With Lockout Looming, Learn Up On The Issues

Darius Soriano —  June 27, 2011

Make no mistake, a lockout is coming. How long it lasts or if it will impact the start of next season is anyones guess, but unless there’s some sort of miracle breakthrough in negotiations before this Friday the current collective bargaining agreement will expire and the owners will do what is within their rights to do by locking out the players.

The issues at hand are plenty and I will not get into them all right now. But the major point that the owners feel needs to be addressed is the fact that many of them claim to be losing money on a yearly basis. And by losing money, they are not able to compete in the league or be a viable business. In order to rectify this issue, they’re looking to change the business model of the league through a new agreement with the players. Their notion is that the current system is broken and needs fixing. The players, obviously, don’t share this opinion and would like the current system to remain as close to intact as possible while still acknowledging that some change is needed.

Hence, the disagreement, and thus the lockout on the horizon. Until both sides can come to an agreement as to what a new system should look like, there will be no basketball, but rather negotiations to find a middle ground that both sides can walk away from feeling okay with.

But what should the new agreement look like? People with a better understanding of the issues than I have a lot of good ideas. One of them is Tim Donahue of the Indiana Pacers site 8 Points, 9 Seconds. He’s been covering the negotations between the owners and players as well as anyone out there and has made his own proposal, based off what he thinks will work for the NBA moving forward. It’s a must read and as a fan of this game, you should head over and learn something.

He touches on all the major issues, including a hard cap, how basketball related income (BRI) should be divided, contract length, and even delves into revenue sharing (which is currently not a part of the CBA negotiations). A key passage:

The hard cap level will be established by taking the Players’ projected share of BRI, reducing it by $100 million to account for benefits, and dividing it by 30.  For example, a BRI of $4.0 billion would generate a hard cap amount of $64.7 million.  At $5 billion, the cap would be $87 million.    (Note:  a hard cap established by the Players BRI split virtually guarantees that the negotiated salaries and benefits will not meet the Players’ guarantee.  This hole will be filled by the owners, but the mechanics need to be sorted out.  I have an idea, but I can’t decide whether it’s brilliant or insane, so we’ll leave that sit for today.)

After going into a lot more detail (again, go read the post), Donahue also states:

This arrangement will reduce the long-term commitments of the owners, but it will not leave the players entirely “disposable.”  Front offices will still need to plan years into the future, but they should be able to avoid being trapped for three, four, or five years at a time. The owners’ have been (not inaccurately) accused of trying to “guarantee” profits for at both the league and team level.  However, it should be noted that the Players’ insistence on holding onto their guaranteed contracts and over half of the BRI amounts more or less to the same thing. As I said earlier, the Players should maximize their BRI, while the owners should seek to maximize their control.

——————

As I briefly mentioned above, the other key to a viable business model for the league is revenue sharing amongst the owners. Over at Pro Basketball Talk, Kurt has an informative post up about this issue:

In the NFL — the gold standard for revenue sharing among professional sports — about 70 percent of what is considered football related income is shared (which is an issue because that used to be more than 80 percent just a few years back). In the NBA, that number is about 25 percent. That NFL number is driven largely by the massive national television contracts the league has.

Or look at it this way, The Lakers new local television contract that kicks in next seasons and will pay them upwards of $150 million a season, which is more than some teams will make in total revenue in a season. Yet, under the current system the Lakers have to share none of that money. It’s an issue the owners need to deal with. Big market owners have valid concerns that if they share more money that needs to be invested back into the business and not just pocketed by owners.

How this all turns out remains to be seen but understand that until this gets sorted out, there won’t be any basketball. No team will be able to sign free agents. Trades will not happen. The preparations by all teams for next season will be put on hold.  And as someone who suffered through the 1999 season that saw the cancellation of the all-star game in a 50 game campaign and a dip in the overall popularity of the league, I’m hoping against hope that a solution can be found. But the fact is that major issues remain and the two sides don’t seem to be very close on coming to an agreement.

