NBA Owners Not Bluffing About Insolvency

by John M. Curtis
(310) 204-8700

Copyright July 2, 2011
All Rights Reserved.                                         

        Steaming toward its first full-scale strike since 1998, the National Basketball Assn. and its Players’ Union chief Billy Hunter appeared deadlocked June 30 heading toward the July 1,12.00 a.m. deadline.  “The Gap is too great,” said Hunter, conceding  the inevitability of a lockout, showing no sign of letting up.  Players’ rep, 37-year-old Derek Fisher, also expressed doubts that a deal could be reached before the current Collective Bargaining Agreement expires at midnight.  “With some sadness,” NBA Commissioner David Stern said he would advise the NBA’s Labor Relations Committee to impose a full-scale lockout.  “Needless to say, we’re disappointed that this is where we find ourselves,” said Deputy NBA Commissioner Adam Silver, who just finished presiding with Stern at the June 23, 2011 NBA Draft.  Both Stern and Silver don’t think the NBA Players’ Union gets the situation.

            Speaking for NBA owners, Stern emphatically notified the Players’ Union that 22 out of 30 existing NBA franchises currently lose money every season.  NBA salaries have been bid into the stratosphere by high-power sports’ agents, locking teams into untenable long-term contracts, not justified by ticket sales or other promotions.  “I hope it doesn’t come down to that.  Obviously, the clock is now running with regard to whether or not there will or will be a loss of games, and so I’m hoping that over the next month or so that there will be some sort of softening o their side and maybe we have to soften our position as well,” said Hunter, playing hardball with Stern and NBA owners.  Players haven’t come to grips with NBA’s new economics, requiring owners to offer smaller salaries and shorter contracts.  Hunter still thinks it’s the boom-boom ‘90s where every transaction made money.

               Unlike the National Hockey Assn. that decertified the players’ union and struck in 2004-05 for an entire season, the NBA believes their lockout would be upheld by the 8th U.S. Circuit Court of Appeals in St. Louis, currently dealing with the National Football League’s lockout.  “We tried to avoid the lockout,” said Matt Bonner, vice president of the Players’ Assn.  “Unfortunately, we did not reach a deal.  We’re going to keep working at it and hopefully get something done,” again, not recognizing the owners’ dilemma of running NBA franchises in the red.  Despite owners’ cash positions, no business can be expected to pay out more than it takes in.  NBA owners and players are in the inescapable position of facing reality:  That high-priced agents have bid NBA salaries to untenable levels.  Neither the players nor the owners are entirely responsible for the current mess.

            NBA owners seek a hard-salary cap, shorter contracts and up to a 38% reduction in player salaries, to deal with the $300 million revenue shortfall.   Players have offered a $100 million annual reduction in salaries, cutting their share of the profits from 57% to 54.3%.  Players Assn. Chief Hunter can’t fathom the NBA’s estimated $3.8 billion in revenue, despite the 22 teams that currently lose $300 million annually.  Players want the NBA to engage in the same kind of revenue sharing arrangement that spreads the wealth around in the NFL.  Today’s NBA punishes small market teams unable to get the exorbitant TV deals and ticket prices in bigger media markets.  While there’s nothing wrong with some revenue sharing, it doesn’t address the obscene salaries and lengthy contracts currently breaking the NBA.  With an average salary of $5.84 million, there’s simply no room to go up.

            NBA owners—no matter how rich—can’t be expected to run franchise at a loss, using the teams as a tax write-off.  While the Players’ Assn. hasn’t yet gotten the message, NBA owners must work on more equitable revenue sharing system, where big market teams, like the Lakers, share the wealth with small market franchises.  Revenue sharing alone doesn’t deal with the current agent system where competitive bidding forces small market teams to pay exorbitant contracts for standout talent.  With talent already spread to thin by NBA expansion to 30 teams, it’s easy for big market teams to go over the salary cap to acquire more talent.  Spreading talent evenly over the NBA is no easy matter. Small market teams must compete by paying inflated salaries with long-term contracts.  Capping salaries and limiting contracts would help make small market teams more profitable.

                 NBA players can thank sports agents for bidding up salaries to breaking point for around two-thirds of the league.  It’s not enough for players to offer $100 million in salary rebates and quibbling over the percentage of revenues.  When the lockout goes into effect at midnight, no NBA players, coaches or player personnel will collect salaries or benefits, including health care.  Players Assn. Chief Billy Hunter hasn’t done the league a favor failing to recognize the severity of the situation and negotiating in good faith.  While owners have much work to do with revenue sharing, the Players Assn. must recognize the untenable nature of today’s inflated salaries and long-term contracts.  Today’s lucrative TV revenue saves most big market teams but leaves small market teams in the hole.  NBA players must help the owners' bottom line or prepare for a long, cold winter.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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