CBA Talk: Comparing the Owners’ and Players’ Proposals

One of the things I referenced in my wall of words on the CBA was an excellent discussion of revenue sharing by Dave over at Blazer’s Edge.  Well, they’ve done some more great work, as Storyteller has researched and summarized what we’ve been told about the owners’ most recent proposal. (FYI, Storyteller also has a great NBA CBA site of his own.)

Here’s a bullet recap of the owner’s offer.

Summary of the Owners’ Proposal

• A hard salary cap, starting in the 2013-14 season at a level of $45 million

• Reductions in all existing player contracts of between 15% and 25%

• Reductions in the maximum contract amounts available

• Reductions in the amount of future rookie-scale contracts

• Reductions in raises from one year to another within a contract

• Reductions in the maximum contract length available

• The elimination of sign-and-trade contracts

• The elimination of fully guaranteed contracts

• The creation of a “Star” designation for one player per team. (Note: Stern said on May 31 that there was no “franchise tag” in the owner’s current proposal, but that could be a question of semantics.)

• An amnesty program which would allow each franchise to waive one player and not have that player’s salary count against their cap

• Designation of each player into one of 4 categories: (1) minimum-salary player, (2) rookie-scale player, (3) maximum-salary player, and (4) everybody else

Even speaking as someone whose experience lends more towards understanding the owners’ position than the players’, this is a pretty draconian proposal.

It seems almost impossible to believe that the National Basketball Players Association (NBPA) would ever accept it. And it seems nearly as likely that the owners never expected the players to accept it.  Whatever the case, the players viewed it with such disdain that they initially reportedly refused to even make a counteroffer before filing a grievance with the National Labor Relations Board (NLRB) that claimed that the owners are negotiating in bad faith.

We’ll get into whether that has merit or not in a little bit, but it’s worthwhile to look at the main points of the NBPA’s most recent proposal, as outlined by CBS’s Ken Berger last December.

Here is a summary of the players offer.

Summary of the Players’ Proposal

• An offer to negotiate a reduction of the 57% of all Basketball Related Income (BRI) guaranteed to the players

• A revamped revenue sharing system. (Berger’s piece has little in terms of details on this, but implies something modeled after the NFL revenue sharing system.)

• Loosening trade restrictions including eliminating base-year compensation and increasing the threshold for matching salaries in a trade from 125% to 250%

• Eliminating the biannual exception (which started at about $2.1 million last year) and replacing it with a second mid-level exception (which started at $5.8 million). In return, the NBPA offered to reduce the maximum length of mid-level deals from five years to four.

• Loosening restrictions on restricted free agents, starting with significantly shortening the time period teams have to match offer sheets (which is currently seven days and leaves the team that made the offer in financially burdensome limbo)

• Returning the age limit to 18, while working with the league and NCAA to incentivize players to stay in school longer

• Enhancing pension benefits for retired players, which would be paid for, in part, by a so-called “exit tax” on owners who sell their teams and earn capital appreciation far beyond historic levels

• Negotiating a BRI reduction or credit for teams that invested in new arenas or arena renovations in which the expenditures were designed to enhance revenue generation

• Providing a neutral arbitrator for on-court discipline in which suspensions total 12 or fewer games. (Currently, players receive arbitration only for suspensions of more than 12 games.)

I characterized the owners’ proposal as “draconian.”  Without seeing more detail on the players, I struggle to characterize it as anything vaguely useful.  From an owners’ perspective, there is really not much here of any value.  There’s almost nothing here that would address the overall profitability of the NBA or could be reasonably considered a concession on the part of the players.

On the face of it, the offer to reduce the 57% guarantee would appear to be a genuine show of good faith by the players.

Except … not so much.

Though it offers the potential for savings to the owners, from a practical perspective, it would have almost no favorable impact for the owners.  In fact, depending on how this was specifically worded — mainly hinging on whether it would remove both the guarantee and the limit for the players share — it could potentially cost the owners more money.

Under the current CBA, the players are guaranteed 57% of the BRI for salaries and benefits.  In such an arrangement, there was no way for the league as a whole to reduce their labor costs (as a percentage of BRI).  If the negotiated salaries and benefits dropped below 57%, then the owners would have to make up the difference.

Further, according to Larry Coon’s FAQ, the negotiated salaries and benefits have consistently exceeded the 57% guarantee over the last few years.

From 2006 through 2010, the negotiated salaries averaged 58.5% of BRI.  Add in the benefits, and the total nominal percentage was about 62% of BRI.  The overage was returned to the owners, but in effect, this means that the first “concession” in their offer would have cost the players (and saved the owners) exactly $0 over the five-year period.

The key here is to remember that this is an offer to reduce the guarantee, but the players can still get the 57%, if the owners were willing to pay it.  The players aren’t dumb, here.  They are less concerned about a minimum guarantee than they are with a maximum restriction.  They figure that if they can just stay out of the way, there are enough owners out there who will spend enough to make them whole.

The other significant topic broached in the players’ proposal is an aggressive revenue sharing system.

