The 2011 NBA lockout may be over within a matter of days, or even hours. Or, the 2011-12 NBA season could be over just as quickly.
After yet another set of failed negotiations this past weekend, NBA commissioner David Stern gave an ultimatum. The players had until Wednesday, November 9 at 5:00 p.m. EST to accept the owners’ most recent proposal. But alas, they rejected it, now facing a potentially worse offer—one they will not be happy with and one that they may not want to accept. As such, today may be judgment day for the 2011-12 NBA season.
What Issues Separate the Two Sides?
Reportedly, the players and the owner’s are divided on two key issues: the split of basketball related income and the structure of the league’s salary cap. The former of the two appears to be at the forefront of all negotiations.
Basketball Related Income (or BRI for short) includes all monies brought in from various basketball-related media. This includes, among other sources, revenue from television deals and money earned from sale of team merchandise. Over the course of the 2010-11 NBA season, BRI totaled approximately $3.8 billion, of which the player received 57% (or approximately $2.17 billion).
Approximately two thirds of NBA owners have claimed that they, over the course of the past few seasons, have incurred losses as a result of the day-to-day operations of their clubs. Aside from players’ salaries, owners must cover multiple miscellaneous operating expenses, including transportation, lodging, and players’ meals. As the owners claim, these miscellaneous operating costs push them into the red. As such, the owners feel that they deserve a greater share of BRI. Moreover, most owners claim that they need a greater BRI share in order to bring their revenues and expenses in line and to turn their clubs into more profitable business ventures. The National Basketball Players’ Association, however, disagrees. In their view, only a handful of clubs have lost money over the past few seasons. As such, they do not want a cut in BRI.
The second issue at hand is slightly more complicated. Currently, the NBA owners operate their teams under a “soft” salary cap of approximately $56 million. While owners can spend more than $56 million on player salaries, those that do so are forced to pay a substantial “luxury” tax. There are multiple exceptions built into to the current salary cap system, however. For example, the “Larry Bird” exception essentially allows teams to go “over cap” to re-sign on of their own players, given that the player meets certain criteria (i.e. he has played on the same team for the past three seasons). In the current labor negotiations, a majority of NBA owners are pushing for a restructure of the salary cap. Specifically, owners demand a more punitive luxury tax and the elimination of many of the systems “exceptions”.
The NBPA, expectedly, opposes such changes and believes that such a system would limit player mobility and place the players in an unfair labor situation.
The negotiations are complicated by several factors, however. Most importantly, not all owners appear in agreement over potential changes to the system. A few of the wealthier owners for example, including Dallas Mavericks owner Mark Cuban, support a more lenient soft cap and advocate adding additional exceptions. Why is this the case? The goal of a salary cap is not only to cut costs, but also to generate more balanced competition across the league. While a stricter salary cap may be in the best interests of the majority of the owners, it is not in the best interest of the wealthiest owners and the owners who would be willing to spend large sums of money to sign the NBAs most elite talent. In this situation, some owners (including Cuban) have views more in line with the players’ union than they do with their fellow owners.
Where the Situation Stands
The NBA lockout officially began at 12:01 a.m. EST on July 1, 2011, just after the previous collective bargaining agreement expired. Over four months later, the players’ union and the team owners have yet to reach an agreement, and the situation appears as tense as ever.
Most recently, on Sunday, November 6, the team owners and representatives of the NBPA engaged in yet another conference call—facilitated by federal mediator George Cohen—lasting over nine hours. As with all previous meetings, little progress was made.
In their most recent proposal, the NBA owners offered players a “range” of basketball related income. The players could receive anywhere from 49% to 51% of BRI, depending upon revenue growth. As for the salary cap, the owners have proposed a punitive tax system that increases for each $5 million that a team spends above the current luxury tax threshold. The proposed system would also punish owners that repeatedly exceed the threshold and would eliminate many salary cap exceptions that currently exist, most notably the “Larry Bird” exception.
Not surprisingly, the NBPA deemed this most recent offer “unacceptable”. So far the players have been making a majority of the concessions, especially on BRI. Originally, the players demanded a 52.5% share of BRI. This, in itself, was a 4.5% decrease from the recently expired collectively bargaining agreement. Recently, however, players have agreed to accept a 51% share of BRI, maintaining the majority; however, they want a guaranteed 515 and not a “range” as the owners offered. As NBPA president Derek Fisher told reporters after the meeting on Monday, “There is no way in the world we’d get 51%…” As for the salary cap issue, the Players’ Association countered with a less punitive tax for those teams exceeding the luxury cap threshold. As the players see it, the owners’ offer not only represents a significant cut in BRI, but also restricts player mobility. “Our answer is, that’s not acceptable to us,” Fisher said. “We need a fair system for our players to exist in.”
Following Sunday’s meeting, David Stern, the commissioner of the National Basketball Association, warned the NBPA that they have until Wednesday, to accept the offer before facing more serious implications and a worse deal. The next deal would likely include a 47% BRI share and a hard salary cap, according to Stern.
Representatives of the NBPA met yet again yesterday, a day after Stern offered his ultimatum. So far, the impeding situation has not appeared to pressure the players’ union into making a deal. The players’ entered Tuesday’s meeting unwilling to accept the owners’ proposal and left feeling the same way. “The current offer on the table from the NBA is one that we cannot accept,” players,” Fisher said after the meeting.
While not rushing to accept the offer on the table, the players do appear to have more of a sense of urgency to get a deal done. The players will request another meeting with the owners at some point on Wednesday, before the doomsday clock runs down. At this point, the players do, finally, appear willing to accept the proposed 50%-50% BRI split, so long as the owners make important concessions on the payroll system. This latter part appears key—so far, it seems as though the players have been making a majority of the concessions. As they see it, it is the owners’ turn to do the same.
