The NBA lockout may be upon us, and David Stern isn't helping: the league's latest proposal is completely and utterly unreasonable. See what it would have done to the NBA over the last 10 years.
Jun 30, 2011 - As we slink toward the brink of an NBA lockout -- if you have a doomsday clock in the family room, five minutes 'til should do the trick -- we ought to look at the latest proposals to get a sort of "state of the negotiations." And while I'd love to be the one who does that, I simply can't get over how insane the league's recent major proposal is.
That proposal would cap player salary at $2 billion a year. In actuality, the NBA calls it a "$2 billion guarantee," which is a brilliant bit of framing, for $2 billion is a lot of money, it's not much different from what the players take home now and a "guarantee" muddies the intent. Don't get it twisted: the NBA is not seeking to guarantee that players never make less than $2 billion. They want to prevent player salaries from growing to well over $2 billion, as will happen under the current system assuming normal or better growth. (Salaries and benefits for 2010-11 were at about $2.17 billion, according to multiple reports.)
What the $2 billion cap does is re-route all future growth of the league's revenue straight to the owners' pocketbooks. The NBA and players' union negotiated deals in 1998 and 2005 to share revenue between the owners and players, with the very obvious understanding that, as in any business in the world, the owners assume the costs of doing business and any inherent risks. Now the owners complain that they have no guaranteed profit, that even though the league is doing well, there's no mechanism to ensure individual teams do well financially.
Basically, the NBA is admitting that it's 1999 agreement -- considered a huge victory for the league at the expense of the players at the time, and one which took a lengthy lockout of its own to solve -- was a complete failure.
That very agreement set up the system in which players would receive a percentage of all league income as "guaranteed" salary and benefits; the agreement slotted 55 percent of basketball-related income for players through 2003-04, and 57 percent thereafter. The 2005 collective bargaining agreement continued this system through 2011; at that point, either the NBA thought that the system was working fine, or it so feared another lockout that owners held their nose and agreed to continue a suicidal agreement. I'll let you be the judge on that one.
The beauty of the current system created in 1999 is that how league growth and retraction is dealt with is built right in. If the league explodes, salaries can rise. If the league stagnates (as it has done a couple times over the life of the deals), salaries remain flat. There definitely need to be some tweaks, perhaps to contract length, either a stronger luxury tax or a decrease in the malleability of the salary cap (death to the mid-level!), tweaks to Bird rights, the end of sign-and-trade contracts.
Instead, the league wants to end the reasonable percentage-based split of revenues with players -- who are actually the labor and the product in the industry -- and "guarantee" $2 billion a year in salary and benefits. Let's imagine this was the league's route a decade ago. Right now, $2 billion is equivalent to 52 percent of league revenues ($3.8 billion.) Let's imagine that in 2001, the NBA got the players to agree to a 10-year collective bargaining agreement that capped ... uh, "guaranteed" salaries equivalent to the current $2-billion threshold. Revenues in 2002 were $2.7 billion, per Larry Coon, so the "salary guarantee" would be $1.4 billion.
Let's graph. Click to enlarge.
Under the actual plan approved in 1999 and essentially extended in 2005, salaries hovered around 57 percent of revenues. Revenue grew 40 percent from 2002 to 2011; salary grew 31 percent. Yet the league claims it lost $300 million last year. As the union has argued ad nauseum, this is likely due to the influx of new owners who borrowed lots and lots of money to spend $300 to $450 million on their new teams. But regardless: the league is $300 million short.
Would the union's current proposal -- to essentially drop the players' share of revenue to 54 percent -- have solved the issue? According to my math and Larry Coon's essential CBA resource, the 54 Percent Plan would have sliced $150 million off of 2010-11 salary, getting us halfway there. Over the past 10 years, the 54 Percent Plan would have saved owners a total of $1.66 billion in salary compared to the actual system in place, or about $166 million per season. That's a reduction in player salaries of about 8.6 percent, no small margin. It's a substantial giveback by the players.
