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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.

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posted by David Friedman @ 11:26 PM

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