and O'Bree did not, in my opinion, earn their salaries in 2004. Whilst Pebbles and Taz have some excuse by way of injury, O'Bree has none, nor has he over the last two years. A clear cut candidate for delisting, so we can pay his high salary to a better performing player.

At the bottom end of the senior player scale, it is clear that delisting Ben K, McKee and Williams would free up cap space for better performing players, either to reward up-and-comers on our current list or recruit one or two from another club. Ideally, if our drafting and development strategies are good enough, that money goes to emerging talent.

It also makes crystal clear how difficult it would be to accommodate an expensive player from another club. I have seen posts to the effect that we should be paying this, that or the other player X amount, usually much more than I have factored in for the incumbent in that position, impact and experience. I very much doubt that we could afford to make room for perhaps even one more $250,000 per year player let alone the half million per year player some want. There seems to be a limit and a dozen high-earning players seems to be that limit. However, they must perform. The club needs to be ruthless at the top level as this is where so much of our salary cap goes.

Above all else, though, the key outcome from this analysis is that we should credit the club for its cap and list management strategy. We have, in my opinion, a list with the talent to equal that of any other club, with perhaps a couple of exceptions. And we have brought it together without the benefits Brisbane have in cap allowances or applying any underhand tactics like "under the table" payments like Carlton did.

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