What about what I've decided to call the Stern Plan, capping salaries at the 2002 equivalent of $2 billion over the 10-year span? Again, that's a $1.4 billion cap ... er, "guarantee" on player salaries every year, despite growth, stagnation or regression of league revenues. Would that have fixed the league's supposed $300 million in annual losses?
And how! By my math, if implemented a decade ago, the Stern Plan would have reduced salaries by a total of $5.1 billion, or $510 million a year, on average, representing a 27 percent reduction in actual salaries over the approved system. Not only would the claimed losses have been made up under the Stern Plan, but the owners would have seen tremendous annual profit across the board. Jerry Buss would have built a new continent by now.
In 1999, the NBA owners agreed to a system that gave players 55-57 percent of revenue. Had the Stern Plan been the deal back then, the system would have given players just 43 percent of revenue over the life of the deal, and just 37 percent in the 2010-11 season. Had this plan been in place over the past decade, this column would be about what a phenomenal boondoggle the league had sold the union in 1999, what a draconian result the lockout had and what incredible fools the players were for agreeing to it.
Instead, the NBA in 1999 realized that players have an incredible role in growing the sport, and deserve to be compensated fairly for that growth, and the system under which revenue is split should reflect that. It did. It needs some tweaks to cut those claimed losses, but for the most part, it worked.
That's why the league's proposal to cap salary at $2 billion or any fixed number based on current revenue is a completely non-starter, an insult to the players and total insanity. Pound of flesh? Hardly. The NBA is trying to sever players at the waist and discard the top half. This is not a reasonable proposal, and shouldn't be accepted as such -- by the fans, by the media and certainly not by the players.
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Cheers.
And there goes my optimism. One hell of a hardline to take heading into the lockout. How’s that for tone…
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by Bullet Nation in Exile on Jun 30, 2011 11:11 AM EDT reply actions
oddly enough, it actually made me a little more optimistic
Words of wisdom from the great Billy Dee Williams
Oh so you disagree. Well then, here is a mature, sophisticated, and compelling rebuttal.
by wallywagon11 on Jun 30, 2011 4:57 PM EDT up reply actions
great analysis
and it’s really amusing how the owners are mirroring congressional Republicans in their attempt to institute hard spending caps. in both cases, the richest guys in the room just want to get richer at any cost and are willing to harm all others to get what they want. debt default=lockout
by pwf207 on Jun 30, 2011 11:13 AM EDT reply actions 1 recs
also
in both cases in appears that the richest guys caused the situation they are trying to exploit. if as the union says, the owners shortfall is due to debt fueled purchases of teams, then it really is the same as Republican un financed tax cuts, wars, medicare part D creation, and defunding and rolling back of financial regulation that caused the deficit to balloon and them to call for hard spending caps. imagine if all labor relations in this country had been like the old NBA CBA with productivity growth shared between owners and labor. well you don’t need to imagine, if that had been the case the median family income would be $92K instead of just under $50K. fans, who tend overwhelmingly to be workers not capital, need to learn from these situations.
by pwf207 on Jun 30, 2011 11:21 AM EDT reply actions 1 recs
I really think
That the owners’ plan here is to lock the players out for two months, thereby reaping two months’ worth of salary savings, no matter what the eventual deal. As the season approaches, they’ll start to deal in earnest. There is no way the lockout is going to be avoided because the lockout itself will save the teams a bunch.
What the owners really want, I think, is a mechanism to prevent them from giving out bad contracts. The best way to do that is by decreasing the number of contract years, especially at the mid-level. Also, restricted free agency causes teams to overbid (money and years) in an attempt to overwhelm a match, and this drives up salaries on marginal players. It’s in everyone’s interest to avoid Eddy Curry situations and I think they’ll find common ground there. But only after a two month lockout.
