Re-Negotiating the NBA Collective Bargaining
Agreement
June 21,
2005
1. Introduction
Negotiations
for a new NBA collective bargaining agreement (CBA) have been underway for more
than a year during which time a deal has often seemed tantalizingly close. But the calm before the storm ended in May
2005 as the league’s deputy commission Russ Granik
warned that “if
the National Basketball Players Association (NBPA) doesn’t change its
negotiating strategy soon, a lockout is coming.” Since that time the two sides have moved
closer together with Granik
reporting “significant progress” this past weekend.[2] Chad Ford of ESPN is
now reporting details of a potential agreement, which I discuss in Section
2 below.
Despite
agreement on a basic framework, both sides see problems – different problems –
that they feel need to be addressed in a new deal. And therein lies the rub. Within the existing framework, proposals that
fix problems for one side usually make things worse for the other side. It all becomes a zero sum game and that can
lead to unproductive bickering and posturing.
So
the all-too-common media lectures to meet in the middle (often preceded by
reflexive and condescending diatribes about the “ridiculousness” and
“stupidity” of the parties involved) are kind of like asking the owners and
players to split the baby. And with the
good news we are hearing, it looks like this will work. But if talks somehow break down, I would like
to use this piece to offer other suggestions that might just work better for
both sides.
What
I think both sides need are slight changes to the existing framework – changes
that make both the owners and players better off by fixing inefficiencies in
the current agreement. In order to
recognize how to do that, we need to step back and better understand the
current deal and its problems.
For
example, the current
luxury/escrow tax system often makes adding players much more expensive for
average spending teams than for high spending teams. This tends to most severely penalize small
and medium market teams with championship aspirations – precisely the teams
that we would expect a luxury tax to protect.
I do not think anyone really intended the system to work this way.
In
addition, the luxury/escrow tax system creates a tremendous amount of needless
uncertainty. Teams do not know the
luxury tax threshold or whether the luxury tax will be triggered until the
season is completed. Guessing wrong can
cost teams tens of millions of dollars, which means that good luxury tax
forecasts often are more critical to profitability than good basketball
decisions. And despite the fact that
this uncertainty makes an economist like me more marketable, it simply is not
good for the league.
Slight
changes of the structure of the luxury/escrow tax system can ease both of these
problems, resulting in a system that is less punitive to competitive small and
medium market teams and puts profitability more in line with good basketball
decisions.
Another
problem with the current framework is that the evolution of the “soft” salary
cap and the resulting exceptions has led to an explosion of long-term
contracts. Salary cap constraints and
exceptions, along with maximum salaries, often lead to teams competing on the
lengths of contracts rather than per-season salaries. The resulting long-term contracts have led to
most teams paying large sums to retired, waived, or unproductive players. Redistributing these salaries to productive
players would increase the incentives for players to improve their games and
would remove power from players with long-term contracts who hold their franchises
hostage with demands to be traded or to have a coach fired. Such behavior damages the marketability of
the NBA.
But
from the players point of view, the guarantees in these long-term contracts are
one of the linchpins that have allowed the players’ share of total revenue grow
over the years. So they will not give up
fully guaranteed contracts without a fight.
For that reason I propose an explicit mechanism to guarantee players a
growing share of total revenue, thereby eliminating the players’ (and agents’)
most important rationale for fully guaranteed long-term contracts. This allows me to propose a substantial
relaxation of the guaranteed contract system in the NBA.
And finally,
previous collective bargaining agreements have dramatically (and
unintentionally) increased the incentives for players to enter the NBA early.[3] The subsequent explosion of early entry has
reduced the free training and marketing that the NBA has historically received
through college basketball. Commissioner David Stern
has proposed an age limit to stem this flood of early entrants.
Instead
I proposal several changes, in particular changes to rookie scale contracts,
that would make them longer, riskier, and less lucrative for early
entrants. These changes would
substantially reduce the incentives for early entry. My proposal would not eliminate early entry,
but should reduce it.
For
the most part, my proposals are attempts to address the negative unintended
consequences of previous agreements and thereby create room for both the league
and union to be better off in a new agreement.
I come
at this as an economics professor who consulted for the NBPA in Spring 2003.[4] For some this will mean that I will forever
be seen as an advocate for the union, but I do not have a dog in this
fight. I am writing this as an analyst –
one who does not have all of the answers – with some experience with the
insiders in these negotiations. But
mostly I write this as a fan who loves the NBA and would like to see an
agreement that provides a foundation for long-lasting peace between the owners
and players.