Per Ken Berger:

Beyond the offer to reduce the 57 percent guarantee, by far the most constructive effort is one that addresses the most broken aspect of the league’s current system: revenue sharing. The players proposed an NFL-style model in which gate receipts and local revenues are shared; currently, NBA teams share only national broadcast revenue — though various percentages of local revenues such as arena naming rights and signage as well as concessions, suites and parking are included in BRI.

In addition to expanding the revenues that are shared, the NBPA also wants the details of the model to be negotiated — or at least for the union to be notified of the details — as part of the bargaining process. More than 10 months after making their initial proposal to the players, the owners remain entrenched in their belief that revenue sharing is an ownership issue to be dealt with concurrently with bargaining, but not to be included in the CBA.

Revenue sharing is certainly an important subject, and it’s one I’m currently researching to understand better.  The NFL is often looked to as a model.  There are some things that can be taken from the NFL, and some that can’t, but that’s for another time.

For now, I’ll give you my two basic thoughts on revenue sharing here:

• The NBA absolutely has to increase its revenue sharing, if for no other reason than the fact that the unshared revenues are used in the calculation of BRI.  As a result, large local unshared revenue deals, like the rumored Lakers deal with Time Warner, drive up the salary cap, and thus drive up the costs of all the other teams.

• The owners are absolutely in the right to keep this discussion — at least at this time — separate from their CBA discussions with the players.

The owners hold the position that most of the teams — and the league as a whole — are losing money, and that it is necessary to change the basic economics of the league.  The players add no value to revenue sharing, which is an issue between the owners.  Worse, allowing them a seat at the table distracts from the subjects that need to be addressed with the players, specifically the BRI split, salary cap system and guaranteed contracts.  To me, what the players are doing here by introducing revenue sharing is roughly equivalent to what a car salesman does when he starts talking about payments while you’re trying to negotiate price.

Take these two items, line them up with the rest of the points of the proposal, and it looks like the players message to the owners was, “the current system is fine, except for these few things we’d like you to fix for us.”

There Ain’t No Good Guys, There Ain’t No Bad Guys

There is an overwhelming urge to take sides in this issue, and that’s fine.  The thing to remember, however, is that there really isn’t a “right” or “wrong” here.  The owners aren’t wrong in wanting to enhance the value of their assets and make a profit.  The players aren’t wrong in wanting to maximize both their earning ability and security.

Of course, both sides will certainly try to spin the narrative one way or the other.

In their grievance with the NLRB, the players alleged that the NBA was “making harsh, inflexible, and grossly regressive ‘takeaway’ demands that the NBA knows are not acceptable to the Union.”  Well, read the summary of the owners’ proposal above.  That charge is probably true.

However, reading the summary of the players’ proposal, you can come to a very similar conclusion.  Billy Hunter, et al, had to know that their offer was a complete non-starter.  The addition of the second mid-level exception was an especially laughable suggestion.

To this point, there has been virtually no movement from either side, but that’s at least partially owing to some brinksmanship.  As the NBA finals started, David Stern was quoted as saying: “I know that both sides will make their best offer before the lockout … because if they don’t, there will be lockout that will be destructive to our business.”

As time grows shorter, it’s possible that there could be significant movement.  Possible, but not definite.  The two sides are still basically standing where they were almost a year ago.  The two proposals shown above have almost nothing in common.  We could all be sitting in the exact same place on July 1.  And November 1.  And January 1.

But I don’t think that’s indicative of disagreement on a wide variety of issues.

Truth be told, most of the points in both the owners’ and the players’ proposals strike me as posturing or noise.  Deadlocks don’t come from a multiple differences.  They come when the two sides are diametrically opposed on one or two issues that are fundamental to their respective positions.

In this dispute, the core issues are money (the BRI split) and security (guaranteed contracts/hard cap).

Currently, the players are saying that they can’t live with the changes the owners want, and the owners are saying they can’t live without them.  Until we see meaningful movement from one side or the other on those two areas, this will remain a stalemate.

Unfortunately, David Stern discussed the CBA and fear of a potential lockout last night, and it wasn’t particularly encouraging.  Here are some relevant excerpts from Ken Berger’s latest.

Two bargaining sessions already had been scheduled for next Tuesday and Wednesday in Dallas during the Finals, but Wednesday’s session in Miami was added after the National Basketball Players Association introduced what Stern described after his media address as a new “concept” last week. Stern described the status of negotiations as a “give and take,” and said the players haven’t submitted a formal counterproposal to the owners’ revised proposal, which was handed over in April.

OK. That sounds somewhat promising.

But this doesn’t.

Progress made last week in a small negotiation session in New York was “encouraging enough that we think tomorrow is time well spent and we think the two days next week will be well spent,” Stern said.

Asked after his media address why he’s so confident a worse deal would be struck after July 1, Stern said, “Because the damage gets to be intense from our perspective. We know the deal can get worse.”

Asked for whom it would become worse, Stern said, “For the players. And to us, the deal will get worse for the owners. So we’ve got to decide to focus fully on how bad it will be after July 1. So June 30 is a really important date.”

And June 30 is also a very close date.

I’ll tackle this more with another update whenever we hear more about how the owners and players are moving towards a compromise … presuming they ever do.