20 Second Timeout is the place to find the best analysis and commentary about the NBA.

Monday, November 14, 2011

NBA Lockout Enters "Nuclear Winter"

The NBA lockout entered uncharted territory today when the Players Association rejected the league's Collective Bargaining Agreement (CBA) proposal. Players Association Executive Director Billy Hunter and Players Association President Derek Fisher did not submit the league's offer to a membership vote but instead, after consulting with various lawyers and agents, decided unilaterally to end the collective bargaining process and declared their intention to disclaim interest; decertification, the option the media focused on, is a lengthier process than disclaimer, which is effective immediately. Regardless of the terminology used, the end result is--as NBA Commissioner David Stern called it--a "sham" and a "charade." This shell game, similar to what the NFL Players Association tried before being rebuffed by the courts and ultimately reaching an agreement with the NFL, involves temporarily dissolving a union only to reassemble it once the crisis has passed. With no union in place, the players can file antitrust lawsuits and attempt to argue that the NBA is not negotiating in good faith; the NBA Players Association apparently believes that the court system will look with sympathy on the ludicrous contention that the players are being treated like slaves. The NBA anticipated this move months ago, filing a claim with the National Labor Relations Board asserting that the players never intended to sign a deal and always sought to find relief in the courts.

What this means for the fans is simple: it is very unlikely that there will be a 2011-2012 NBA season. This should not shock anyone who has followed this situation; the NBA lockout has proceeded much like I predicted it would months ago when I said that it would last "until the owners and players agree to fundamentally restructure the league's failing business model." Some people had hoped or assumed that perhaps after missing a few paychecks the players would come to their senses but Hunter and Fisher circumvented that possibility by preventing the rank and file members from voting on the NBA's most recent offer. It would be very interesting to hear what players who may lose a fifth of his career earnings think about the moves being made by Hunter, Fisher, a few star players and some power-hungry agents (the average NBA career lasts less than five years, so a one season lockout wipes out a fifth of an average player's potential earnings).

On November 13, Commissioner Stern sent a memo to the NBA players detailing the league's most recent (and final) offer to end the lockout. The NBA's proposed deal would have fixed the league's broken business model but, contrary to media spin, hardly would have turned the players into "slaves"--unless you consider an average annual salary of close to $8 million per year to be a form of slavery. Commissioner Stern issued a brief statement after Hunter and Fisher publicly announced their decision:

"At a bargaining session in February 2010, Jeffrey Kessler, counsel for the union, threatened that the players would abandon the collective bargaining process and start an antitrust lawsuit against our teams if they did not get a bargaining resolution that was acceptable to them.

In anticipation of this day, the NBA filed an unfair labor practice charge before the National Labor Relations Board asserting that, by virtue of its continued threats, the union was not bargaining in good faith. We also began a litigation in federal court in anticipation of this same bargaining tactic.

The NBA has negotiated in good faith throughout the collective bargaining process, but--because our revised bargaining proposal was not to its liking--the union has decided to make good on Mr. Kessler's threat.

There will ultimately be a new collective bargaining agreement, but the 2011-12 season is now in jeopardy."

The media, taking the players' lead, portrayed the league's current offer as an "ultimatum." Commissioner Stern responded to that charge by noting that the two parties have been negotiating for more than two years without making much progress, so the owners presented the best offer that they could make at this time; the reality of the situation--i.e., the cost of missing the regular season games that have already been cancelled--obviously necessitates that subsequent offers will be reduced accordingly. That is not an "ultimatum" but simply the nature of doing business. Perhaps Commissioner Stern should have issued a real ultimatum; the 1998-99 lockout ended when Commissioner Stern presented the players with a final offer accompanied by the statement that if the players did not accept that offer then the league would cancel the entire season and use replacement players starting in 1999-2000. Commissioner Stern has refrained from publicly making a similar threat this time around.

