Sunday, November 21, 2010
The owners said that nearly half the teams in the NBA were losing money and the NBA could not survive under the current conditions of collective bargaining agreement. The players said that not that many teams were losing money and the game was growing by leaps and bounds because it was at the height of its popularity. These arguments may seem familiar if you have been paying attention to the NBA’s current collective bargaining negotiations. However, these arguments are from 1998, the year in which the NBA owners last locked out the players.
In 1998, Michael Jordan hit his final shot as time was winding down against the Utah Jazz to claim his sixth NBA championship. The 1998 NBA Finals was the highest rated finals in NBA history and Game 6 was watched by over 72 million people. After the finals, the owners locked out the players. Once an agreement was reached the NBA had to shorten its schedule to 50 regular season games. Since that lockout, the NBA has not recovered. Interest waned and fans tuned out.
Fast forward to today. As ill conceived as “The Decision” was, the NBA was a major talking point during the summer. D. Wade, Lebron and Bosh teamed up to make the Miami Heat the most hated team in all of sports. The traditional powerhouses, LA and Boston, are leading contenders for the championship. There are competitive teams in major markets like Chicago and superstars in small markets like Oklahoma City. The NBA has not been this relevant in the sports landscape since 1998. Yet even though revenues actually increased last season, NBA owners are talking about locking out the players.
Much of the dispute in the NBA is similar to the NFL. There is, however, one major difference. I’ll briefly discuss the similarities between the two leagues and will then focus the rest of the column on the salary cap structure that make the NBA collective bargaining agreement unique. There are other issues such as contraction, salary rollback and etc. I will address those in future columns.
The Division of Shared Revenue
The NBA and the players share the following sources of revenue: gate receipts, television and radio broadcasting rights, game day revenues (parking, ads, sponsorships and etc.), proceeds from sponsorships, proceeds from luxury suites and etc.
Like the NFL, the NBA players are guaranteed a specific percentage of league revenues, i.e. 57%. NBA teams have a team salary minimum and a team salary cap. Each team must spend 75% of its salary cap on the players. However, unlike the NFL, the NBA has a soft cap which allows for teams to sign certain categories of players even if such a signing will cause them to go over the salary cap.
The Soft Cap
Interestingly, the NBA salary cap is set at 51% of the total revenue yet the NBA players are guaranteed to make 57% of total revenues. So how do the players receive their extra 6%? Through benefits and the soft cap.
The NBA provides for a number of exceptions to a team’s salary cap; the most prevalent of which is the Larry Bird Rule. The Bird Rule was created in order to give an impending free agent’s current team a better chance of re-signing him. The free agent player’s current team can offer an extra year and about $10-$20 million more than any other team. One way to circumvent that is the sign-and-trade. If a player decides to sign with someone else then his old team can offer to sign him first and trade him to his new team in return for players, draft picks and etc.
Will There Be Basketball Next Year?
So will there be basketball next year? The owners and the players realize they’re not the NFL. The NBA is a player oriented league in that the casual fan tunes into games for certain players. For the first time, in a long time, you have a number of superstar players on teams that have a legitimate shot at winning the NBA Championship. As I said before, as ill conceived as “The Decision” was, having Lebron James in Miami with Wade and Bosh is a marketing dream. Drama sells.
Nonetheless, the NBA owners want a salary cap to essentially save themselves from bad contracts. David Stern and the owners argue that the league lost $400 million but I have a hard time believing him. The reason why I have a hard time believing him is the Memphis Grizzlies. The Grizzlies plays in one of the smallest markets, had the third lowest average attendance last year and are dead last in average attendance this year. Yet somehow the Grizzlies are able to sign Rudy Gay to an $82 million contract over 5 years, pay Zach Randolph $17.3 million this year and sign Mike Conley a $45 million contract over 5 years.
Are any of these players worth the amount of money they are paid? Probably not. But for some reason there is an owner in Memphis who is willing to hand out these contracts. It is difficult for me to imagine any scenario in which Memphis’ owners would hand out those contracts and be willing to lose money.
After my NFL column posted on the website, my friend told me that the players will eventually cave because they have to pay the bills for the yachts and the three vacation homes in the Caribbean. Though I disagreed with him when it came to the NFL, past history shows that his prediction is more likely to happen in the NBA. In 1998-99 it was the players who eventually caved because NBA player contracts are guaranteed and so each player assumes there will be a check for him at the end of every pay period until the end of his contract. Whereas NFL players can be cut and lose his source of income at the end of every year.
Ultimately, my prediction is that owners will lockout the players until the middle of October and at most, we may lose about 5-10 games off the schedule.