In
the rest of this piece, I will discuss each of my proposals in quite a bit of
depth. I will compare them to what is in
the current deal and what is being proposed, discussing aspects of previous
negotiations where relevant. In some
places these discussions will get technical, but with the NBA collective
bargaining agreement being an incredibly complex document, that is sometimes
unavoidable.
2. The Current Proposed Deal
The deal that Chad Ford is
outlining, in my opinion, is a big, big win for the union. It appears
much more favorable to the players than the current collective bargaining
agreement and the deal I propose in this piece.
There could be other details that are
very important (such as what is happening with the mid-level exception), but
here are some of the major points.
·
Age limit of 19.
·
Rookie scale contracts that stay the same,
except that the third season becomes a team option.
These will be labeled “concessions by the
union,” but no player currently in the union is made worse off by these “concessions.” In fact, the current members of the union
probably have more reason to support these provisions than does the league,
since these provisions will open up jobs for veterans.
·
Maximum contract length of six years for players
who sign with their own team and five years for players who sign with a new
team.
·
Maximum salary increases of ten percent of first
year salary for players who sign with their own team and eight percent who sign
with a new team.
These two provisions are concessions by
the union, although much of the effect of the second provision is undone by the
increase in the salary cap.
·
Players are guaranteed 57 percent of
basketball-related income (BRI).
·
Salary cap trigger percentage rises to 51
percent of BRI from 48.04 percent of BRI.
Note that in the current collective
bargaining agreement, maximum salaries are percentages of the salary cap. If that is not changed, then maximum salaries
will increase under this provision. In
fact, the total salary of a maximum salary player with maximum raises may end
up slightly larger per season than under the old deal, thereby undoing much of
what is conceded by the players.
I believe that the players’ share of BRI
will be higher than 57 percent in this deal, so I do not believe the guarantee
to be much of a concession by the owners.
·
Escrow tax maximum falls in stages from ten to
eight percent.
By the end of the collective bargaining
agreement, this is likely to put $50 million per season more into the pockets
of players.
·
Luxury and escrow tax distributions are equal
for all 30 teams. There also is no “super”
tax on high-spending teams.
This is a huge concession by the owners. The distribution scheme in the current deal
arguably reduced team spending more than the luxury tax itself did. Without the 300 or 400 percent effective tax rate
on team salary just above the luxury tax threshold, teams will be more willing
to pay the luxury tax. The league must
have given in on this point due to pressure from its teams. The amount of money being redistributed under
the current deal must have been too extreme for too many teams.
Now I am figuring that there are details
that go in the league’s favor, or else it looks to me that the league has been
taken to the cleaners on this proposed deal.
Because with what has been described so far, I would expect the players’
share of BRI to push past 60 percent, perhaps well past 60 percent, by the end
of this deal.
One other point. If this pretty much is the current outline
for the next deal, I would expect an explosive free agent market this
summer. Teams should expect to pay
substantially more for free agents than they did in the last few summers. The higher salary cap will result in more
teams having more room under the salary cap and the change in how luxury and
escrow taxes are distributed will greatly lessen the effect of luxury taxes on
spending.
3. A Revenue Guarantee for the Players and Owners
Managing
the share of revenue going to the players and owners is arguably the most
important objective of collective bargaining agreement negotiations. Historically the owners have tried to control
player costs by instituting salary caps, slotted contracts for first-round rookies,
and restrictions on trades and free agent bargaining rights. In the last agreement owners added salary
maximums for individual players, escrow taxes on players, and luxury taxes on
high-spending teams.
Players
have countered by pushing for numerous exceptions to the “soft” salary cap, including
Bird exceptions which help teams above the salary cap retain their own players
and million-dollar and mid-level exceptions which allow teams above the salary
cap to bid for “mid-level” players. In
addition, players have pushed for ever-increasing minimum salaries; at any
given time one sixth or more of the votes in the one player/one vote union are
minimum salary players.
These
exceptions typically have been concessions to powerful constituencies in the
union and often have served interests of the league, such as giving teams
better chances of keeping their star players and promoting competitive balance.
In
this light, the history of collective bargaining in the NBA can be seen as a
“cat and mouse” game where the league tries to build a better and better
mousetrap in each agreement, only to be foiled by a tiny little exception that
leads to free agents eating a lot of cheese.