I would like to see the elimination of the yearly salary cap and instead see a cap on total future expenditures. Let’s say you can’t go over 200 million in salary committments (increasing each year a specified amount). You can have it spread over 8 years, or 1, team choice. That enhances the value of each franchise because each franchise will have a similar overall salary committment. Also, high salary mistakes will tend to be shorter-length mistakes. Top end players might be free agents more often, but if you build in some sort of injury insurance and incentive to stay with the team you’re on it could work.
Get The Frickin' Rebound
by fuhry on Jun 30, 2011 11:27 AM EDT reply actions
i assume
that a good contract, as opposed to a bad one, is one where the revenue generated by a quantification of the player’s team contribution exceeds the cost of said player’s contract. and since player costs will be capped all additional revenue from the increase in good contracts accrues to the owners. how exactly is avoiding eddy curry situations in the players’ interests? and increasing franchise values is only in the player’s interests if the league were on the brink of contraction and union jobs were on the line as a result ala the NHL a few years back. as the chart above shows revenues are increasing and the union proposal sheaves off half of the owners supposed shortfall, which seems equitable considering the owners are the authors of their own shortfall. your proposal is entirely pro-owner and just a recap of what I said, the richest guys in the room just want to get richer, equity be damned.
by pwf207 on Jun 30, 2011 11:52 AM EDT up reply actions
Brilliant work here, Tom
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by Seth Pollack on Jun 30, 2011 11:39 AM EDT reply actions
How insane is Stern's new proposal
No less insane then AK47 making 18 million last year… How about Gilbert being scheduled to make 62 million over the next 3 years despite committing a felony on team property??
Well considering the players make way too much already I think ANYTHING that keeps them close to the current scale is the real insane idea here. ANYTHING that keeps the league running as is, or close to it, will eventually kill the league. Im almost hoping that there is not only a lockout, but an extended one at that. Maybe that will force some people to open their eyes and see how broken this system truly is.
VOID!!!
by dt3 on Jun 30, 2011 12:34 PM EDT reply actions
Ive said it before, Ill say it again… the only league that can handle 30+ teams is the NFL. Retract a handful of these garbage franchises and these problems take care of itself.
VOID!!!
by dt3 on Jun 30, 2011 12:57 PM EDT up reply actions
this arguement is absurd
no one forces the owners to pay these salaries, all these contracts are entered into freely by both parties. if bad business decisions are made by consenting adults, the only reason to abrogate them is if doing so will prevent worse consequences for all involved, not just the bad decision makers. as shown in the graph above revenues are INCREASING, no club is on the brink of insolvency as a going concern, individual owners might be because they made dumb leveraged purchases but the answer for that is for the owners to sell not for players to take massive paycuts to protect bad businessmen. the NBA makes a lot of money due to (in my opinion) millions of dumb consumers who pay way too much for a product of middling value, but that is the way it is. if the players make less the owners just make more; prices of tickets and merchandise and food are not going to come down if there is no market pressure and as the NBA is a member of a two member oligopoly in the production of high quality basketball, with the NCAA, the amount of market pressure that can be applied is minimal. if you want to decrease the amount of money players make, organize a boycott of the NBA by thousands or millions of fans or get Congress to remove the legally sanctioned barriers to entry that exist for new franchises, especially in big markets or get a cap on ticket prices instituted by Congress.
by pwf207 on Jun 30, 2011 1:40 PM EDT up reply actions 1 recs
my larger point is
that all corporations, of which the NBA is one, exist at the pleasure of the government and the government is made up of representatives of the people and thus if you don’t like something a corporation is doing, the will of the people can change that if they organize to do so. obviously there are problems with possible tyrannies of the majority so checks and balances are needed but government is there to do the will of the people, at least in theory, so use it.
by pwf207 on Jun 30, 2011 2:02 PM EDT up reply actions
oh really, do you attribute that to a strong, perpetual business model??
ooooh… if thats the case you really want owners to take on a risk like this assuming that consumers will continue to make dumb decisions?? The original reports I read stated that the NBA was going to go as far as proposing a 33% rollback on CURRENT salaries. If that was the case I think a proposal that keeps thing as is, or close to it, is
overlypretty generous.==========
The way I look at it, the sports world is changing. People (and more importantly corporations) are becoming more discerning about what they spend money on. A middling product is no longer enough to get people off the sofa and at the games.
