Where are the CFL’s revenues going? Could the league afford to meet the CFLPA’s demands?

The CFL's collective bargaining discussions with its players broke off Thursday, and it looks like a strike is imminent. That's despite the CFLPA agreeing to drop their demand for a revenue-tied cap, which the league said "would threaten the very existence of the CFL." The current divide on the cap ceiling is about $800,000 per team in 2014, with the players favouring a $5.8 million ceiling (and a $4.8 million floor) and the league offering a $5 million ceiling (their floor hasn't been confirmed, but previous proposals have put it at $400,000 below the ceiling, which would be $4.6 million in this case). The CFL can obviously afford to pay players under the terms it's offering, but could it afford to pay players what they're asking? To find out, let's take a look at the three teams' 2013 revenues that have been released publicly (Edmonton (PDF), Winnipeg (PDF), and Saskatchewan, no PDF yet), and most crucially, where they wind up.

What's particularly fascinating is that there's a massive gap in operating revenues between teams, but not a huge gap in profits. The Eskimos announced operating revenues of $18.6 million, while the Bombers said they brought in $24.2 million and the Roughriders announced $43.8 million in gross revenues (before the $25 million extra they made in Grey Cup revenues). Despite that, Edmonton's profit was $1.6 million, Winnipeg's was $2.9 million and Saskatchewan's was just $1.1 million (before factoring in Grey Cup profits, which gave them another $9.3 million). It's remarkable that the Eskimos brought in less than half of the Riders' revenues and still made more than them. Of course, part of that is because Grey Cup costs were accounted for in total expenses, but the revenue was considered separately. Still, Edmonton's showing it's definitely possible to run a CFL team without spending a huge amount.

It's also interesting to see how little of each team's revenues went to paying players. (We don't know specific numbers for Edmonton or Winnipeg, as their expense breakdowns only go as far as "football operations," but we know they were under the $4.4 million salary cap in 2013, so that value is used; that's the absolute most they could have spent on salaries. Saskatchewan exceeded that cap, so we know they spent exactly $4,417,975 on salaries.) Here's a graph illustrating each of those teams' revenues, total expenses, expenses on player salaries and profits in 2013:

So, presuming that these clubs are somewhat representative of the rest of the league, a lot of their incoming money (78.5 per cent of Edmonton revenues, 83.5 per cent of Winnipeg revenues and 90 per cent of Saskatchewan revenues) is going elsewhere other than player salaries. $13,000,000 of the Eskimos' expenses weren't on player salaries, while $17,300,000 of the Bombers' expenses weren't on player salaries and $38,282,025 of the Riders' expenses on items other than player salaries. Player salaries were 10.3 per cent of Saskatchewan's expenses, 18.8 per cent of Winnipeg's and 23.5 per cent of Edmonton's. That means a massive portion of clubs' expenses aren't on the players.

One particularly interesting area where that money is going? The rest of the "football operations" (coaches, general managers, scouts, medical personnel, equipment and equipment personnel, training camps, free agent camps, etc.) category. Edmonton spent $9,921,505 on football operations in 2013, of which a max of $4,400,000 was in player salaries, so at least 55.7 per cent of their football operations costs didn't go to players. Winnipeg spent $10,489,343 on football operations in 2013, so at least 58.1 per cent of their football operations costs didn't go to players. Saskatchewan spent $12.1 million on football operations, so at least 63.5 per cent of their football operations costs didn't go to players.

That's not saying that teams shouldn't spend money on those personnel and equipment costs, but it is very curious to see how much they spend. In a conference call last Wednesday, CFLPA lawyer Ed Molstad asked "Where's the management cap? Where's the cap on every other expense?" If the CFL really does want to keep its costs under control, it might look at other areas where its clubs are spending more than they are in salaries. The rest of football operations is one such area, but there are other ones too. Take a look at this graph of Winnipeg expenses from the club's financial report:

The Blue Bombers are thus spending more (29 per cent of $21,300,000 in expenses, $6,177,000) on "marketing and administration" than they are on player salaries. Some marketing and administration costs are justifiable, sure, but that's an awfully big line item. For comparison, the Eskimos spent $1,839,906 on administration and $2,022,212 on "ticketing, marketing and communication expenses." Every club does these reports a little differently, so some expenses Winnipeg put under marketing and administration may be elsewhere in Edmonton's report, but both of these teams are obviously spending a lot of money on things unrelated to player salaries. It will be really interesting to see where the Roughriders' $38,282,025 in expenses not on player salaries went; we know some line items (including $6 million from this fiscal year towards the new stadium), but not all of them yet.

So, could CFL teams afford to meet the CFLPA's latest proposal? Well, the players' suggested cap is $5.8 million, an increase of $1.4 million over 2013. Edmonton and Winnipeg both made more than that in profit in 2013. Saskatchewan did not before you count Grey Cup money, but some of their costs were related to the Grey Cup, so it's fair to presume they would have made more than $1.4 million if this was a typical year. (They made $4.1 million the previous year, and $6.6 million the year before that; they've made over $1 million in profits for seven straight years.) Thus, all of these three teams could easily afford to hit the CFLPA's newest cap.

Not every team is as well off, of course, but keep in mind that they're all expected to get a $2.7 million increase in TV revenues under the new deal; $1.4 million in increased player costs is just over half of that, and that's only if teams spend to the cap. (The minimum under the players' proposal would be $4.8 million, an increase of just $400,000, leaving each team $2.3 million in new TV revenues.) Unless there's some catastrophic surge in costs elsewhere, it's difficult to see this CFLPA proposal bankrupting the league.

Does that mean the league should automatically accept this offer? Not necessarily. It's a negotiation, and a business, after all, and the owners are perfectly entitled to try and get the best deal for themselves. It's not that every club was making money under the old deal, either; CFL commissioner Mark Cohon said in 2012 that two clubs (presumably Toronto and Hamilton) weren't even breaking even, and Herb Zurkowsky reported Wednesday that the Alouettes have been losing money too. (Oddly enough, Zurkowsky's CFL source also said "the league has lost millions and millions of dollars," which seems insane when you look at the profits posted by Winnipeg and Edmonton despite bad on-field years, plus Saskatchewan's $10 million in profits. Thus, it's not really surprising a source is saying that in the middle of CBA negotiations.)

Still, the clubs that do make their financial statements public are looking very healthy, and that's both before new TV revenue (which gives each team an extra $2.7 million in revenue without any corresponding increase in costs) and with player salaries as less than 25 per cent of their total expenses. Presumably, new TV revenue would help even the struggling clubs get closer to breaking even, and it should further line the pockets of the wealthy clubs. If the CFL wants to keep saying that the players' offer is so unreasonable it would ruin the league, that's its prerogative, but the financial statements that are out there suggest that isn't the case. Until the league provides audited financial documents to the contrary rather than just anonymous sources saying the CFL's losing money, it's hard to see any of the CFLPA's proposals as back-breaking ones that would "threaten the very existence" of this league.