The linchpin in the union’s strategy has been the guaranteed contract,
which – even as the mousetraps have gotten more sophisticated – has served to
preserve the players’ gains.
But
relying upon a patchwork of restrictions and exceptions to determine the
players’ and owners’ shares of total revenues is extremely unpredictable. Each agreement turns out to be a grand
experiment that produces plenty of surprises for both sides. Coming out of the last agreement, neither
side envisioned the luxury tax ever being triggered, yet it has been triggered
twice in the past three seasons of the current deal.
Both
sides can choose to roll the dice and try their hand at the “cat and mouse”
game once again, but an alternative would be to set up guarantees for the
players and the owners. My belief is
that the latter strategy would serve as a better foundation for long-term
peace.
Defining the
Designated Percentage Guaranteed to Players and Owners:
·
The designated percentage of basketball-related
income going to the players would be the average of what they have received in
the last three seasons under the current national television contract. That would be 57.7 percent of BRI.[5] Owners would be guaranteed the
remainder. (Below I discuss the
mechanism for these guarantees.)
·
Historically this designated percentage has increased
as NBA revenues increased – about two thirds of new revenue has historically
gone to the players. Thus, my proposal
would legislate this historical pattern.
Players would receive two thirds of any increases in
(inflation-adjusted) BRI.[6] For example, if revenues increased five
percent (in inflation-adjusted dollars) for each of the next six seasons, then
the designated percentage would be 60.0 percent of BRI after six seasons.
So
in the first season of the new agreement the players would get exactly 57.7
percent of basketball-related income – no more and no less. And after that players would get two thirds
of any new revenue that was generated.
During
the past two seasons, players received just a hair over 57 percent of BRI. This proposal would have put $38 million more
in the pockets of players and their agents during those two seasons. That is not a lot but it is better than the
guarantee of 57 percent that the owners reportedly have been offering the
players. And more importantly, this proposal
allows the share of revenue going to the players to increase as revenue
increases. Players conceivably could be
getting 60 percent of BRI by the end of a six or seven year deal. This prospect of a rising share of revenue
makes this very different from the “hard cap” that the union has repeatedly
rejected in previous negotiations.
So
this leads to the obvious question – why would the owners agree to this
proposal? They wouldn’t unless the
players made concessions that would make the league more marketable and thus
would increase the amount of revenue available to both players and owners. This leads to my next proposal.
Because
of restrictions on competing on salary due to the salary cap, mid-level exception,
and maximum salaries, teams often compete on the length of a contract. This has led an explosion of long-term
contracts, which present moral hazard problems.
First of all, neither players (as a group) nor owners are particularly
happy when tens of millions of dollars are being paid to players waived or
buried on a team’s bench. More
importantly, long-term contracts reduce the incentive for players to improve
their games and get along with teammates, coaches, and general managers. These long-term contracts have had the effect
of making these players very powerful, often putting coaches and general
managers into no-win situations when a player on a long-term contract demands a
trade or wants a coach ousted.
These
demands feed the perception that the NBA is full of spoiled, prima donna players. Such
perceptions – despite not being true for most NBA players – make it difficult
to market the NBA to fans outside the NBA’s core constituencies. For this reason reducing long-term contracts
could benefit both owners and players alike by making the NBA more
marketable. The league and union have
discussed shortening the maximum length of long-term contracts. My proposal goes much further.
·
Once a player is waived, teams would be obligated to pay just 50
percent of a player’s salary during the first calendar year after waiving him,
25 percent during the second calendar year, and 0 percent thereafter.[7]
·
Maximum contract lengths would remain seven years for free agents
signing with their own teams and six years for free agents signing with other
teams.
·
Maximum salary increases (or decreases) would continue to be 12.5
percent of the first-season salary for players signing with their own teams and
10 percent for players signing with other teams.
This
proposal in essence eliminates long-term guaranteed contracts for unproductive
players and thus it is a big concession to the owners. Without revenue guarantees (described above)
that are a bit uncomfortable for the owners and rise when BRI increases, it
would be suicide for the players to agree to the elimination of guaranteed
contracts. But with appropriate revenue
guarantees this proposal is good for the league and for the players, since the
guarantees requires that this money would be redistributed from unproductive
players to productive players (and their agents).
But
wouldn’t the agents object to the elimination of guaranteed contracts? My friend puts it this way.