I would be very interested to see how much that revenue increased is directly from the league’s larger markets and higher profile teams. What do the revenues of medium/small market teams look like?? Assuming that the revenue has increased like this for all 30 teams (and will continue to move that way) is flawed logic. If you’re like me, and predict younger superstars to start following the Miami model this gap is only going to get bigger.
Just like owners need to anticipate their future earnings in situations like this, they also need to look at their future expenses. The days of free rides on arenas/stadiums is quickly passing us by. I know players dont want to hear it but this expense is going to be large and if owners need to start taking a slice of their pie to prepare for it… so be it.
VOID!!!
by dt3 on Jun 30, 2011 3:32 PM EDT up reply actions
thats ridiculous
if revenues go down, then salaries go down because what’s guaranteed is a percentage of gross basketball revenues. if the owners don’t want their chunk of a hypothetical future reduced pie they can sell right now, i highly doubt there would be a shortage of buyers. when was the last time a sports franchise was sold for less that what the previous owner paid for it. the owners took on the risk of decreased revenue when they bought the team. no one is entitled to profits in perpetuity. also, if the owners are worried about the weaker markets doing poorly they can go to a full revenue sharing plan like the NFL. All monies made by basketball can be split evenly by all teams. why should the players give up money so owners be guaranteed annual operating profits and own an asset class that never depreciates in value. if an owner doesn’t like his team’s or the NBA’s future prospects HE CAN SELL. no one is stopping that, i ask again why are the current owners entitled to guaranteed operating profits and increases in the value of their franchises? no one is forcing them to own NBA franchises, and no one buys a franchise for the operating revenue, they buy it because sports franchises go up in value, if you think that’s not the case, sell right now to some sucker who does.
by pwf207 on Jun 30, 2011 4:43 PM EDT up reply actions 1 recs
clearly dt3,
you and i disagree about what labor negotiations are supposed to be. i think they are about finding equitable agreements about what is a fair distribution of revenues generated by the industry or company at hand. you think they are about the owners of capital giving up the least amount you decide is plenty generous. i am focused on relative contributions and remuneration, you on absolute. i am pro labor you are pro capital, i find that position extremely cynical and mean, the owners of these teams bring nothing to the table, the players are as Tom said both the labor force and the product, the owners just rich guys who use their money to make more money. i think the world is better off when the producers of actual goods and services reap the rewards of their labor, you think that power and money entitle you to dictate the terms of labor contracts. my final thought is this, if you allow those with power to use unchecked to acquire more power you end up with the few having everything and the many fighting for scraps. obviously in this case, the scraps are still extravagant but i don’t see why that should matter or why you would be on the side of the owners when almost certainly in your own life you are a worker and not an owner but if you are an owner i get your position, i disagree but i get it.
by pwf207 on Jun 30, 2011 4:59 PM EDT up reply actions 1 recs
+1
I’ve read both of you guys debate and everything you stated is what I’ve been saying from the jump PWF207.
One thing i can do...................is FINGER ROLL.
by gunnin' gervin on Jun 30, 2011 10:49 PM EDT up reply actions
Picking a starting point to move from...
I think this is just the league picking a starting point that they will easily be able to move from. Then they can say, “Look, we have come way down from where we started, it’s the Union that is holding this up.” There is no way in heck that Stern thinks this will fly. He is far too smart for that. It is simply a ploy.
by mamorgan1 on Jun 30, 2011 1:47 PM EDT reply actions
The issue is ...