Darius Soriano

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22 responses to With Lockout Looming, Learn Up On The Issues

  1. Warren Wee Lim June 27, 2011 at 12:14 pm

    Great post, allows us casual fans to know what exactly is going on. Props Darius.

  2. Memo to Donahue: “not inaccurately” should simply read as “accurately.”

  3. A real Warren first post finally, this has to be good karma for next season. You answered some of my questions Darius, now time to go to the links you provided.

  4. Revenue sharing at the NFL level is a horrible idea for the NBA. It works in the NFL as there are only 16 games for 32 teams. Half those games are played against the four teams in your division so that means you play (without the post season) 10/32 teams a season. Thus your team only interacts with less than a 1/3 of the NFL every season.

    However in the NBA i is assured your team will play every other team in the league at least twice both at home and away. This means that you will play 100% of teams at home and 100% of the teams away every season. So from this facet alone teams like the Raptors already benefit from playing the Knicks, Lakers, Dallas, Boston, Miami and the like every season and benefit from the revenue that such teams bring in for at least part of the season.

    Now if the NBA wanted to move to a similar game schedual to the NFL (will never happen under any circumstances) where the Lakers play the Kings, Suns, Warriors, and Clippers for 50% of the season as is done in the NFL then it would make sense to have revenue sharing at 70& or higher as small market teams like the raptors would rarely experience the revenue benefits of playing the Lakers.

    However this said since half a teams game in the NBA are on the road a revenue sharing of 50% would make sense theoretically, as the 50% revenue a team gets from playing at home (theoretically) would still be pocketed while the money the team brings in from playing on the road would concievably be shared. This is not meant to mean that the LAkers make equal money for a road game as they do a home game, but rather that they bring in a similiar amount to the league for both a road and home game. Thus teams would split the money they have from being in a league by splitting half their revenue with the other teams they play and the money they bring into the league from playing away while the other half would be pocketed to make Teams an actual business which the owners are claiming to be.

    Though overall i am staunchly against revenue sharing as the owners are arguing that an NBA team is a business in the NBA market and in this case revenue sharing would be socialist and a trust similar to OPEC or other business oligarchies. for example we don’t see Microsoft and Apple sharing percentages of their revenue with each other (yes things are more complicated than that but do you really want to read another 4 paragraphs on this analogy?)

    But since I want to see basketball and have a diverse league with small market teams, and tons of incompetent management (seriously sports has the worst management in business) revenue sharing seems like a must and thus the idea of splitting half your revenue with the league seems about right (and would still constitute a 100% increase from the current revenue sharing, anything higher than 50% undermines competition and should actually be illegal given American anti-trust laws)

  5. I have a couple of player related questions that I hope someone here can answer:

    If the owners declare a lock out, do the players get paid for the season?

    If so, what is the benefit of becoming a free agent this season since that would mean not having a guaranteed pay check of the entire season is scuttled?

  6. I believe only some players have it in their contracts that they are paid regardless of a stoppage in play.

  7. Definitely some juicy information from all parties helping digest this 8 pound super burger of information( golf claps on me this round). We all watch basketball to see the players, not owners, so the sense of entitlement I can understand where the players are going with this. On the other hand owners have a legitimate beef on guaranteed contracts for players who are one year wonders who know the check will be in the mail no matter how they compete thereafter.

    The thought process of players accepting a lower BRI percentage for a standard amount, but if revenue increases past said dollar amount then BRI percentage increases as well is brilliant. Owners will be able to sign players who want to play the game, not play for a paycheck. In turn players will have a sense of ownership in their performance on the hardwood effecting how fans spend their hard earned dollars.

    I have always thought that nonguaranteed contracts in football is one aspect that has made the sport what it is today. No position is safe, the competition on the field is a reflection of the circumstances. A player who knows that the product on the court is not only a reflection of himself and the effort he gives, but of the amount he takes home would do wonders for the league and how people view it.

  8. I think the NFL model would be perfect for the NBA because it will finally create a sense of parity. Right now teams like the Lakers, Celtics, Knicks, Mavericks, Spurs, Bulls and Heat can go over the luxury tax threshhold with little or no consequences. they just use their television revenue to cover the tax costs. Smaller market teams do not have that luxury.