It is interesting that many mainstream media commentators have completely taken the players' side. I understand the argument that the players create a lot of value with their unique talents and thus deserve to be highly compensated and I also understand that some people are skeptical of the NBA's accounting (or of accounting methods in general) but it is mystifying that some people apparently believe that the NBA owners should operate under a business model which results in them losing money or that the owners should be obligated to pay out well over 50% of their revenues when they are not making a profit. There is so much talk about supposedly incompetent owners demanding guaranteed profitability but I have yet to hear anyone talk about the other side of the equation; guaranteed contracts ensure profitability for every NBA player, regardless of whether or not that player is even marginally productive and regardless of that player's off court transgressions: Gilbert Arenas shoots blanks on the court and brings guns into the locker room but until the lockout he was guaranteed to receive more than $60 million over the next three seasons. In just about any other profession, Arenas would be out of work due to the combination of low performance and erratic personal behavior but as an NBA player he probably would have had to commit (and be convicted of) murder to lose his guaranteed money.

The players and their media sycophants keep saying that the players cannot be expected to "give back" any more money to help the owners. Not only does this assertion indicate a failure to understand the collective bargaining process--the players are not "giving back" anything but rather negotiating a new CBA in the wake of the expiration of the previous CBA--but it fails to acknowledge the reality of the economic situation. Arenas was slated to be the fifth highest paid NBA player in 2011-12, with a guaranteed salary of $19,269,308, and he clearly is not performing even close to that level; last season he averaged a career-low 10.8 ppg while shooting a career-low .366 from the field but under the recently expired CBA Arenas and other underperforming players have "guaranteed profitability." If Fisher, Hunter and the Players Association truly find the idea of "guaranteed profitability" to be abhorrent then they should be willing to accept a tiered payment system for all NBA players: All-NBA First Team players are paid on the top tier, All-NBA Second Team players are paid on the next tier and so on down the line (the tiers could also be determined by playing time, games started, per game averages or some combination of those metrics). Players would sign contracts based on the tier they occupied in the previous season but after each season their pay would be adjusted based on the current tier they occupy--and players who get cut would not get paid anything.

If the players are not willing to sacrifice their "guaranteed profitability" then they are in no position to criticize the owners--each of whom has invested substantial capital--for wanting to correct a business model that resulted in two thirds of the teams not being profitable. Another unreasonable expectation that the players have is that in addition to their "guaranteed profitability" they also want to have tremendous freedom to go to any other team. While it is true that a regular person can give two weeks notice and quit working at ABC Manufacturing to take a job at XYZ Manufacturing the NBA business model is (or should be) different; the league's franchises are competing with each other on the court but must work together to grow the league overall and therefore the league's best interests are not served if teams like Cleveland, Utah, Orlando, New Orleans and others have little or no chance to retain the services of their superstars. The NBA has generously given the players lucrative guaranteed contracts but in return there has to be a system in place that allows for some player movement while also preventing a handful of big market teams from simply acquiring the majority of the elite players. If the players want total, unrestricted free agency then they should give up the guaranteed contracts: thus, the next Gilbert Arenas can sign with whoever he wants whenever he wants to but once he starts shooting less than .400 from the field his new team can cut his salary or just cut him outright.

I fully realize that the NBA will never adopt the tiered system mentioned above but the point is that what the players are asking for is completely out of touch with reality. They don't seem to understand that millions of Americans are struggling to just get by and that it is unseemly to force the NBA to cancel the season because NBA players can't feed their children on $8 million per year. They also don't seem to understand that it is not written anywhere that they are entitled to 57% of Basketball Related Income (BRI) in perpetuity; that was the deal in the previous CBA when the economy was doing better but things are different now, so accepting 50% of BRI or even 47% of BRI is not a "give back" but rather a way to reach a workable CBA that could have preserved a 72 game 2011-12 season.

Taking the players' side in this dispute means believing the following things:

1) The NBA has a healthy business model even though the San Antonio Spurs--arguably the best managed team in the league, if not all of professional sports--are losing money (according to Forbes the Spurs lost $4.7 million in 2009-10, the last season for which complete data is available).

2) An agreement that would result in an average annual salary of $8 million per year is tantamount to enslaving the NBA's players.

