Comparing and Contrasting NBA and NFL Labor Situations

While the stories have already begun, news about the expiring collective bargaining agreements (CBAs) and distinct possibility of impending lockouts in the NBA and NFL following the 2010 basketball and football seasons will only proliferate as the deadlines draw closer.  Invariably, if resolution is reached before there is a lockout in either or both sports, it will not come about until the very last minute as the players unions and owners fight and claw to the very end for every last concession from the other side.  As we saw just recently with the 2004-2005 NHL lockout that erased an entire season and the 1994 baseball strike that canceled the World Series, it is not a forgone conclusion that the two sides in either the NBA and NFL will come together in time for a resolution.  Therefore, over the next year and change, sports fans will be scared to death that the 2011 NBA and NFL seasons could be canceled.

What is the Situation and How Did We Get Here?

NBA

Although NBA All-Star Weekend is supposed to be comprised of fun and carefree festivities designed to showcase the league’s stars, up-and-comers, and unique player skills, this weekend had an ominous tone as commissioner David Stern set the mood for what will surely be contentious negotiations leading up to the brink of or into a lockout.  After going out of his way to highlight all the positives of modern times in the NBA, led by an astonishingly deep talent core made up of affable and marketable superstars, Stern got down to business: “This year we are projecting a league-wide loss of about $400 million, and in each of the first four years of the deal, probably losses of a couple hundred million, at least $200 million a year.”  How on Earth has the NBA found itself in such dire economic circumstances?

Despite a lockout in the summer of 1995 that lasted three months and one in 1996 that only lasted a few hours, prior to 1998 the NBA was able to brag that it was the only major American sport that had never canceled games due to labor stoppage. In the resolution that was borne out of the brief labor stoppage in 1996, the collective bargaining agreement had a six-year term unless players’ salaries reached a level greater than 51.8% of “basketball-related income.”  According to the owners, the players’ share had by this time reached 57% of this revenue.

A major sticking point in the negotiations came between a “soft” salary cap and a “hard” salary cap.  The soft cap included a provision, referred to as the Larry Bird Exception, that allowed teams to exceed the salary cap in order to re-sign their own players.  Essentially, therefore, the labor situation hinged on the owners’ needing to be saved from themselves; if they had possessed the self discipline to not transcend the salary cap to keep their own stars, they would not have paid the players over the agreed upon percentage of revenue.

While the owners’ lack of control accounted for a substantial portion of their economic misfortunes, the labor dispute would be a game of chicken between billionaires and millionaires.  Not surprisingly, the billionaires prevailed.  As Bill Simmons wrote earlier this week in his annual trade value column, “These millionaire players, as amazing as this might sound, lived paycheck to paycheck. The owners could survive a lockout. The players? That’s another story.”

Although the soft cap remained, there were stringent (by previous NBA standards, if not society’s) new ceilings on player contracts, as laid out by SI’s Phil Taylor: maximum contracts of $9 million per year in the first year of contracts for players in their first six years in the league, $11 million per year in the first year of contracts for those with 7-9 years of experience, and $14 million per year in the first year of contracts for veterans who had had 10 or more years of service.

While these numbers sound extremely high, Michael Jordan had been paid over $33 million in 1998.  If he had kept playing into the new collective bargaining agreement, he would have had to take a $19 million pay cut.  As a concession, minimum salaries were, once again as shown by Phil Taylor, raised from $242,000 to $287,500 for rookies and from $272,250 to a sliding scale that, depending on years of service, started at $350,000 for second-year players and reached $1 million for 10-year veterans.

Fast forward to today and, even with these inherent cost controls that were widely considered a lopsided victory for the owners in the 1999 CBA, the NBA owners need to be saved from their own profligacy again.  Gilbert Arenas, who is coming off of knee surgery and currently suspended for the rest of the season for bringing guns into the locker room, has $96 million guaranteed to him over the next five years.  Prior to last season, Elton Brand signed a five-year, $82 million contract with the 76ers and suffered a season-ending shoulder injury in the first year of the contract.  While he has returned this season and his play can be described as adequately effective, the 76ers will almost certainly not realize even close to their investment in this max contract.
Simmons’s aforementioned trade value column highlights the 25 worst contracts in the NBA and they are eye popping.