“The players are clearly of the mind that it’s an unacceptable proposal,” union executive director Billy Hunter said. “But because of their commitment to the game and their desire to play, they’re saying to us that we want you to go back, see if you can go back, get a better deal.”
If a deal is not reached within the next couple of days or weeks, December games will be cancelled. Moreover, the general consensus of those involved was that the two parties have until early January to settle their difference. If both sides cannot agree to a new collective bargaining agreement by that time, the entirety of the NBA season will likely be canceled.
Who Stands to Lose More?
Both sides have already lost a significant amount of money from the cancelation of preseason games and the first month of the NBA season, and both only stand to lose more. Specifically, the owners stand to lose net revenues from basketball related incomes and a possible decline in the value of their franchises. Meanwhile, players stand to lose salaries from lost games and time—the average NBA player’s career is already relatively short.
While it may seem like the NBA owners have more on the table, they do, in fact, have the upper hand in labor negotiations. Unlike the players, NBA owners have alternative sources of revenue. Take James Dolan (the owner of the New York Knicks), for example. Dolan not only owns the Knicks, but also the New York Rangers NHL franchise and is the president and CEO of Cablevision Systems. Dolan does not even make the majority of his income from the basketball franchise. Moreover, if the owners’ claims are true, and most of them are, in fact, losing money while running their franchises, then the owners may actually be saving money during the lockout. This remains to be seen, however.
Meanwhile, few NBA players earn significant revenues outside of the game that they play. Some players do earn significant amounts of money from endorsement deals, but this applies only to a small percentage of the most elite players in the game. The only alternative that NBA players may have is to sign contracts to play overseas. (Many players, including New Jersey Nets guard Deron Williams and San Antonio Spurs point guard Tony Parker, already have.) Unfortunately, this too applies only to the more elite basketball players. For the average rank and file NBA player—the sixth and seventh men on the team—they have little hope of earning comparable income elsewhere.
Should the Players Continue to Hold Out?
Currently, the players are holding out for a better deal that will probably never come. While players want to be guaranteed at least 52.5% of BRI, the owners are standing firm with their 50%-50% proposal. The longer the players hold out, the worse the offers will get.
The current hold out also doesn’t make mathematical sense. Over a ten-year period (the length of an average collective bargaining agreement), a small 1% to 2% difference in BRI shares represents anywhere from $500 million to $1 billion. This is an enormous amount of money. However, consider this. The total salaries for NBA players during the 2010-11 season summed to approximately $1.5 billion dollars. If the NBPA continues to hold out, risking the entire 2011-12 NBA season, the loss from salaries will cancel out, if not exceed, the potential gain from an extra percentage point or two of BRI.
The NBA has Failed as a Business
Regardless of how the situation plays out from here, the NBA has failed as a business. The NBA is, above all, an entertainment business. Just like any movie theatre or bowling alley, the NBA, its thirty teams, and over four hundred players exist to entertain. The purpose of the league is not to ensure huge profits, but to put on professional basketball games. Yet thus far, over a week into the NBA season, no games have been played. While the back-and-forth of the NBA lockout may be entertaining for some, it is not the purpose of the league. A movie theatre that doesn’t show movies is a failed business—nobody would argue with that. By that same logic, a basketball league that does not put on basketball games is also a failed business. For the past four months, that is exactly how the NBA can be characterized.
One Fan’s View
First off, I would like to openly admit that I am not the biggest basketball fan on Northwestern’s campus. I will watch a few games on television every now and then, and I will even attend a game at Madison Square Garden once or twice per season, but I am by no means a die-hard. I am, however, a huge sports fan in general. (Baseball and football are my preferred sports.)
Despite my detached attitude, I feel no differently than the most avid NBA fans. Like them, I believe that the NBA lockout is a ridiculous situation. Negotiations are dragging on and on, not because true injustice is taking place, but because greedy billionaires are fighting with spoiled millionaires over money that none of them really need. Michael Jordan is not going to go broke by running his Charlotte Bobcats with a few million dollars out of pocket—if he even really has to. Dwayne Wade will live a fine and easy life, even without the extra BRI. Both sides are among the most fortunate individuals in the nation, it not the world. It is time that they realize how fortunate they truly are and put an end to the lockout.
While I, personally, side with the players, believing that they have been forced to make somewhat unfair concessions, I do not and cannot feel sorry for them. Kobe Bryant, LeBron James, and even lower tier players are being paid millions of dollars each year to play basketball—a dream job to most Americans. Yet despite that dream that they’re living, they’re asking for more. Guys, you are living the dream. Don’t be spoiled.
During the NBA lockout, both the players and the owners are forgetting about the most important group of people: the fans. The NBA and the thirty different teams would not exist without the devotion of its adamant fan base. Yet, in negotiations, the fans seem ignored. Where are our voices in the situation? Outside of the blogosphere, our voices aren’t heard. Of course both parties have openly stated how much they care about their devoted followers. For example, NBPA president Derek Fisher was quoted as saying, “Today is another sad day for our fans, our arena workers, our parking lot attendants, our vendors … a very frustrating, sad day.” But do they really care? If they did, they would us all a favor and end the lockout as quickly as possible. Unfortunately, even if they do not care, we will all go back—some of us more slowly than others—when the lockout ends.
It is unclear when the NBA lockout will end. While rumors may suggest that it will end soon, those same rumblings could provide proof for an extended lockout and the complete cancellation of the 2011-12 season. Until official word is given, all us fans can do is wait, hope, and enjoy some college hoops.
About Dylan Kraslow
Dylan is technology editor for NBR. He primarily writes about the start-up space and the business of sports.