Labels: , , ,

posted by David Friedman @ 11:26 PM

12 comments

links to this post

12 Comments:

At Tuesday, November 15, 2011 3:07:00 AM, Anonymous Yogi said...

As usual, a voice of sanity in the wilderness of mainstream media idiocy.

The moment this was framed by the media and the union as a ego struggle, then the season was lost.

I find it amazing that Stern kept talking about creating a better league for everyone, while the union kept talking about getting a better contract for their star players.If the union really wants a partnership it has to think about the league as a whole.

Also - how is it possible that the union leadership was not willing to let the players vote on the league's offer? Is that even legal? if I was a p[layer I would be seriously pissed off with the union.

David - this is for you, a satire about black slavery in the NBA:
http://israelisatirelab.blogspot.com/2011/11/american-jew-accused-of-owning-450.html

 
At Tuesday, November 15, 2011 3:21:00 AM, Blogger Ozi said...

It's truly a shame that the interests of the real losers -the fans-is so carelessly tossed aside. I see the NBA players on twitter really acting as though they are suffering through this time as opposed to the millions of people who follow them, many of whom have been laid off and are trying to resuscitate their financial situations, along with their families and future retirement plans. Do they not understand that people literally wipe others' butts and call that work? Or that people who are looking for a better life come here and end up picking strawberries for a living? And yet, somehow people who make millions of dollars, are adored by generations of humans across the globe and get to travel said world and encounter experiences that the people who essentially PAY FOR EVERYTHING can only fantasize about are complaining about making an average of 8 million dollars. They really want us to feel sorry for them, but I'm sorry.Do they understand that the least of them will make more than a surgeon? Slavery? As a black woman I find that absolutely reprehensible and unacceptably disrespectful. This is pure madness and truly a shame on everyone involved.

 
At Tuesday, November 15, 2011 4:50:00 AM, Blogger David Friedman said...

Yogi:

That satire is priceless. It perfectly captures the absurdity of depicting a collective bargaining negotiation between two fabulously wealthy parties (NBA owners versus NBA players, aka billionaires versus millionaires) as a master/slave relationship. The players and their media advocates are so completely out of touch with reality that they need GPS and faster than light travel in order to return to the world in which the rest of us live and work.

I assume that it must be legal to not let the entire union membership vote--or else the Players Association could not get away with doing this so publicly--but this clearly shows that Fisher, Hunter, the agents and the few star players who are opposed to reaching an agreement did not want to risk finding out how the rank and file really felt about salvaging a 72 game season.

 
At Tuesday, November 15, 2011 4:58:00 AM, Blogger David Friedman said...

Ozi:

I've never experienced either poverty or wealth but it has always astounded me that players who rose up from abject poverty to fabulous wealth so quickly lose touch with the plight of ordinary people. The players collectively just seem to be completely tone deaf about how their complaints sound to a country filled with millions of people who are struggling to get by. Comparing the NBA players to slaves is a slap in the face to all of the people who truly suffered from the horrors of slavery in the American South and to people around the world who are suffering from slavery today.

People can argue about the fine points of the deal that was on the table but the bottom line is that if the players had accepted the owners' proposal the fans would have still gotten a 72 game season and the players would have been compensated more lavishly than their brethren in the NFL, MLB and NHL--but as soon as Hunter dismissed the offer as "not the greatest deal in the world" I knew that he and Fisher would make sure that the offer would be rejected. An average salary of $8 million per year may not be "the greatest deal in the world" but someone needs to explain to Hunter and Fisher that $8 million per year sure beats nothing per year while wasting months if not years enriching lawyers by filing frivolous lawsuits. I will be surprised if the end result of this process involves the players receiving anything better than the offer they just rejected--but they will lose many paychecks before ultimately taking something resembling the deal that they could have had now.

 
At Tuesday, November 15, 2011 12:24:00 PM, Anonymous Anonymous said...

Sharp

Overall, probably a bad move on the part of the players. It is most likely that there won't be a 2011-2012 season. If things get really drawn out with legal proceedings, there is a chance of this affecting the 2012-13 season as well.

