CBA Talk: Cost certainty is a four-letter word

After another 8-hour marathon negotiating session, the NBA and NBPA again found themselves without any kind of agreement for a new CBA. This time, Commissioner David Stern also threw down the gauntlet, leaving the owners’ newest offer on the table for the players to stew over until the close of business Wednesday. If the players don’t accept the offer, the league will pull the deal and offer something measurably worse. First, let’s go over the basic tenets of the league’s offer.

  • League offers 49-51% “band” of BRI (defined league revenue) to players. This is essentially the same as the 50% offered to the players previously, but with a few wrinkles. The base offer is 50% to players, plus 1% annually set aside to fund retired player benefits. The 50% share would be dependent on the league reaching an unspecified BRI level, probably $4 billion. Any amount over that threshold would be split 57-43 in favor of the players, up to a total cumulative BRI split of 51% for the players. Running the numbers, for the players to reach 51% the league would have to beat the $4B revenue projection by $666 million, or 16.67%. That led NBPA president Derek Fisher to characterize the 51% figure as “impossible” to attain. In a move reminiscent of the NHL’s CBA, the players would be limited to 49% of BRI if BRI were significantly lower than the projection (also by an unspecified amount).
  • Escalating Luxury Tax. The previous dollar-for-dollar tax would be transformed into a much more punitive tax, starting at $1.50 per dollar over the tax threshold for the first $5 million over, then $1.75 for the next $5 million, $2.50 for the next $5 million, and $3.25 for the next five million. In addition, a “double tax” would be assessed at either $1 (league) or $0.50 (union) for teams who pay the tax three out of five years.
  • Variable Mid-level exception. There would actually be two definitions of the exception. For teams not over the luxury tax threshold, they’d be able to pay $3-4 million for 3-4 years. Teams over the threshold would only be able to pay $2.5 million for up to two years. There’s also some talk of having the maximum length of a MLE contract vary from season to season. This is clearly the most confusing part of the discussions and may be in flux, so expect some corrections in a few hours.
  • Sign-and-trade modifications. Luxury taxpayers would no longer have the ability to do sign-and-trade deals. If a team is over the cap and tax threshold and wanted a marquee free agent, they could work out a trade with that player’s previous team by having the previous team sign him for a lengthy max deal, then trade him immediately to the desired team for a mix of other players and draft picks.
  • Offer valid until close of business Wednesday (November 9).

Those five tenets were suggested by federal mediator George Cohen, and subsequently adopted by the league. A sixth item involving higher shared revenues for teams who don’t trigger the luxury taxes was not approved. For their part, the players aren’t backing off their request for 52.5% of BRI, though Fisher seemed to be somewhat amenable to 51% if it were a truly achievable number.

The Wednesday ultimatum sort of acts as a mini Doomsday, since the NBA will offer less if no deal is reached and it will probably cancel games in December. Any hopes of being able to play a full 82-game schedule in 2011-12 would be dashed. And there’s the growing possibility that the union will take a page out of the NFLPA’s playbook by calling for the union to decertify and an antitrust lawsuit against the NBA.

BRI for the 2010-11 season was $3.8 billion, which was up from 2009-10’s $3.65 billion, so it’s not hard to see the $4 B target as achievable. That’s where both sides are getting the “$40 million equals 1%” argument from. The players got 57% of BRI in the previous agreement, so a drop to 52.5% or 50% is a major concession. The problem for the players is that there’s a huge difference between the economy back when the last two CBAs were ratified and today’s economy. The NFL accomplished a major pullback in its negotiations with its players. The NHL is looking at the NBA talks with great interest, and is rumored to be pushing for a major pullback as well. MLB has no guaranteed payout to players as it has no salary cap or floor, but it regularly pays less than 50% to its players. The new trend for the four major North American sports is for the player-league split to drop to between 48% and 52%, depending on how revenue is defined. It’s quickly becoming a matter of bargaining against the other leagues, perhaps more than it is about preserving or changing existing agreements.

Every week lost in the 2011-12 NBA season translates to $100 million lost in game revenue, including tickets, other arena revenue, and broadcasting revenue. Over the span of ten years, which is the preferred CBA length for both NBA and NBPA, a few hundred million is not that much to lose compared to the impact of losing 2.5% of BRI over the course of ten years ($1+ billion). The league may see this as a test of the union’s collective will. Some want to play ASAP, others want to go the decertification route. It’s getting to the point that several weeks of games (and thus paychecks) will be lost and unsalvageable. There’s no guarantee that by holding out, the players will end up with a better deal. It didn’t work for the NHL players, and it didn’t work for the NFL players. MLB and the MLBPA must be laughing at their counterparts. Their biggest bone of contention is fixed slotting for first round draft picks, which the players union considers its own miniature form of salary cap. Somehow both sides have convinced the players that the lack of a salary cap/floor/guarantee is best for all concerned, despite the players getting less combined than their counterparts. But they get the biggest, longest individual contracts with most guaranteed years. While baseball’s business model does little for broad competitiveness among teams, it generally works for the players in terms of meritocracy and tenure. That’s hard to argue with when the other leagues have so much trouble arguing over details.

16 thoughts on “CBA Talk: Cost certainty is a four-letter word

  1. The baseball model probably ensures the highest quality of play, which is what we as fans should probably be striving for. Here’s why:

    Baseball pays it’s least-tenured members the league minimum. They don’t become a millionaire (except for their signing bonus) until they’ve been in the league 3+ years. During that time, they are building their work ethic, maturing, living their 20s…becoming the grown adult they are going to be for the rest of their lives, for the most part.

    When you give a rookie a market-value contract – like the NBA did back in Chris Webber’s time, or the NFL did up until this new CBA – I think you run a greater risk of lowering the overall quality of play in the league by giving 22 year-olds so much money initially that they have less incentive to keep a great work ethic through their 20s until reaching free agency.

