Stern, Hunter Speak: Time for Resolution
The NBA and the NBPA took their battles to the airwaves this week. Both Commissioner David Stern and the union’s Executive Director Billy Hunter spoke at length on radio (separately) to Mike Francesa on New York’s WFAN.
Both parties will meet with on Tuesday with George Cohen, a federal mediator, to try and resolve the labor dispute that has already cost two weeks of the regular season.
The mediation is of the utmost importance for both sides if a deal is to be struck.
“If we don’t make it on Tuesday,” said Stern. “My gut is that we won’t be playing on Christmas Day.”
The holiday games represent the season’s first national ABC broadcasts. That’s money neither side can afford to be reimbursing to the network.
Listening long and hard to their positions, Stern was better able to communicate the owners’ stance. Hunter denounced the notion of a hard cap but never clearly explained why the proposed “supertax” version would have a negative impact on the players.
Close on Split of Revenues
“The system made no sense for the owners,” said Stern of the now-expired Collective Bargaining Agreement (CBA).
The NBA had chosen to opt out of the deal and the resulting lockout represents the league trying to get in the black economically.
“We have the opportunity to correct the system,” said Stern. “For reasons that I’m having difficulty understanding, the union is the one that’s been intransigent.”
There’s been debate between Stern and Hunter on the amount of true losses. Is it 20 teams or eight teams losing money? Is the number $300 million or, as Hunter noted, half that at $150 million?
Is $150 million an acceptable amount for the owners to be losing, taking into account their (theoretically) appreciating franchise stakes?
The absolute truth is immaterial at this point where compromise is the only way to move up and out of this mess. The division of Basketball Related Income (BRI), the $4+ billion the NBA takes in annually, is the mechanism to even the scales and a range has been set.
“I think it’s fair to say that the split, which we’ve put aside the last two days . . . because we have a sense that when one side is at 53% and the other is 47%,” said Stern. “You have an idea where that might be going.”
Whether it’s 50/50, 51/49 or some variation, with each point worth about $40 million in the first year . . . it’s not an excessive gap.
“We’re within the zone,” acknowledged Hunter. “We’re struggling with the system.”
Already a Hard Cap in Place?
Where Stern makes a major point, one that isn’t clearly explained away by Hunter (who, to be fair, did his interview a day before the commissioner), is that the league already has a harp cap in place.
“We now have the so-called hard cap at 57%. We have a system that delivers 57%,” said Stern. “Indeed, when fans say well you’re in trouble NBA because of the crazy contracts you give out, the fact is that with all of those crazy contracts this year we fell short of 57% and we gave a check to the union. The money is guaranteed.”
The old CBA had a provision for an 8% escrow to be withheld from player salaries in case the league spent beyond the 57% mark. In most years a portion of that money was retained by the league, but as Stern noted, this past season it was returned to the players because of shortfall.
The BRI is functionally a hard cap but the players have taken exception to the proposed system on how individual teams can spend that money, calling a franchise-by-franchise hard cap a “blood issue.”
Stern doesn’t comprehend why it should matter.
“Once you agree upon a split, and this is something that’s not easily understood, sometimes I have to scratch my own head,” continued Stern. “We’re guaranteeing the players the percentage that we guarantee them. The system is not going to cause them to earn less. They’re going to get whatever they get.”
There’s some inherent truth there. If the players get half of $4 billion, the owners are going to fork over $2 billion regardless of how that $2 billion is divided amongst the players.
What the league would like is an attempt to even the playing field so that some level of parity can be reached.
“The question is, can we have a system that makes 30 teams more competitive than they have been?” asked Stern. “[Should] the Lakers should be able to have a payroll of $110 million (which interestingly enough, Derek Fisher thinks they should), and whether Sacramento has $45 million which is what their payroll is [approximately]?”
Can parity be legislated or controlled economically? That may be up for debate but the NFL, with a lucrative revenue sharing policy, has had success on that front.