Assuming the financial statements the owners have made are correct( meaning 2/3 of the franchises are losing money, and 50/50 is the maximum they can give the players while still making a profit), it's unlikely that a court will hand down a decision that caters to the players and demands the owners continue to hemorrhage money for the next 10 years.

Yogi's remarks about it turning into an ego struggle remind me a lot of something I heard Ric Bucher say yesterday (a very rare salient point from ESPN). Bucher stated that the players and owners have different mentalities from the last lockout in 98. More owners now are thinking of their teams as a business, and demand a profit from it.

Most of the players, on the other hand, don't come up through several years in the college system anymore, and as a result don't understand the NBA as a business as well as the players from 13 years ago did. Thus the players aren't looking at this from the perspective of dollars and cents (or common sense). Instead, what we are seeing is a gut reaction to the perception that the owners are trying to bully them.

 
At Tuesday, November 15, 2011 3:49:00 PM, Blogger David Friedman said...

Sharp:

Even if the owners' statements are not 100% correct, the Forbes data--which is compiled independently--indicates that most NBA teams, including the Spurs, are losing money. For the players to win in court they are going to have to prove that the NBA falsified financial data and negotiated in bad faith. I am not a lawyer or a collective bargaining expert but I doubt that the players have much of a case. I think that the players are gambling that the owners will cave in rather than lose a complete season, which is ironic because I think that is also what the owners think about the players--and this game of "chicken" may very well result in a fatal collision because neither side will turn the steering wheel.

Bucher is one of the few mainstream reporters who have covered the lockout with even a modicum of objectivity.

 
At Wednesday, November 16, 2011 5:31:00 AM, Anonymous Matthias said...

My point of view is different. First, to see what we talk about:


http://fivethirtyeight.blogs.nytimes.com/2011/07/05/calling-foul-on-n-b-a-s-claims-of-financial-distress/


It is not that useful to talk only about the player costs in this fiasko. There are 43% of other costs, which determine the profitability of the league too. In other business sectors wages are more then 50% of the hole costs, sometimes up to over 70%. Therefore it should also be talked about, how much money the owners need to take care of the necessary infrastructure (and how much the get from tax compensations and franchise home town investments in basketball arenas etc.


The players are only (very well paid) employees. They shouldn't carry the risk of profitability of the league, if they don't have a right to say in business matters. Further it is not very useful, to always focus on the huge money, the player earn in contrast to the normal people. The owners make a lot money too and the nba is for the most of them only one investment of many. They get tax compensation and often financial help from franchise home towns too. Therefore someone could conclude, that they have a bigger responsibility (more than the player) to prevent the nba season from not happening. But they haven't moved a lot. They only want more and more money because their franchise isn't not profitable right now (so they say).


You are right, David, the NBA business model is broken, but the owners aren't talking about improving it (with themselves). They located the weakest link (the not superstar players) and tried to force them to their will. We will see what happens next.


And yes, the players had a good/profitable time the last years. Some player contracts are outright ridiculous. Changes are necessary (salary cap, length of contracts, trading of players etc.). But reducing the player costs to 50% solves nothing in the long term.

 
At Wednesday, November 16, 2011 1:12:00 PM, Anonymous Anonymous said...

Sharp

To me, the most foolish part about this game of chicken is that the players seem to think the actually stand a chance at winning by playing the waiting game.

NBA owners are wealthy enough that their great grand children are financially set up for life. They have multiple sources of income, and don't rely on an NBA paycheck. It might be frustrating to lose a season, but that won't affect their quality of life one bit.

The players don't have those kind of resources saved up, and professional athletes aren't exactly known for their money management skills.

We'll probably never known, but I'd love to know how this would have played out if put to a vote of the complete membership.

Samardo Samuels' criticism of Paul Pierce's push for decertification was spot on with how a lot of the rank and file members are likely thinking.

“It’s easy for Paul Pierce to say that. You’ve been in the league how long? You’ve got a decent amount of money saved up, but what about the guys just coming into the league who don’t have [anything] saved up?”

 
At Wednesday, November 16, 2011 1:25:00 PM, Blogger David Friedman said...