… that they’ve been negotiating for two years, and the NBA presented some version of this last week.
by Tom Ziller on Jun 30, 2011 3:35 PM EDT up reply actions
To be honest, negotiations don't usually start in earnest until way down the road
by the way really enjoyed this article.
Words of wisdom from the great Billy Dee Williams
Oh so you disagree. Well then, here is a mature, sophisticated, and compelling rebuttal.
by wallywagon11 on Jun 30, 2011 4:59 PM EDT up reply actions
Thanks for the great analysis once again TZ
I have one question.. one confirmation to put it better about the 2 bil “guarantee”
If the global economy seriously deteriorates (something which is not THAT unlikely to happen) along with the NBA, the players’ 2 billion “guaranteed” will decrease right?
So basically, if the league grows, the owners make more money but the players don’t. If the league retracts, the owners make less money but so do the players?
Bleeding Black and Purple 6710 miles South East of Sacramento.
by ZenBaller on Jun 30, 2011 5:12 PM EDT reply actions
I appreciate the research, but vehemently disagree with the conclusion.
These are people getting paid a ton of dough to play basketball. The average salary is about $6 million right now… omg they might take an 8% pay cut and lose half a million, I think they can deal. Where else are they going to get that kind of money? Let’s see Lebron take his skills into the corporate world.
If owners profited $210 million per year, which the author seems to think outrageous, it is an average profit of $7million… or about $1.5 million more than the average player (and these guys don’t have shoe contracts)… When owners have so much money that $7 million per year is not going to be all that enticing… They could make $7 million per year in many other ways… it does not seem like a crazy idea at all that they should make this, esp. when you consider the risk of losing money that they take.
JJ for 3!
by Paul G B on Jul 1, 2011 7:20 AM EDT reply actions
I don't think $210M profit annually is outrageous
I think shutting down a league because it’s not enough is outrageous.
by Tom Ziller on Jul 1, 2011 9:29 AM EDT up reply actions 1 recs
It really does all come down to revenue sharing which of course won't be addressed
Words of wisdom from the great Billy Dee Williams
Oh so you disagree. Well then, here is a mature, sophisticated, and compelling rebuttal.
by wallywagon11 on Jul 1, 2011 12:32 PM EDT up reply actions
but that's what they want in the stern proposal.
they want to shut down the league because they are supposedly losing money.
If you want to challenge this and say they are lying, that’s another story and requires different analysis.
JJ for 3!
by Paul G B on Jul 1, 2011 12:52 PM EDT up reply actions
Great read very informative. Here's my ideal world proposal...
Its a fine line, but whats best for the game is the worst 5-7 teams losing some money. Owners want 50% players have proposed 54.5%. I think they should meet in the middle at 52.5%. A system where everybody is making money encourages the worst owners to do nothing. The worst teams are getting handed a huge asset every draft for being bad they should pay the price for it.
I think taking out exemptions all together only hurts the middle class of the NBA. Its more important to limit the max amount a single FA can earn. For example lets cap superstar salary, it’s a team game after all and there are 14 other players. Finally, the only performance incentives should should be team based. A few examples of this make the playoffs, win 55 games, win the division.
Contract Lengths:
4 years max to retain a Free Agents 20-25% of the salary cap
3 years max for other Free Agents
I think 4 years makes sense for both sides because thats about the window we give for one group to compete.
Exemptions: Larry Bird Rule – Gilbert Arenas Rule
Midlevel exemption 8-10% of the cap
Low-level exemption 4-5%
Midlevel works out to about 5 million which is what the owners have proposed for an average salary.
Trades should be a way to balance salary and add pieces.
Incoming Salaries must be less than 200% plus 100,000 of their outgoing salaries.
Eliminate the sign and trade because its mostly just an abuse of the bird rule.
Wally's World
by forthepeople on Jul 2, 2011 8:10 PM EDT reply actions
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