    That’s not fair. Only eight teams have all this power while the rest of the league sit in the shadows. at least with the NFL, everyone gets an equal piece of the pie and can thrive together. That’s why teams like the New Orleans Saints, Cincinatti Bengals, Detroit Lions have lasted for so long. The NBA needs to follow this example or else the same issues will be revisited over and over again.

  9. @8. that’s not the NFL model its simply a hard salary cap which the NFL has adopted and doesn’t have too much to do with revenue sharing and the like. You could just as easily have a hard salary cap with no revenue sharing or anything else that is being debated.

    Though i do agree with you a hard cap is needed as the soft cap just makes the parity worse.

  10. I think the owners would be happy with the right to rescind 2-3 contracts a year based on non-performance or financial considerations, or the ability to void only one contract over a certain amount with certain restrictions. For example, you can only void a contract that is older than 3 years. Let’s call it the Luke Walton or the Curry Rule.

  11. Maybe the NBA can outsource the basketball to China? Seems to be the way everything is going these days.

  12. I thought it was a good article although a hard cap combined with a revenue sharing deal for TV contracts is basically a deal designed to punish large market owners that are willing to pay to put a good product on the court (i.e Lakers) Why should a well run and successful organization that has earned the loyalty of a large fan base have to subsidize a guy like Micheal Jordan’s paycheck when there frankly shouldn’t even be a team in Charlotte?

    I think a progressive luxury tax system (pay more into the system the more your over the cap) combined with 2-3 team contraction and shorter contracts would solve alot of the NBA’s problems.

  13. The Tim Donahue article is very interesting. It does deal with many of the complexities of this labor situation which us fans are loath to investigate. We like the Perry Mason problem solving approach – less thought is needed.

    Particularly I like the way he has implemented a hard salary cap. It fluctuates with the total income and that total income includes much of the local income amassed by clubs, due to their being in the NBA association.

    For the ‘pure’ free market thinkers among us, the reason the Lakers and Knicks can make their marketing deals is because they belong to the NBA association. Under this logic, they also owe some portion of their deals to the association itself, thereby somewhat flattening the income variation between the clubs. Revenue sharing isn’t a deal to make all clubs income equal, but a technique to reduce the advantage the big market clubs have in being located in larger population centers.

    The only thing not addressed is the tendency of some unnamed owners to seek profits only and ignore the concept of ‘occasionally’ fielding a winning club. There must be some economic penalty that minimizes profits for these people. While this is not a CBA issue, it is something the owners need to address in any income redistribution.

  14. Some degree of revenue sharing, with a hard cap that increases or decreases as the league’s revenue increases or decreases. A salary floor that is some percentage of the hard cap. That way owners can’t just take the money.

  15. Seems to me like the owners are using the hammer of the lockout to fix a few problems from their end. Obviously, some are idiots and hired idiot GMs (not naming names, but one of the idiot owners rhymes with “Frames Nolan”), and these albatross contracts can drag down franchises for many years–I think Eddy Curry’s deal finally expired, and while I’m not going to check my facts, I can’t remember him taking the floor in an NBA game in four years.

    Seven-year contracts were too long, and enabled nearly over-the-hill players to pull franchises down by signing these deals at 29, 30, 31, when you knew they wouldn’t be worth the base year of the deal in the 5th-7th years, much less with the 15 or 18% risers in place every year.

    Six-year contracts that have been in place since 2006 or whenever have been an improvement, but a serious injury like Grant Hill’s or just a wheels-coming-off experience like Tracy McGrady can really throw a franchise into the bottom rung of the standings for years.

    So I submit this to you, o wisest basketball community in all of the interwebs, how about something like this?