“Agents
would likely throw a fit. Say Arn Tellem wrangles a $50 million
contract for Kwame Brown. Then after the first
season, the Wizards decide to cut Brown when he quits on the team again. Tellem then loses his percentage of that money that Brown
won’t receive. Players as a group would still get the same amount of money, but
that individual player and his agent lose out.”
Of
course, there will be individual players and agents who are better off with
guaranteed contracts, but in this case teams probably would be a lot more
willing to sign Brown to a lucrative long-term contract if they knew they could
get out of it if he quit on them. And
with more money being available to the players, that also would help Brown in
free agent negotiations. More
importantly, Tellem represents lots of other
clients. What he might lose if Brown
quits he would more than likely make up with his other clients. If players as a whole are getting more money,
Tellem more than likely will be making more money.
So
my point is that players and agents should be willing to give up guaranteed
contracts if they believe that this proposal puts more money in their
pockets. At the end of the day the money
available to the players (and thus to the agents) is what matters to agents.
And
finally, with teams having the ability to get out of bad contracts there seems to
be little rationale for making changes to the maximum number of years of
contracts or the maximum salary increases.
Long contracts with maximum raises will increase the probability that a
player is waived in the later years of the contract, so these provisions are
not nearly as critical as they are in the current agreement.
5.
Escrow Taxes
(and Subsidies)
The
mechanism for guaranteeing the shares of revenue going to the players and
owners would be the escrow tax and a new wrinkle which I call an escrow subsidy. Under this proposal the escrow tax could
exceed 10 percent of player compensation and it could be an escrow
subsidy.
·
Escrow taxes (subsidies) would guarantee that
league-wide player compensation equaled the designated percentage of BRI.
·
The escrow tax rate would be equal to the share
of total player compensation that exceeded the designated percentage of BRI.
·
In the highly unlikely event of an escrow
subsidy, each team would be responsible for the total amount of the subsidy
divided by the number of teams. The
subsidies would be given to individual players in shares proportional to their
salaries.
Example #1 (a
case with an escrow tax):
BRI = $3.000 billion
57.7% of BRI = $1.731 billion
Player salaries and benefits = $1.940
billion
Player salaries and benefits above $57.7%
of BRI = $209 million
Escrow tax rate = $0.209/$1.900 = 10.8
percent
Example #2 (a
case with an escrow subsidy):
BRI = $3.000 billion
57.7% of BRI = $1.731 billion
Player salaries and benefits = $1.600
billion
Player salaries and benefits below $57.7%
of BRI = $131 million
Escrow subsidy rate = $0.131/$1.600 = 8.2
percent
Escrow subsidy cost to teams = $131/30 =
$4.4 million per team
Players
and their agents hate the escrow tax and so the prospect of an even larger
escrow tax would seem to be a big concession.
But it isn’t in the context of a deal that gets them more (after escrow
tax) money. The bottom line for the
players is “showing them the money.” In
this proposal the escrow tax simply is a convenient mechanism to guarantee
players and owners a given share of the revenue.
6.
Luxury Taxes
By
discouraging teams in larger markets (or with deep pockets owners) from
excessive spending, the luxury tax helps to level the financial playing field and
enables small market teams to remain competitive. The success of small market teams, such as
Indiana, Minnesota, Sacramento, and San Antonio, is evidence of the success of
the league’s cost containment strategy, especially relative to other sports, such
as Major League Baseball.
However,
due to luxury taxes and lost luxury/escrow tax distributions these small market
teams with championship aspirations often face 300 to 400 percent effective tax
rates for adding players.[8] In fact, the costs of adding players often
are higher for average spending teams than it is for high-spending teams. Such a system may seem capricious to
successful small market teams who are forced to give up key players because of
these exorbitant effective tax rates.
Moreover,
approximately $680 million was redistributed through luxury and escrow taxes
over the past two seasons. With the huge
luxury/escrow tax distribution checks (roughly $30 million over the past two
seasons) being received by teams below the luxury tax threshold, teams with
salaries under the luxury tax threshold generally are profitable. This has dramatically reduced the incentives
for these teams to aggressively pursue a championship, in some cases making
cost-control on par with winning.
This
hyper-focus on cost control has the potential to alienate the fans of these
teams and reduce revenue for the league.