“We should have a revenue sharing system like they have in the NFL,” said Hunter. “There’s got to be some way to come up with a better distribution of revenue in the NBA.”
Stern noted that the owners have a comprehensive plan in place that they are prepared to present to the union.
“We’re going to have much more robust revenue sharing so Sacramento is not going to say ‘I don’t have the money,’” said Stern but then noted that that sharing isn’t enough on its own which is why the owners have pushed for a hard cap.
Hunter has a point in that the players have already moved from 57% to 53%. If they go further, they will be yielding in the neighborhood of $200-250 million (in the first year) to the league.
That additional money in the pool along with aggressive revenue sharing would already be a major step towards parity compared to the expired system.
“We proposed to the players that every team have the same amount available,” said Stern. “That’s what the NFL has.”
The NBA has a handful of “wealthy” teams but by and large, the majority has pushed for parity.
“If you live in a market where you have a perception as a fan that it’s only open to the rich teams to have the best players then you’re starting out in a bad way,” said Stern. “That’s not how the way they feel in Green Bay or New Orleans or Indianapolis but they might feel that way in certain NBA cities that will go unmentioned.”
Regardless of how far the players have come to date, the union is going to have to accept some level of restriction and/or disincentive when it comes to individual team spending.
Stern noted that all of his owners are on board with revenue sharing, even the bigger markets (Knicks, Lakers, Rockets, Celtics, Bulls, etc.) that probably won’t do as well in this new deal as they would otherwise. The hope is that improved competitiveness across the league will bring a bigger audience.
Hard Cap to Flex Cap to Supertax
Generally speaking, NBA contracts are guaranteed. That’s a non-starter for the union, which explains their initial resistance to a hard cap.
“Once you have a hard cap, you’ve got to eliminate guaranteed contracts because there’s got to be flexibility in the system,” said Hunter.
In other words, if a team is right at the cap and the following year salaries go up (with raises and incoming draft picks), it would be mandatory for a team to cut from the payroll to get below the maximum.
“Hard cap is a deal-breaker for union,” said Hunter, more than once on KFAN.
The owners eventually backed off the idea.
“How about the flex cap that the NHL has where you agree upon a band that a team can stay between $52-68 million because you can compress the difference?” asked Stern.
The union refused, saying it was a hard cap at the high end. Some guaranteed salaries still might have to be trimmed.
“‘Why don’t you propose a punitive tax?’” asked the union, according to Stern. “We said ‘OK, we’ll propose a punitive tax’ and we did.”
That’s where negotiations stalled out.
“They’ve agreed over the last month to a soft cap, but it had to be with an egregious tax, 2-1, 3-1, 4-1, etc.,” said Hunter. “The hard cap is off but it’s not in a sense that if you make the tax hard enough, then the tax will work as a hard cap . . . they’re not going to go three for one.”
That’s where the logic gets fuzzy.
Is it about making sure contracts stay guaranteed? That’s already the case with the supertax.
Or is it about making sure the wealthier teams continue to spend beyond the majority?
“The big issue is the competitiveness,” said Stern. “If a team is a taxpayer for example we don’t think that they should be able to go out and spend an additional $5 mil to take away someone else’s free agent. The union does.”
“They’re calling for a compression of salaries,” said Hunter. “I offered, ‘Give me 65%. I’ll give you a hard cap.’”
The union views the supertax proposal as a de facto hard cap.
“I don’t want a hard cap at 53% because I don’t think it’s fair to have a hard cap at 53%,” continued Hunter.
What’s confusing is that the compression of salaries has everything to do with the shrinking BRI percentage, not the hard cap.
On radio, Hunter worried about big market teams not spending on players because of tax but the league will be obligated to pay whatever the agreed split of revenue works out to be.
“We’d really like the teams to not be taxpayers after a certain number of years,” said Stern. “If they’re not they have to drop off.”
The league proposed a restriction on Bird Rights for habitual tax-payers, but that, understandably failed the smell-test for the union.
