Players Fire Legal Salvo Across N.B.A. Bow - May 2011
Note: this piece was written back in May when the labor dispute was just geting underway. I'll now be updating the topic with the results of the dispute and an analysis of the new labor agreement. Then hopefully we'll get back to basketball, finally. This aspect of the NBA is pure drudgery to me.
Warning: this article may contain more than you ever wanted to know about the NBA labor dispute.
May 2011
The National Basketball Players Association union, the NPBA, fired the first legal salvo in the current labor dispute with the N.B.A. owners on Tuesday, April 23, 2011, a dispute that may lead to a player lockout by the league when the current Collective Bargaining Agreement (CBA) expires June 30th, resulting in the cancelation of either part of the upcoming season or the entire 2011-12 N.B.A. season.
In a complaint filed with the National Labor Relations Board (NLRB) — and make no mistake about it, the filing is itself a legal delaying tactic by the player’s union designed to avert a lockout by the owners—the NPBA, in so many words, accuses the owners of negotiating with a noted lack of good faith: quoting the complaint, it accuses the owners of, “harsh, inflexible and grossly regressive takeaway demands” that lack “appropriate tradeoffs”; it accuses them of “engaging in classic take-it-or-leave-it and surface bargaining” and of engineering attempts to “coerce” players into accepting the league’s proposal; and with a failure to turn over to the union requested “relevant financial information”; referring to financial and accounting disclosures supporting the owners contested claims of financial losses, and “repeatedly threatening” a player lockout; and “making demands and threats that are inherently destructive to the collective bargaining process.”
To top it off, the union accuses the owners of the classic divide and conquer approach to negotiations in attempting to drive a wedge between players and union by negotiating directly with players thereby marginalizing the union and bypassing it entirely.
Because the NLRB is notoriously sluggish in moving cases along, it seems that the NPBA union is gambling that there won’t be a ruling before the June 30th deadline, and the owners will be barred from enforcing a lockout.
Strictly a legal ploy by the NPBA and sure to be followed by a legal counter-move by the N.B.A., the parties seem to be hurtling inexorably towards a showdown that may prove damaging to both, and if a lockout ensues and games are canceled, one most damaging to fans of the N.B.A. game.
What the Owners Want
Put in a nutshell (if there is such a large nut), the owners want an additional $800 million in revenue: to make matters perfectly clear, they want that $800 mil to come out of the players pockets by negotiating new and drastically different terms to the CBA, in effect reducing payroll. It seems that the owners are unhappy with the last CBA from 2005 and basically want financial concessions from the players union, concessions that the union adamantly opposes.
A partial list of the owner’s demands are summarized and explained below:
· A larger share of Basketball Related Income (BRI).
BRI represents almost every basketball related revenue stream conceivable: tickets, broadcasting, parking, concession, jerseys, and so on and so forth with a few exclusion such as revenue sharing and fees to expansion teams.
Under the expiring CBA the players receive 51% of this revenue stream based on “Gross Revenue”: that means that the players get their share of the pie before the owners get to deduct their expenses. The owners wish to divide the revenue on a fifty-fifty split of “Net Revenue”, which means after the owners deduct their business expenses. The owners claim that with the current CBA system the players are reaping 57% of the net revenue because the BRI revenue is divided on a gross revenue basis; the owners then take their 49% from what’s left after they deduct their operating costs and other deductions such as depreciation.
This is one of the major sticking points with the owners claiming net losses of a combined $370 million last season and the players claiming the owners are engaged in creative accounting akin to some of the gross malfeasance seen in notorious corporate cases like Enron’s.
The owners claim they have laid open their books for all to see; the players claim otherwise.
· A hard salary cap.
ü A reduction in the salary cap from the $58 million soft cap to a hard cap of $45 million—no exceptions. Under this rubric owners want the following (and more):
ü player salaries reduced in the range of up to 40%;
ü teams could eliminate (drop) one player’s contract before the coming season effectively taking it off the books,
ü rookie salaries would be reduced,
ü contracts would be shortened,
ü guaranteed contracts would be eliminated,
ü Current contracts would be modified to fit under the new cap.
· Tagging a player and the elimination of the “sign & trade”.
Under this change to the CBA teams could protect or “tag” one player for a preferential contract and to prevent free agency, and the new CBA would eliminate “sign & trades”. Both of these changes are the result of top echelon players moving from small market teams to large market teams a la James, Bosh, and Anthony. These changes would promote, “loyalty” and limit the ability of players to choose their teams like LeBron James and Chris Bosh did during their free agency. The rules of free agency for all players, especially top players, would change dramatically.
· A “real” Personal Conduct Policy.
A stricter, more detailed policy than the one that now exists that would allow owners to void a contract for certain transgressions, like felonies, if players violate the policy.
This list is in no way a complete list of the owners demands just the most egregious to the player’s union.
What the Players Want.
The players are pretty happy with the 1989 CBA. No change would be perfectly acceptable to them. If anything they would want an increase in revenue sharing.
But the players are in a weak negotiating position as the owners hold all the cards. The players want to avoid a lockout at all costs while the owners feel that they can afford a lockout, and that the players will cave if locked out.