It also may create resentment among the high-spending owners providing
the subsidies to the low-spending teams – subsidies an order of magnitude greater
than those in any other professional sports league.[9] Furthermore, many of these high-spending
teams have shifted from earning average profits before the luxury tax to
suffering huge losses with the luxury tax.
The league has to be concerned about the dissension among its owners
that the luxury/escrow tax system may create.
Perhaps
a more serious problem is the uncertainty involved with the luxury/escrow tax
system. Whether the luxury tax is
triggered depends on the ratio of league-wide player compensation to revenues –
both of which are unknown until after the season. Thus, owners must make free agent decisions
without knowing the full costs of signing those players.
In
addition, the league has been fortunate to not have a season where small movements
in revenue could trigger (or fail to trigger) the luxury tax. Given the hundreds of millions at stake, we
could see teams below (above) the luxury tax threshold understating
(overstating) revenue in order to trigger (not trigger) the luxury tax. Such behavior is wasteful for the league as a
whole and is sure to cause resentment among the teams. The league should seek to put into place
safeguards against such a scenario developing.
Defining Luxury
Tax Threshold based upon Projected BRI:[10]
·
The luxury tax threshold would be based upon
projected BRI and computed prior to the season (much like the current salary
cap). It would be equal to the average
team salary level at which league-wide player compensation is equal to the
designated percentage of projected BRI divided by 0.9.
Defining the
Luxury Tax and “Super” Luxury Tax:
·
Teams would pay a 100 percent share of luxury
tax for every dollar their team salary exceeded the luxury tax threshold.
·
Teams would pay an additional 100 percent share of
luxury tax for every dollar their team salary exceeded 125 percent of the
luxury tax threshold. (This is the
“super” luxury tax.)
·
In the event of an escrow tax, the luxury tax
rate would be set so that the luxury tax rate times the total number of shares
of luxury tax is equal to the escrow tax paid.
Thus, in seasons where high levels of escrow tax are paid, the luxury
tax rate could be 100 percent or higher.
In seasons where very little escrow tax is paid, the luxury tax rate
could be very low.
Defining the
Distribution of Luxury and Escrow Taxes:
·
Distributions of luxury and escrow taxes would
be equal to the total of luxury and escrow taxes divided by the number of
teams. All teams (both those above and
below the luxury tax threshold) would get an equal share of these
distributions.
Example #1 (a
case with a luxury tax):
Projected BRI = $2.990 billion
Projected benefits = $110 million
Luxury tax threshold = {[(0.577 x 2990) ÷
0.9] – 110} ÷ 30 = $60.2 million
Super luxury tax threshold = 1.25 x 60.2
= $75.3 million
Shares of luxury tax above luxury tax
threshold = $182 million
Shares of luxury tax above super luxury
tax threshold = $40 million
Total shares luxury tax = $222 million
BRI = $3.000 billion
57.7% of BRI = $1.731 billion
Player salaries and benefits = $1.940
billion
Player salaries and benefits above $57.7%
of BRI = $209 million
Luxury tax rate = $209/$222 = 94 percent
Super luxury tax rate = 2 x 94 = 188
percent
Team distributions of luxury and escrow
taxes = ($209 + $209)/30 = $13.9 million
Example #2 (a
case with no luxury tax):
Projected BRI = $2.990 billion
Projected benefits = $110 million
Luxury tax threshold = {[(0.577 x 2990) ÷
0.9] – 110} ÷ 30 = $60.2 million
Super luxury tax threshold = 1.25 x 60.2
= $75.3 million
Shares of luxury tax above luxury tax
threshold = $84 million
Shares of luxury tax above super luxury
tax threshold = $10 million
Total shares luxury tax = $94 million
BRI = $3.000 billion
57.7% of BRI = $1.731 billion
Player salaries and benefits = $1.600
billion
Player salaries and benefits above $57.7%
of BRI = $0 million
Luxury tax rate = $0/$94 = 0 percent
Super luxury tax rate = 0 percent
Team distributions of luxury and escrow
taxes = $0 million[11]
Under
my proposal the luxury tax would be triggered in any season that players paid
escrow tax. Also, the luxury tax
threshold would be known before the season.
What would be uncertain would be the luxury tax rate. Mistakes in forecasting the luxury tax rate would
not be nearly as costly as forecasting mistakes under the present system. In addition, there would be no perverse
incentives to generate less revenue.