“OK, so let’s propose some crazy penalty for them in lieu of dropping out,” said Stern.
That’s where the tax gets so high that it essentially operates as a hard cap, but contracts remain guaranteed. A team might have to trade away a player or two to reduce their cap number, but that’s a lateral move economically. The players still get compensated.
Again, contracts remain guaranteed.
Protecting the Middle Class
“You’re not getting the players’ market as is. There are some players who deserve and are worth a lot more,” said Hunter. “I think Kobe Bryant and others deserve what they earn.”
The NBA is a star-driven league and given the pool of BRI, the number of teams and roster spots that need to be filled, it’s the superstars that have taken the biggest hit for the good of the union dating back to the 1999 CBA.
In a free market, compensation to franchise players would climb to epic proportions.
Dwyane Wade told Yahoo! Sports in late September (as written by Adrian Wojnarowski), “I’m sure it would get to $50 million.”
As the salary cap hardens, the biggest names are giving up the most financially over the life of the deal.
Hunter was adamant that the league has always planned to lock out the players and lose games to get their way.
“Yes, they want a hard cap,” said Hunter. “They want to roll back the revenues. They want to eliminate guaranteed contracts cause they always talk about pay for performance. They probably want to pay the marquee players on the team and everyone else would be expendable.”
Yet the rank and file far out-number the superstars.
The concern, which Hunter didn’t clearly state on WFAN, is that the middle class will get squeezed out with a quasi-hard cap. The money will go to stars and rookies on lengthy, structured contracts.
Whatever is left over will be fought over by the shrinking middle class.
The union is against it but wouldn’t less money on shorter deals to players like Eddy Curry, Hedo Turkoglu, Marvin Williams and Charlie Villanueva mean more for others?
Is there something inherently wrong with “pay for play?”
The Mid-Level Exception (MLE) is the tool used by teams (who are over the cap) to add salary. It’s based on the league’s average salary which last year worked out to be $5.765 million.
According to David Aldridge’s NBA.com report, both sides have neared an agreement on a shorter mid-level.
One thing to note, Steve Aschburner, also with NBA.com, wrote recently that the “median salary” based on the 2009/10 season was actually $2.33 million. The larger, star contracts push the mean up to over twice that amount, but most players earn far less than the “average.”
The middle class has already been feeling the crunch as teams became more and more reluctant to use their full MLEs each year.
Will a supertax really bring down the median from the $2.33 mark?
Given the BRI split, the money will be spent on players regardless. The owners want to loosen up money bogged down in players who aren’t carrying their weight.
If a non-star can still contribute at a high level, there are going to be even more suitors under the owners’ plan.
Length of Contracts/Raises
The remaining issues, outside of BRI split and cap/tax mechanism, would be length of contract and size of raises.
Naturally, both sides have failed to see eye-to-eye.
“We came up with a staggered system,” said Hunter. “In the discussions they had raised the issue of a possible designated player. They wanted to have five years for a designated player . . . They were talking of annual increases of two or three percent. We said were coming off of eight and 10, so we would come up with a 10 for a guy who if he’s eligible for a five-year deal under their proposal, if he decided to take a two-year deal then you would give him a greater increase because he’s taking a shorter contract. It would incentivize it to take a shorter deal.”
Stern addressed the subject as well.
“We said we’d like contracts at four and three years, four for your own player – three for someone else’s player and five we offered for a designated player, sort of a Super Bird,” said Stern. “We think that’s better for the players. We think that’s a benefit because the very good players will keep getting raises with new contracts and the money that becomes available by the expiration of the four and three year contracts will be available to the performers. That’s what we call play for performance. The union is not in accord with our view. They want longer contracts.”
How many teams have a couple of contracts on their books that just eat up space with almost zero production? Sometimes it’s age, injury or effort . . . but every team has ‘em.
A quicker rollover makes a lot of sense. It also makes as much sense for the union to resist that.
Why would they support shorter contracts, even if it’s better for the overall game?