    This is why I would be totally ok with the NBA starting to have more partially-guaranteed or non-guaranteed contracts. I think it would keep the quality of play on the floor higher for us as fans. Baron Davis gets his free-agent payday and gains 20 pounds by not working out for 3 months over the summer? Well, his team cuts him. That’s what happens in the NFL, and that’s part of why the NFL is currently a much better product than the NBA is.

  2. Not really missing basketball, and this “ultimatum” crap from the league and the resulting de-certification is just ensuring that we won’t see it for a long time to come.

  3. I know the Warriors supposedly have the best fans in the Bay Area and many miss them, count me as one who doesn’t. NBA basketball has never struck a cord with me and the constant strong arming by Stern on every possible matter is a real turn off.

  4. OT: Watching the Raiders on CBS. Just saw a shot of the suites and they looked full. just sayin’

  5. I wonder what would happen with the A’s situation if there were some labor bumps with the MLB CBA? What if it doesn’t get done before February, what then?

  6. Interesting but ultimately not likely to happen. The indicators have all been that this CBA for MLB will be a very smooth one as everyone is pretty happy with the expiring status quo. It might be the next one that could generate some problems but that’s a problem for another decade.

  7. The NBA is the worst run league in pro-sports.

    How is it New York and LA get to keep all their gate receipts and local TV revenue without sharing it with small market teams?

    The NFL, MLB, and NHL all rev share this. But David Stern and his incompetence is killing the league.

    Charlotte, New Orleans, Memphis, Indiana, need revenue sharing from these big market teams to survive.

    It is simple economics, big market teams have more fans, TV sets, and rich people to draw from. It is all #s.

    If the big market teams want to be greedy then start carving their markets up. Put a 3rd team in NY, 3rd team in LA, 2nd Chicago squad, 2nd Bay Area squad, a team in Seattle/Vancouver.

    Then things even out and revenue sharing gate receipts and local TV revenue becomes a moot point since the big market/small market disparity would be gone.

    The players have an excellent argument here and I am with them. Revenue sharing would solve a big chunk of the leagues losses. Instead the owners want the players to swallow the losses because David Stern is incompetent.

    Stern is the worst commissioner in pro-sports history…Even Bud Selig I rank higher than him by far.

    At least Selig got the big market teams in MLB to share with the A’s, Royals, Pirates, etc…

    This is horrible, and they need to start rev sharing properly or the owners will continue to be divided as they are now.

    Michael Jordan is all over the big market teams as he is losing 7M a year in Charlotte, even with a state of the art arena.

    Stern needs to bring the owners together as the NBA needs to be about parity and fair competition. Right now the Lakers have a 112M payroll because they can pay the luxury tax and keep their guys.

    Charlotte cannot do that, they need a “harder cap” and revenue sharing amongst all the teams to keep the league going. San Antonio made 1M dollars last year despite winning 60 games.

    While the LA Clippers made $$ hand over fist without making the playoffs….How is this a fair system?

    I predicted no season this year last February……Looks like I am going to be right.

    • @Sid – All teams have to share gate and broadcast revenue. What they don’t have to share is a large part of suite revenue and other arena sources. In terms of percentages, the NBA shares up to ~80% of its revenue. MLB only mandates that teams share about 33%. The NBA and NHL systems are somewhere in between what the NFL (90+%) MLB provide. The problem with the NBA model is that the soft cap is too soft and not punitive enough for violators.

  8. @ML- You are incorrect.

    No one shares gate receipts or local TV revenue period. I have gone online and looked this up in several different places.

    The only thing shared is a national TV contract where each team gets 30M each. Hence why they have 300M in losses because those revenue sources are not counted. You can see easily why the players are pissed.

    You are correct on the soft cap though. New York was under the cap last for once and they got a check from the luxury tax system….horrible.

    112M for the Lakers? When the cap is 60M or so? They can afford that tax because they have boat loads of money from all the local TV and gate receipts they collect.

    Also in the NBA the road team gets zero from the gate. The other sports are different.

  9. ML
    “All teams have to share gate and broadcast revenue. What they don’t have to share is a large part of suite revenue and other arena sources. In terms of percentages, the NBA shares up to ~80% of its revenue.”

    Given the BRI is about $3.8 billion it seems you are implying that suite revenue and the other arena sources bring in a total of a little under $1 billion in revenue. Would that be accurate? And if so, (a) are you taking that into account when you say losses of about $100 million a week and (b) where are you getting that estimate from?

    • @Wally – I don’t think it’s anywhere close to $1 billion. It’s probably far less than half a billion, though we don’t have the financials to prove it.

      The $100 million a week comes from: 43-44 games played per week @ $1 million gate per game = $43 million. Add in national and local broadcast revenues/fees (50+% of BRI) and you get to around $100 million.

  10. I see the definition of BRI and I know what revenues are counted in it but I don’t see anywhere in the definition where it says the league’s portion of the BRI gets split evenly amoung the 30 teams which I thought was the definition of revenue sharing.

  11. Hello? Anybody there?

    Still having a hard time seeing where we know the BRI is shared between the 30 NBA teams or distributed between them evenly.

  12. @Wally – Sorry, didn’t see your response among the other comments. Unfortunately, there is no section in the 500-page CBA about revenue sharing, nor a specific formula. This is different from MLB, where a section at the end of the document is devoted to revenue sharing.

    Okay, here are some citations. One has leaguewide revenue sharing at only $50 million. Another has the figure at $60 million. If true, that’s a huge departure from my previous understanding of the revenue sharing model, and would certainly requirement major modifications. That’s defined as local revenue shared and is exclusive of national TV, radio, digital, and merchandise revenue ($1B+ per year).

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