With Arenas and Brand as extreme examples, if NBA owners and general managers mis-allocate guaranteed max contracts to players who become injured or ineffective it can cripple a franchise for up to five seasons.  When teams’ on-court performances suffer drastically as a result of these burdensome contracts, it perpetuates the revenue losses that are hurting every segment of the economy, and, in the worst case scenario, can cause especially poorly-run and/or unlucky franchises to become insolvent.

With so many abnormally large guaranteed contracts, NBA owners are in an extremely precarious position in this economy as revenue has faltered dramatically.  As previously mentioned, David Stern projects $400 million in losses this season.  Last week, David Stern said on Bill Simmons’s podcast, “We are at a revenue percentage right now with our players that is simply too high to power a sustainable business model.”  Unless Stern provides open access to the accounting records that support this claim, which is even less likely than an owner giving me a max contract, the claims will remain dubious and there will be lots of unanswered questions.

If the owners were so abjectly irresponsible in player contracts, are we really to assume that they were thrifty and savvy in other aspects of these businesses?  How much of these losses are as a direct result of interest payments on debt?  How many millions of dollars has the NBA lost providing charity to investing in the WNBA?

These questions will not be answered, at least not candidly and honestly.  To his credit, Stern has been proactive in starting negotiations, providing the Union with a preliminary proposal.  Unsurprisingly, however, the NBA players did not take kindly to this initial proposal.  Union president Derek Fisher, of the Los Angeles Lakers, said that there was “not any way that we were going to be able to use (the proposal) as a starting point for future collective bargaining negotiations.”  As Stern proved in 1999, the billionaires can afford to wait out the millionaires because, if anything, the players are even worse at controlling their finances than the owners.  Likely, then, the new CBA will again be heralded as a victory for the owners.

Just because they CAN assert their dominance, however, does not mean that they should.  The NBA will increasingly face competition for its labor pool from abroad and has already seen Josh Childress and Ricky Rubio choose to play overseas instead of in the NBA.  Given that the systemic problems are derived from a CBA that was widely lauded as a victory for the owners and once again a result of their failure to control themselves and their general managers, they should think long and hard about developing an equitable solution for both sides.  It is not a God-given right for the NBA to have a monopoly on the best talent and as basketball gains traction overseas players will remember whether the owners are fair and loyal or heavyhanded in this round of negotiations.

The NBA players would also be wise to push for a fair and equitable outcome.  Is it really best for the whole of the labor pool for someone who is ineffective to be eating up a prodigious guaranteed salary for several years?  The NBA players, although worse off than their baseball counterparts, have it much better than football players whose contracts are by and large not guaranteed.  They, too, would be wise to be willing to negotiate a new CBA that will mutually benefit both sides in the long-term.  Unfortunately, if the owners are not prepared to offer one then the players’ choices will be to accept a crappy deal or to hold out and still eventually agree to one.

NFL

As we move closer and closer to an uncapped year, questions about the NFL CBA abound.  Unlike the NBA, which has 82 regular season games and can afford to shorten the season, the NFL regular season is just 16 games and training camp is both necessary and extensive (unless your name is Brett Favre).  Like the NBA, the NFL owners feel that players are receiving too much of the revenue pie.

According to Judy Battista of the New York Times, “The current collective bargaining agreement calls for players to receive nearly 60 percent of revenue, but union leaders are concerned that the $8.5 billion does not represent the true revenue pool available to players because of credits owners receive to pay for league costs like NFL Network.”

However, Battista continues, “The union views the real percentage players receive as closer to 51 percent, and union leaders think owners want a rollback of 18 percent, which would put the players’ share at about 33 percent. The union has insisted that owners provide financial information to prove their situation is dire enough to merit a rollback.”  No legitimate reason has been identified publicly by the owners as to why it would be necessary to cut the players’ slice of the revenue by 18%.