With
the luxury tax being in effect almost every season, teams consistently below
the luxury tax threshold could plan on distributions every year versus the
uncertain stream of distributions under the present system. Teams in the middle of the team salary
distribution would not face the 300 or 400 percent effective marginal tax rates
they face under the current system. This
would benefit competitive small market teams who are facing the rising costs of
retaining their star players.
·
The percentage of BRI determining the salary cap would rise from
48.04 percent to the designated percentage.
This would have the effect of increasing the salary cap by approximately
$10 million. It would also increase
maximum salaries.
·
The 115% + $100,000 rule for trades would increase to 125% + $1
million.
The
difference between luxury tax threshold and the salary cap creates an
approximately $10 million wedge which increases the period of time over which
teams over the luxury tax threshold must wait before rebuilding. During this period it may be hard for teams
to avoid losing fans. Given the salary
controls in the previous proposals, this increase in the salary cap will not
increase overall player costs. It simply
will allow rebuilding teams to rebuild more quickly.
Also,
with the salary cap being less important in controlling salaries, there is less
danger in relaxing the trading rules.
Such a change might allow teams to rebuild more quickly.
The
league has expressed several reasons for limiting early entry. First, lacking the training provided by the
college system, players may lack fundamentals, which long-term could result in
a deterioration of the NBA product. This claim rests heavily on the assumption
that young players are more effectively trained in college than in the NBA, a
dubious assumption at best.
Second,
when American players bypass some or all of college, the league loses access to
the huge exposure these players might bring with them to the NBA. In many parts of the country, NCAA basketball
is far more popular than the NBA. Having
more players come through the college system is a marketing opportunity that
could benefit both the league and the players if it results in league-wide
revenue increasing.[12]
Defining Rookie Scale
Contracts based upon College (or Professional) Experience:
·
Players entering the NBA without college experience (or at age 18)
would receive five-year rookie scale contracts with team options in the third,
fourth, and fifth seasons and restricted free agency in the sixth season.
·
Players with one year of college experience (or one year of
professional experience after age 18) would receive four-year rookie scale
contracts with team options in the third and fourth seasons and restricted free
agency in the fifth season (the present rookie scale contract with an
additional team option).
·
Players with two years of college experience (or two years of
professional experience after age 18) would receive three-year rookie scale
contracts with team options in the third season and restricted free agency in
the fourth season.
·
Players with three or more years of college experience (or three
or more years of professional experience after age 18) would receive two-year
rookie scale contracts with restricted free agency in the third season.
·
The match period in restricted free agency would be reduced to one
week.
Defining a Salary Premium for
Rookies with College (or Professional) Experience:
·
Rookie scale contracts would be a function of draft position and college
(or professional) experience. Premiums
would be paid for players with college (or professional) experience.[13] These premiums would not count as team salary
for salary cap or luxury tax purposes and would be paid by the teams selecting
early entrants. Teams selecting younger
early entrants would pay a higher share of the premiums.
Redefining NBA Experience:
·
Up to four years of college experience (or professional experience
after age 18) would count fully as NBA experience. This provision would also apply to current
players, thereby resulting in these players being subject to higher allowable
maximum salaries and higher minimum salaries.
This
proposal lengthens rookie scale contracts for early entrants and shortens them
for players with three or more years of college (or professional) experience,
which should make college more worthwhile for marginal early entrants. It also institutes a team option year in the
third season, which raises the risks for marginal early entrants who may not be
ready for the NBA.
In
addition, this proposal includes a wage premium for players with more college
experience – paid by teams who select early entrants. All of these provisions should increases the
incentives for marginal early entrants to stay in school, and this last
provision should discourage teams from selecting early entrants.
But
under this proposal players who are productive right away, such as LeBron James and Dwight Howard, would still enter the NBA
early. The NBA still would benefit from
star early entrants, while the marginal early entrants would gain more
seasoning (and marketing) by playing more years in college (or overseas). This proposal would not completely get NBA
scouts out of high school gyms, but given the need for scouts to evaluate players
over long periods of time, neither would an age limit of 19 or 20.[14]
9. Conclusion
Overall,
I think the players have a stark choice.
They can continue to try to increase their share of revenue through new
or expanded exceptions and using guaranteed contracts to preserve their
gains. Or they can agree on a structure
that legislates an increasing share of the pie.
In return they would agree to other changes that increased the
marketability of the NBA. In that way
hopefully both sides could come out winners.