Odds and Ends
A number of additional interesting items came out of the radio interviews:
- The owners are asking for a 10-year deal with dual opt-outs after seven while the players want outs after years six and eight.
- One option discussed is to allow teams to cut under-performing players who will instead get their money spread out over twice the length of their deals. The salary would still hit the cap but at the reduced, yearly rate. “One of the things we’ve come up in the negotiations is a stretch provision. A stretch would allow a team to stretch the money over a long period of time,” said Hunter. “So if they decide to cut a guy, they can pay him over 10 or 12 years instead of one lump sum.”
- The players are open to reducing roster size down to 12 with additional spots for NBDL candidate. “We talked about split contracts where [players] can be with the team and be sent down to the minor league,” said Hunter.
- The union is open to having a higher age limit if the additional year(s) spent in school come off of the rookie scale contract, which owners have proposed get extended to six years.
Time for a Deal
Stern’s message, one he reiterated on NBATV with David Aldridge, is that the owners are ready, willing and eager to make a deal.
Hunter was more defensive, harping on how Stern had planned this lockout years in advance.
“I think they want to break us,” said Hunter. “I can’t capitulate to all the demands the NBA is asking for . . . our players are prepared to fight.”
“They want to see if the players are going to falter after they don’t get a paycheck in November,” continued Hunter. “They want everything they can get.”
Behind closed doors, Stern may be saying something else but when it comes to presenting his version of the truth to the public, the commissioner is highly skilled.
If there’s more to the argument against a hard cap, even if represented by a supertax, then the players to need to get that message out more clearly.
Hunter’s 45 minutes on KFAN didn’t get that done.
While Hunter’s words may not of gotten through entirely, Union President Derek Fisher has served as an effective voice for the players, most notably in “leaked” letters to his contingents urging unity.
Sadly, the players are misguided . . . even where they’re right on principle.
Right or wrong, the owners win this war. They have deeper pockets and more importantly, no true time-limit on their investment.
Whatever the owners lose now, many will make up over the next seven to 10 years of whatever deal finally gets ratified.
“The average length of an NBA players career is four years,” said Hunter. “There are a lot of guys who get cycled in and out.”
Losing one year of four? That’s economically devastating to the players, no matter how brave and united a front they portray.
“It makes me very concerned, actually, for the people that earn their livelihood from our buildings and the areas around them,” said Stern. “It actually makes me concerned for both the players and the owners and the teams because the players are losing 4% of their salary a week and some of them will never make it up but that’s what collective bargaining is about.”
Already in two weeks of cancellations, the players may have lost the difference between 53% and 50% in year one.
Stern may take credit for the owners taking so many steps forward, yielding on rollbacks, guaranteed contracts, a hard cap, etc., when really the owners are just backing off unrealistic demands after gouging the players on BRI percentage.
The players blame the owners for each and every bad contract. No one forces a general manager to overpay a player. Are they supposed to turn away the money?
None of that matters now. It’s time to let go of the rhetoric and make the most sensible deal available.
Neither side should feel great after this negotiation. The players saw the ambush coming but there was nothing they could do to avoid it. The owners may walk away “victorious,” but does that matter if ego is put aside?
“With the economy tanking . . . with everything else happening,” asked Stern, “Why would they be proposing 10 percent increases on individual contracts for superstars?”
In truth the players were sheltered from the recession by a favorable CBA. What average American is getting 8-10% raises each year?
The players aren’t going to win the PR war on this one. So many impacted by recession have had to make due with less, a sad reality that hopefully won’t last much longer.
The true solution for the NBA and its players is to grow the brand. The bigger the pie, the bigger the slice . . . even at a set 50%. Lockout goes entirely against that notion.
Both Stern and Hunter said the NBA would need about a month once the agreement is reached. If a deal is struck on Tuesday, that’s not quite enough time to make it to the Nov 15th start date but they’re surely find a way to make it work.
Stern said he hopes that both sides just presenting their sides to a mediator will lead to new options for resolution.
It’s time . . .