    Maximum years on a contract: 5
    Maximum guaranteed years: 3
    Maximum value per year of 15% of BRI, recalculated annually.
    After 3 years, the player becomes a RFA and can exercise the option on the final two years of the contract.
    After 4 years, no change, either a new contract was redone last year or there’s one more unguaranteed year on the deal.
    After 3 years, the team can waive the player and remove the cap number, but must pay out the remaining year of the contract’s value for the current year. The player is barred from re-signing with the team for 12 months.

    I’m just sort of riffing, but I think shorter-term deals will keep players honest, and still sticking the owners with paying off waived players will keep chicanery to a minimum.

    For every Kobe that lays everything out on the floor every night (even if his pay is way out of scale with the above example–my back-of-napkin math says the top contract would be about $10 million a year based on ~$60m BRI), there are 10 Tim Thomases and Eddy Currys littering the benches.

    And–and I hate to say this because I loved his game when he had a functioning back–Luke Walton, whose contract I actually argued at the time would become a bargain by the 5th or 6th year, little did I know the famed Walton genes would intervene.

    Look, the players are greedy, the owners are 1000 times greedier, and they’re all already rich. I’d prefer lower ticket prices all around so I could afford to go to more games, but barring a big change in how corporations can purchase blocs of tickets for clients/executives/company trips it’s just not going to happen. But checks on both to make sure no one gets abused–fans, players, owners, sponsors, TV networks–seems like the best way to go about it.

  16. Well, it won’t surprise me that when they do roll back the amount of salary for the players and up the amount of revenue sharing for the teams, we the fans still won’t benefit monetarily (as in lower ticket prices).

    Just reminds me of the airlines with fuel surcharges and when oil or whatever things goes back down, the fee usually stays. LOL

    I know its just pipe anyway.

    P.S. JB, your post sounds good so far.

    Bye.

  17. Warren Wee Lim June 27, 2011 at 10:11 pm

    Its just a random thought for everyone:

    Years: 4 (3 fully guaranteed) 4th team option
    max yearly increase: 8% and 10% w/ birds

    Its simple. 3 yrs is decent and 4 is still reasonable. Keeps players honest with conditioning while owners have full control after the 3rd ssn.

    Players are guaranteed higher MLE so like up to 6M per 60M soft cap. No hardcap but luxury tax line will be at 80M. Such stays for 4 seasons while owners an players may choose to agree to a 2-yr extension on this scheme.

  18. I don’t have the time right now to read up, but if this was not discussed:

    http://articles.latimes.com/2006/jul/31/sports/sp-aba31

    Then there’s:

    http://www.forbes.com/lists/2011/32/basketball-valuations-11_rank.html

    Next, note the value of the teams. 11 went down year on year. Compare the values here:

    http://www.forbes.com/lists/2008/32/nba08_NBA-Team-Valuations_Rank.html

    Next, note this piece as well:

    http://sports.espn.go.com/nba/news/story?id=5383261

    Query, what is the value of the team, the reported operating income or the value of the asset?

    Lastly, for all you Rams fans of old, simply recall Eric Dickerson and why he left town. He’s the reason why I’ll always side with the players over the owners. And so she wonders why the team ended up with a not so great as before fan base. Eric Dickerson. Never went to a game or bought a Rams related product once he was sent packing. Rather no team than have her keep shipping the likes of Eric out of town simply because she wants more of the income for herself.

  19. Warren, players are looking at 5 yrs and owners want 10 yrs for the new CBA. Since any deal will probably have a 3 yr lead in if a big change, it is unlikely that any 4 yr deal will be proposed – too much effort for too little result.

  20. For a while there was talk about the players’ union decertifying and filing an anti-trust suit against the NBA if they get locked out. I haven’t heard much about that recently though, I wonder if they’re still thinking of that as an option.

  21. #20. I think any decision to decertify would have depended on the success of the NFL players union’s attempt to do the same thing. So far, that union did decertify but it’s turned into a lengthy court battle that is still not resolved and is currently in appeals. If there was clear precedent that decertification was a viable tactic to avoid a lockout, I think the NBA players would have already done so.

  22. 19, 20 – am assuming standard contract boilerplate carries suspend & extend language in event of a stoppage… does it become owners’ option after a certain period?