Dan T. Rosenbaum
is an assistant professor of economics at the University of North Carolina at
Greensboro who has been widely cited for his expertise on luxury tax/collective
bargaining agreement issues, as well as the use of statistics to evaluate NBA
players and teams.
[1] I would like to thank Kevin Broom,
[2] While not the focus of
this piece, it might be helpful to give some background on the negotiators.
The League
and Owners
The league, led by commissioner David Stern, is likely the most powerful,
most professional, and most politically adept in all of professional
sports. The negotiating team includes
deputy commissioner Russ Granik, vice president Rick
Buchanan, and general counsel Joel Litvin, all of
whom are veterans of the negotiating process.
The message discipline of the league would be the envy of many of the
most professionally run political campaigns.
In addition, the league has a remarkable amount of control over its
owners; even anonymous dissension is rare to hear during negotiations. But ultimately any agreement must be ratified
by the NBA Board of Governors, which includes one representative from each team
(usually the owner). A smaller Labor Relations
Committee plays a greater role.
The Union,
Players, and Agents
Billy Hunter has been the executive director of the NBPA since
1996 and he is joined by associate general counsel
The players effectively have chosen to have a relatively weak NBPA
by keeping union dues (and other NBPA revenues) low. Revenues
for the NBPA were just $10.3 million in 2004 (0.34 percent of total NBA
revenues), which was considerably less than what major
league baseball players spent on their union – $18.3 million (0.45 percent of
total MLB revenues). NFL
players also spent considerably more on their union. This lack of resources manifests itself in a
lack of message discipline. Many press
accounts of negotiations lack comments from the NBPA because of its notorious
difficulties in returning phone calls and e-mails from the media. One vehicle for propagating its message, its web-site, has not been updated in years, which
is in sharp contrast to the union web-sites for football and especially baseball and hockey.
Agents have often stepped into this power vacuum, which is not
surprising given how players rely upon their agents for financial advice and
how little players pay their union. In
1995 David Falk and Jeffrey Kessler (current outside counsel for the NBPA) led
a push to decertify the union, and in 1999 Falk’s clients made up nearly half
of the Executive Committee.
[3] Charles Grantham, the NBPA’s first executive director, contends that the changes
in the CBA that produced the increase in early entry were intentional and part
of a long-term plan by the league to institute age limits and restrict the
number of contracts a given player could receive.
[4] Because of
conflicts with my academic duties, I ended my relationship with the NBPA more
than two years ago. I currently am not
associated with the NBPA, the league office, or any team.
[5] The new
national television contract, past increases in NBA merchandise sales (largely
not counted in BRI calculations), and increased complexity of team ownership
arrangements all have created additional opportunities for revenue to not be
counted in BRI calculations. This proposal
is heavily dependent on players and owners agreeing on a reasonable definition
of BRI. Rather than being a part of the
negotiation process, I think it would be better if BRI was defined by an
independent commission that would be set up through the collective bargaining
process.
[6] They would also lose two thirds of any
decreases.
[7] “Salaries” in this case are the salaries
counted towards the salary cap. This
would only be applied to new contracts signed after the new collective
bargaining agreement begins.
[8] These 300 or 400 percent effective tax
rates range over approximately the first $3 million of team salary above the
luxury tax threshold. It is due to a
combination of the 100 percent luxury tax and luxury/escrow tax distributions
which phase out between the luxury tax and cliff provision thresholds.
[9] For example,
over the past two seasons, the Portland Trail Blazers, the New York Knicks, and the Dallas Mavericks subsidized the rest the
league by about $180 million – an amount larger than cash welfare programs in
several states.
[10] According to reports basing the luxury
tax threshold on projected BRI already has been agreed to by both the union and
league.
[11] Note that there would be an escrow
subsidy (described above) in this example.
[12] Third, an age limit would limit the number of contracts a player could
receive, which could be an effective method of containing costs for superstar
players.
[13] A small premium also would be paid to
players who participated in pre-draft camps and were later signed by
teams. This also would not count as team
salary for salary cap or luxury tax purposes and would be paid by teams
selecting players who did not participate in pre-draft camps.
[14] I suspect that
another benefit of this proposal is that it would be easier to defend in court
than a 19 or 20 year-old age limit.
Largely due to the NFL’s success in defending its age limit, David Stern
has expressed confidence in the legality of a 19 or 20 year-old age limit. However, the success of 18 and 19 year-olds
in the NBA may complicate the NBA’s legal case.