The changes in the CBA will affect top tier players, superstars, more than the rank and file players. The union is a one man one vote union; the significance of this is not lost on the rank and file members as opposed to the handful of highly paid superstars. A hard cap eliminating guaranteed contracts, retroactive pay-cuts, tagging, and trade restrictions would have a much more adverse effect on superstars than on the rank and file member of the NPBA—watch for this to be a factor in one way or another.
What is Contraction.
Contraction means that the N.B.A. will eliminate some teams and contract into a smaller league with fewer teams. None of the experts believe this is going to happen. However, the league had to take over one team already, the New Orleans Hornets, and if the dispute continues on too long, perhaps into early autumn, the threat of contraction becomes more real.
The player’s union opposes contraction because it means a loss of at least 30 union positions if two teams were eliminated.
What is Decertification.
Decertification is a bargaining tactic that may be used by the NPBA to bring anti-trust laws to bear on the N.B.A.
In doing so they would have to dissolve their union and then file individual or class-action suits against the league for violating Anti-Trust laws. The union claims to have enough votes to decertify already, but there are those who doubt that decertification would be universally accepted because it would mean the voiding of any existing contracts. In other words all N.B. A. contracts would be null and void and would have to be renegotiated under the new CBA if and when one is approved.
So if you just signed a six year deal worth $118 million and you were due $16 million next season, uh, uh and no sir, do not pass go, do not collect 200 dollars. Decertification would be a hard sell to any number of highly paid players, overplayed players, and marginal players.
What’s likely to happen next.
Most likely a work stoppage of some sort, either a lockout or a strike, followed by the delay of the start of the season or the cancellation of the entire season. During the last work stoppage, the lockout of 1999, the two parties came to an eleventh hour agreement that salvaged part of the season. The season ran 50 games and began in February. The owners won then and they most likely will win again.
The owners believe that they have the wherewithal to shut the league down for 2 years, and they believe, and probably rightfully so, that very few players have the financial resources to even sit out even one season.
Fans suffer, players cave-in, owners win again.
http://sportsbusinessdigest.com/would-nbpa-be-unified-with-decision-to-decertify/
2005 Collective Bargaining Agreement http://www.nbpa.org/cba/2005
One big reason for the players’ unhappiness is the proposal also asking for, according to the report, immediate rollbacks of salaries of 15 percent, 20 percent or 25 percent, depending on salary levels. The NBA has said it wants to reduce player salary costs by about $800 million annually.
The owners want to fundamentally change the salary structure of the NBA. They don’t want to negotiate a fresh collective bargaining agreement, as much as they want to crush the union once and for all.
The owners want to take a far greater percentage of the basketball-related income. They want to pay millions less for maximum deals and shorten contracts. Most of all, they want a hard salary cap and assurances that protect themselves against a diminished economy and, well, themselves. Everything is hurtling toward a 2011 lockout, a negotiation that’ll likely feel far more like a standoff.
Is the NBA healthy financially?
"Owners": No. We’ve lost $200 million every year of this collective bargaining agreement and last year’s totals come to $380 million.
"Union": Yes. You’re coming off the most profitable offseason in history. Our numbers seem to reflect that you’ve sold nearly 50,000 new season tickets, which by our calculations equals nearly $170 million in new money.
"Owners": Season ticket sales aren’t an indicator of health.
"Union": Your reflection of money lost isn’t accurate. First of all, it includes depreciation on your assets. We don’t think it should.
"Owners": Of course depreciation of assets should be included. If a team builds a practice facility for $20 million, it has the right to spread that expense over a period of time.
Should The Players Take Less Money?
"Owners": Yes. We currently give 57 percent of our gross revenues to players and we believe that we’d be healthier if they took either less of a gross or a percentage of net income.
Should There Be A Hard Cap?
"Owners": Yes. That doesn’t mean that top players are making less money. It limits the flexibility, but it makes sense for us.
"Union": Of course there shouldn’t be a cap. We already don’t have a free market system. Owners should be able to value our players as they see fit and not have any additional restrictions. We already have all the restraints mentioned above, plus a luxury tax and an escrow tax.
Among other things, the proposal called for:
The effective elimination of guaranteed contracts by implementing a hard salary cap.
A retroactive modification of current contracts. Once the system got in place, any player who had an existing contract would have to fit that deal within the new cap.
A 50-50 split of revenue. “The 50-50 split is after owners deduct their expenses,” Hunter said.
No exception to the salary cap.
“We would like to get profitable, have a return on investment,” Stern said to ESPN.com. “There's a swing of somewhere in the neighborhood of $750 to $800 million that we would like to change. That's our story and we're sticking with it.”
Making negotiations between the two sides more difficult is the additional propositions from the owners: a hard cap, a 40 percent rollback in player salaries, unlimited expense deductions and the elimination of guaranteed contracts, according to Hunter. The players’ side rejected this proposal in February 2010, pointing out the league’s increasing TV ratings, and record season ticket sales. The union’s solution is more revenue sharing.
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