Matthias:

You are not looking at the complete picture. The lockout is not just about the revenue split but also about the "system issues," a subject that the media either ignores or misrepresents. As I explained/predicted back in February, the league wants to make sure that there are not any more fiascoes like "The Decision," the Melo Drama, D-Will versus Utah, etc. Even the article that you cited acknowledged that over half of the NBA's teams lost money last year. How can that be considered a good business model when the league has billions of dollars of revenue? Long-term, guaranteed contracts, liberal free agency rules and a 57-43 BRI split in the players' favor proved to be a bad deal for the owners--and it does not matter now whether or not this was considered to be a good deal for the owners in 1999 or in 2005: what it was "considered" to be is theory but what it turned out to be is reality and it turned out to be a bad deal.

The players just threw away billions of dollars in salary to reach an unclear endgame, so it is hard to understand how anyone--media member, lawyer or economist--can argue that the players made a smart move.

Regarding the other costs (besides salaries), the NBA has already cut those costs (through layoffs of personnel, etc.) and the only costs that can be further cut are player salaries, which have to be collectively negotiated. That is why the owners locked out the players. The semantic game of "this is a lockout, not a strike, and therefore the owners are at fault" is ludicrous; the NBA's business model is broken and the players are the ones who are unwilling to admit this fact or do anything constructive to resolve the situation.

 
At Wednesday, November 16, 2011 1:33:00 PM, Blogger David Friedman said...

Sharp:

Apparently, the players either believe that they are going to win triple damages from the courts or that the threat of this possibility will compel the owners to offer a more generous deal. The players and their media advocates cite the supposedly prestigious names who are representing the players in this legal action but are we supposed to believe that the ownership side--which includes David Stern, an experienced lawyer in his own right--do not have very good lawyers?

I am not a lawyer but I predict that the courts will either reject the players' suits completely or simply defer ruling and suggest that both sides go back to the negotiating table; either of those results will be a disaster for the players, resulting in much lost income followed by a deal worse than the one the players just refused. Even on the off chance that the players win initially, the owners will surely appeal and there will be months if not years of litigation, an outcome that will effectively end many players' careers and will cost all of the players a substantial portion of the money they could have potentially earned during their NBA careers.

Henry Abbott, Chris Sheridan and the other fools who have provided nonsensical coverage of the lockout keep blaming the owners for not giving a little ground to save the season--but whether you believe the financial picture painted by the owners or the one painted by the players, it should be obvious that the players have a lot more to lose, so if Abbott and Sheridan are right that a deal was close at hand then the players should have closed the gap just to preserve their financial futures.

 
At Wednesday, November 16, 2011 9:25:00 PM, Anonymous JackF said...

David,

From what was reported, It seems Kobe went in the meeting with the players(and the union) and he told the players that they were stupid not to take this deal. That it wasn't gonna get better from here on out. But the players didn't agree with and proceeded forward with the de-certification.

I dont understand the players logic in this. Jason Whitlock called stephen a smith a mouthpiece for the owners because Stephen A. Smith rightly pointed out that the players had no leverage(which they don't). Whitlock went on to talk about how he's always on the side of the "poor" people(yea i know right? putting poor and nba players in the same sentence). He(whitlock) ended his argument by revealing that he doesn't know much about the proposal the owners made to the players(funny right?). How can you call people names when you don't know anything about the labor situation?

I'm surprised that the players allowed the union to prevent the players from voting on the current deal.

 
At Wednesday, November 16, 2011 11:13:00 PM, Blogger David Friedman said...

Jack F:

A lot has been reported by people who weren't present in the meetings and thus have no way of knowing what really happened. I don't engage in that kind of "reporting" nor am I particularly interested in reading/hearing it. If you believed Sheridan's so-called informed sources then you would have expected a deal to be reached months ago.

Smith, Whitlock, the players and the owners are all rich, so it is laughable for any of them to plead poverty or to say that they speak for the poor.

After reading and watching a lot of lockout coverage I have become more convinced than ever that most members of the media have absolutely no idea what they are talking about.

 

Post a Comment

Links to this post:

Create a Link

<< Home