By: Nick Flowers
When the National Football League (“NFL”) and the NFL Players’ Association (“NFLPA”) agreed to a new Collective Bargaining Agreement (“CBA”) on March 15, 2020, it brought greater certainty to the upcoming free agency period and the promise of eleven years of labor peace. However, headline developments in free agency (see Tom Brady to Tampa Bay) coupled with the surge of the COVID-19 pandemic meant that, perhaps, not enough attention was paid to the closely-decided CBA’s content. The significant increase to minimum-salary contracts, which account for 65% of the NFL’s contracts, meant that the CBA was seen as a win for the NFL’s “middle class”. However, the NFLPA’s greatest victory in negotiating the CBA would not become apparent until later in 2020.
As sports leagues around the world shut down in the wake of COVID-19, analysts and reporters focused on a new buzz phrase: force majeure clause. This seemingly innocuous clause prevents a party from being in default where performance of their obligations is prevented by an “act of God”. Such an act is any extraordinary or unforeseen circumstance resting beyond either party’s control, which perfectly describes COVID-19. Oftentimes, these clauses have been relegated to what is known as “boilerplate clauses” – standardized terms included in a contract, which are rarely scrutinized during the drafting and negotiation process. But as COVID-19 has shown, the drafting and wording of force majeure clauses is key to determining the ability of a party to invoke such a clause. Of course, for the analysis of a force majeure clause to come into play, it is imperative that such a clause be included in the contract in the first place.
For example, the NBA has a force majeure clause in Article XXXIX of its collective bargaining agreement. Major League Baseball makes use of wording akin to a force majeure clause under paragraph 11 of their Uniform Player’s Contract. This is mirrored in paragraph 17a of the National Hockey League’s Standard Player Contract. The NFL’s constitution states at Article 19.2 that, “there shall be no postponement of regular-season games unless said game cannot be played because of an Act of God or because of a state, federal or local prohibition.” While this resembles a force majeure clause, there is in fact no force majeure clause in the CBA other than one related to international games under Article 2, Section 5. This makes the omission of a force majeure clause concerning domestic NFL games from the CBA, or any other provision dealing with the inability to play domestic games due to force majeure events, curious.
This omission gave the NFLPA uncharacteristically strong leverage when it came to working with the NFL in deciding how to proceed with the 2020 season. Simply put, the NFL was precluded from relying on a cancelled season due to COVID-19 as a justification to prevent paying players their fully guaranteed salaries. Rightfully so, the NFLPA would under no circumstances allow the NFL to rely on a non-existent force majeure clause. The players wanted clarity around accrued seasons and player opt-outs, while the owners wanted a way to mitigate their risk exposure (in part due to the absence of a force majeure clause). To address these competing concerns, on July 24, 2020, the NFL and NFLPA announced a series of amendments to be made to the CBA aimed at ensuring a “COVID proof” plan for training camp and the 2020 season. The amendments, emphasizing players’ “health, safety and financial well-being,” dealt with the salary cap for 2020 and beyond, player opt-outs, and roster sizes, amongst other things. These amendments were formalized on August 3, 2020.
There was one further crucial development related to how a season’s cancellation affects salaries. The NFL CBA has a mechanism for dealing with “Cancelled Games” (at page 82) and the implications thereon for annual revenue and the salary cap, but clarity was needed for players’ contracts. As NFL Network’s Ian Rapoport detailed, if games are stopped, all unearned salaries and incentives will go away. Any amount of a guaranteed base salary that is not paid in 2020 becomes guaranteed in 2021 for a player. “Likely to Be Earned” and “Not Likely to Be Earned Incentives” will have pro-rata reduced performance targets combined with pro-rata reduced bonuses, depending on the date of a potential cancellation. A roster bonus that has been earned and remains due shall be paid as scheduled (even if over the course of the season), regardless of whether the 2020 NFL Season has been cancelled.
An additional CBA amendment influences contracts (and the salary cap) if players decide to opt out of the 2020 season. In this regard, a two-tier distinction is drawn between medically designated and voluntary opt outs. Players diagnosed with one of 15 different illnesses (or pre-existing medical conditions) including sickle cell disease, cancer, hyper tension, or high blood pressure, are categorized as “high-risk.” These players will receive a $350,000 stipend and an accrued NFL season, meaning their missed season will not lengthen the time period before they become an unrestricted free agent. The New England Patriots’ starting right tackle, Marcus Canon, who was diagnosed with non-Hodgkin’s lymphoma in 2011, was one of the most high-profile players to have opted out under this designation. Players not falling under one of the designated categories will receive a $150,000 salary advance to be paid back in 2021, but no accrued season. This means that they will have to wait an additional year before they are able to reach unrestricted free agency.
Additionally, under both designations, the contract will toll, meaning that their length is increased by a year and only previously paid bonuses (such as a workout or offseason roster bonus) are counted towards the 2020 salary cap. The remainder of a player’s contract, including conditions and amounts, will all be shifted forward by one year. The cap hit for the signing bonus proration of a player will also move forward by one year. It is unclear yet whether the stipends themselves will count towards the salary cap. The prudent move for clubs would be to roll over this short-term cap relief in anticipation of the expected cap reduction for the 2021 season, which has been established to have an agreed floor of $175 million.
Irrespective of the designation used in opting out, the decision is irrevocable, and the player will be unable to play in the season. Under the CBA amendments, players were given until 4p.m. ET on August 6, 2020, to decide on whether they will participate in the season. Following the deadline, approximately 67 players opted out. There are two instances where a player may opt out once the season commences: 1) a player receives a new diagnosis of one of the identified high-risk conditions; or 2) COVID-19 (or a related condition) results in a player’s family member dying, becoming hospitalized, or moving to a medical facility.
As already shown during the restart of MLB, a COVID-19 outbreak can have potentially devastating ramifications on both a team and their schedule. This is particularly paramount in football given that the schedule consists of only 16 games (excluding playoffs). In an effort to reduce the likelihood of an outbreak, an updated discipline schedule was put in place by the NFL Management Council. Players will be subject to suspensions and fines for attending bars, clubs, or house parties without personal protective equipment (“PPE”), or involving more than 10 people (seen as “High Risk COVID-19 Conduct”). Refusal to submit to testing, failing to wear masks, PPE, or a tracking device, and failure to adhere to social distance protocols during team travel will also result in fines for a player.
Despite having no force majeure clause to rely on, the NFL was still able to succinctly implement a “no play, no pay” policy for the 2020 season. The NFL’s teams will still have to pay, yes, just at a time more commercially viable for them. The CBA’s COVID-19 amendments bear the hallmarks of a force majeure clause in shape, form, and remedy. The successful negotiation of these amendments should be viewed as a success for the NFL who successfully converted a 4th and inches on the eve of training camp.