Even though the salary cap will be going away in advance of the 2010 season, conventional wisdom that players will be paid more will not hold.  Because the current CBA is set to expire in March, provisions in the current agreement call for an uncapped year that eliminates the salary cap and, perhaps more significantly, the salary floor.  For every team like the Redskins who could exceed the salary cap, there is a team like the Cardinals who could spend under the salary floor.

Further, with the CBA set to expire, there are restrictions on free agency that will definitely serve to depress players’ salaries.  First, players now have to wait six years instead of four to qualify for unrestricted free agency.  Therefore, according to Mike Florio of ProFootballTalk.com, NBC Sports, and the Sporting News, “More than 200 players who would have been unrestricted free agents will now be restricted free agents, which will make it easier (i.e., cheaper) for teams to retain their rights.”  Moreover, the ability of the eight teams who advanced past the first round of the playoffs (Colts, Saints, Jets, Vikings, Cowboys, Cardinals, Chargers, and Ravens) are limited in who they can sign and the final four (Colts, Saints, Jets, and Vikings) are only allowed to sign unrestricted free agents to replace ones that they have lost.  These factors all mean that the players are significantly worse off in their labor agreement than they were before.

The NFL players, in not having guaranteed contracts, are already much worse off than NBA players.  They also have shorter careers and more life-altering injuries.  Also, the NFL has not been nearly as affected by the recession as the NBA.  But, because they make less money and because their players union has already been demonstrated to be comparatively weak, the NFL owners are in an even better bargaining position than the NBA owners.  They also do not have viable options to go play overseas.

Added to these natural advantages, the NFL owners got insurance in their new TV deal with DirecTV which pays them $1 billion per year from 2011-2014.  As detailed by SI’s Peter King, “Even if games are not played in 2011, the NFL’s deal with DirecTV calls for the league to be paid the billion-dollar rights fee…a powerful strike fund of approximately $31 million per team in 2011.”  With this guaranteed revenue, the NFL owners can withstand a work stoppage much easier than their players.

Cynically, the real reason that the owners want the players to be paid a smaller percentage of the revenue probably does not have anything to do with their being paid too much.  Owners such as Jerry Jones of the Cowboys and Daniel Snyder of the Redskins are tired of sharing revenue with small market franchises.  Their argument is that they take greater investment risks and should be entitled to larger rewards.

If revenue sharing ceases to exist under the current allocations, Jones and Snyder would make more and small market owners would make less.  Very likely, these small market owners want to maintain the status quo or grow their revenue.  The only way for large market franchises to derive a greater proportion of total league revenue without doing so at the direct expense of the small market franchises is to do so at the direct expense of the players.

Given that they have weak positioning, the NFL players are going to have to come up with a way to maximize their success in these negotiations.  First, they will almost definitely agree to a rookie wage scale.  While this adversely affects their agents, it does not have any real bearing on the livelihoods of the current players.  This, like past NBA player concessions, serves to protect the owners and their management from themselves.  Currently, missing on a top-10 pick can be franchise killing, especially for small market teams that had already performed poorly on the field the season before.  The NFL players should be careful, though, to not relinquish much more from their current CBA.  They should keep unrestricted free agency qualification at four years’ experience and push to maintain salary floors, even if it means re-adopting salary caps.

Conclusion

Unfortunately, sports fans are caught in a battle between millionaires and billionaires that could very well serve to eliminate partial or full seasons in two of the three largest sports in America.  Further, there is not too much that we can do to alter the outcome.  In the NBA’s case, owners had a widely heralded victory in their last CBA but, just a decade later, need to be saved from their own reckless spending once again.  The battle in the NFL stems more from the fact that the large market franchises want a higher share of the owners’ revenue pie than that the players’ share of the overall pie is too large.  However unfairly, the only way that labor stoppages will be avoided will be for the players in each sport to make dramatic concessions.

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2 Responses to Comparing and Contrasting NBA and NFL Labor Situations

  1. How about that the top 5 paying teams do not get a draft pick for the first 3 rounds, the next 5 have to miss the first 2 rounds, and the next 5 have to miss the first round. That gives the small market teams a chance to compete and is a kind of revenue sharing, because they could always trade their draft picks or players.

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