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The Game and Its Ultimatums

Last night, I was lying in bed with my wife and we were discussing our various writing endeavors.  Finally, I said, “I have to get to sleep.  Tomorrow I have a 7:30 AM meeting and then I have to come home and write about the Ultimatum Game and it’s affect on the NFL CBA negotiations.”

She replied, “Yeah, me too.  I have to write about a raccoon with trust issues.”

I’ve noticed a trend in recent discussions about the Colts and the number of impending free agents.  Most of us have been operating under the working assumption that the NFL will continue operating under a system that is comparable to the one that is currently employed.

There have been discussions of a salary cap, tagging of players, ect.  I’m not offering any criticism of that.  We have to assume something I suppose, and I’ve certainly been as guilty of it as anyone.

It seems these days the prevailing assumption is that football is making too much money for both sides to ‘kill the goose that lays the golden eggs’.  Everyone knows that a work stoppage could result in profound fan backlash.  To that end most of us have been assuming they’ll reach an agreement that looks roughly similar to the last one.

Such assumptions are almost assuredly wrong.

In many ways, the new CBA negotiations are like a giant version of the Ultimatum Game on steroids.  For those who don’t know, the Ultimatum Game is a fascinating psychological game that works like this:

Player A receives $1.00.  He has to divide the dollar between himself and player B.

Player B has no say as to what he receives, but should he decide to veto the offer from Player A, neither player receives anything.

Economists have long held that because man is rational, Player B should accept any offer from player A because that is more than he would otherwise receive.  Player A should always offer one penny to Player B because if he turns it down, he’s turning down a free penny.  It’s in Player B’s interest to accept the lowball offer.  Unfortunately for people who believe that man is rational, the game rarely works that way.  In fact, its been shown that people will act in a way that works against their self interest just to punish Player A for his unjust offer.

Granted, when the pot is $1 Billion instead of one dollar, things get tricky, but the principle still holds:  people aren’t rational.

So, now we consider the NFL.  The owners opted out of the old agreement strictly because of money.  Consider what that means.  They’ve said openly, “The golden eggs aren’t golden enough for us”.  They are asking the players to take less money despite no real evidence of hardship to the owners.  The owners are Player A.  They hold all the cards right now.  78% of NFL players wind up in or near bankruptcy two years after retirement.  Most guys in the NFL are living paycheck to paycheck.  The owners know it.  They know they can break the union.  They are warming up for a fight and they know they can offer a penny to the players, and they have to take it.

So on the surface it appears that only option left to the players is to veto the ultimatum and wait out the owners.  They do have some bullets in their gun, however.

The owners are trying to control the percentage of revenue that the players receive and limit what revenue streams count toward that end.  However, by allowing the salary cap to lapse, they’ve opened the door for a major concession to the players.  The players have ‘generously’ offered to let the NFL reinstate the salary cap (knowing that in the short run it means more money for them because there will also be a salary floor).  However, let’s say they give in on the percent of revenue but secure it by not taking a salary cap.  The cap is the mechanism by which the owners control what percentage of the revenue the players get.  If the NFL goes to a baseball style system with no cap, no tags, no floor the end result will be that the owners won’t be able to control themselves (please, no whining about competitive balance.  That’s a myth) In the long run, the players union will win the war for losing the battle.

The players can let the owners cut the pie any way they want, as long as there is no way for the owners to control one another, the player slice will keep growing.  This is where the Ultimatum Game breaks down.  Player A isn’t one player (as much as Goodell wishes).  Player A is 32 individual selfish players.  They want to screw over Player B, but they also want to screw over each other.

So what are we left with?  Chaos.  One thing is for sure:  whatever system we get in the NFL next year (God willing there is one), it won’t look like the one we have now.  There’s no reason to assume that current terminology like restricted free agent, franchise tage or even salary cap will apply at all next year.

Finally, we’ll all be watching the Manning negotiations closely.  They are an important barometer of what is to come.  I’ve already explained why Peyton has to try and score the biggest deal he can, and why his teammates will be 100% behind that.  But did you catch the subtle change in tone from Irsay this week?  Before the Super Bowl he was all a twitter about 18 getting the biggest deal in history.  Now, he’s wondering aloud if there will be money left over for anyone else.  Do you think someone pulled him aside and said, “Uh, Jim, we are trying to convince everyone the league is poor.  Stop talking about how much money you want to give Manning!”

Jim Irsay isn’t like other NFL owners. The team is his fortune.  In addition, he’s also incredibly influential in the league. Oh, and the 2012 Super Bowl (for the 2011 Season) is going to be in Indy.  Irsay could be a swing vote in the whole process for the owners.  He carries a lot of weight.  A mega deal (with lots of upfront money) for Manning puts a lot of pressure on Irsay to get the Colts back and playing.  No one in the NFL has as much at stake for the 2011 season as he does.

As massive contract for Manning signals to the fans and players that:

1. teams have more money they are letting on

2. that Jim Irsay really needs there to be a season

3.  That ownership won’t be able to control themselves in a capless environment.

A win for Manning is a win for the players and a major loss of NFL ownership.  If a respected and influential owner can’t hold the line, who can? As it turns out, Racoons aren’t the only ones with trust issues.

All this means is that when the owners get together as Player A and offer a pittance to Player B, the Player B should take the deal with one condition:

No cap.  No rules.

That means the next time, 32 owners will tripping over themselves bidding to offer as much of that dollar as they can to Player B.

just remember:  the owners said they didn’t like the old system.  The players have said they’ll never take the cap back.  No matter what happens, things are never going to be the same.