I am a slightly-more-than-casual viewer of the NFL. I adore my Buffalo Bills. And I will watch nearly any other game that is on. I’m not a serious student of the X's and O's – I can barely tell the difference between Zone and Man coverage. But I know enough to know I don’t like calling a running play from shotgun.
As a Finance-minded person, the business aspects of American football, especially salary cap management, fascinate me. For those not familiar, each year the NFL sets a salary cap, which (supposedly) restricts how much a team can pay its roster of players that year. It sounds like a crazy sum of money – in 2023 the cap was set at $224.8m. For a 53-man roster, that’s a little over $4m per player on average. But when your Quarterback makes 10 times that amount – and other star players 5x or 6x - allocating the rest to other players can be challenging. A lot of time is spent on structuring and restructuring contracts as only certain components of a player’s pay counts against the cap.
I won’t pretend to know everything about cap management, there are plenty of salary cap think pieces out there to read. But what I have realized is there are plenty of parallels between the NFL salary cap and a company’s budget. With the Big Game happening this week, it got me thinking – can you put together a winning team on a limited budget?
The salary cap is just a budget with a catchier name
Well, this isn’t exactly a cutting-edge revelation. But anyone who has run a corporate budget cycle knows that the minute the budget is set, that’s when the real fun begins. The annual cat and mouse game of trying to outmaneuver the budget you just agreed to.
In football, General Managers use incentives, signing bonuses and other creative ways to pay players more than their “base” salary. Many of these creative payments don’t go against their cap. But each team still needs to make sure they can pay the cash amount of each contract every year. So while what goes against their cap is not the same as what they’re paying out in cash, they have to budget from both angles. Some teams have more cash than others. Budgets vs cash management – that sounds familiar!
Sure, you can buy your way to the SuperB….Owl
In February 2022, the LA Rams won The Big Game, crowning themselves the champions of the 2021 football season. A year later, in the 2022 season, their record was 5 wins and 12 losses, and didn’t make the playoffs. What happened? In short, they bought themselves a championship. They loaded up the team in 2021 with star players like Von Miller and Odell Beckham Jr. with short but expensive contracts. They had cash, but couldn’t keep those players long-term thanks to the cap. The next year, those players were gone, and the Rams were a shell of that championship team.
This is a lot like the decision each company faces: take the time to develop internal talent or bring it in from the outside for a specific goal, mercenary style? In certain cases, bringing in talent from the outside to achieve a short-term goal is the right answer. But it will cost you, in more ways than one. That outside talent with those skills you may not have on your team can demand a high price. Part of that price is a premium for the fact that they are being brought in on a short-term contract - that’s high risk for them, because there is no guarantee of employment after the project.
But when the project is over, and that hired gun moves on, do you have anyone internally that can look after the results of that project? Did you make sure it was also a development opportunity for someone internally to learn from that temporary talent? How did your team feel about working with that resource? If not handled properly, you will pay the price again – not in higher costs, but in lack of development for your long-term employees. If they don’t feel invested in or encouraged to learn new skills, they probably won’t stick around either.
Finding the right balance between short-term and long-term talent is tricky, but having one without the other may leave you facing a losing season.
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