NBA Collective Bargaining Agreement: A Primer

| by Hoops Karma

By now you’ve probably heard about the CBA, the owner-player meetings that big-name stars have been attending, player salaries soon dropping, and a lockout that could disrupt the 2011-12 season (similar to the 50-game season in 1998-99). And if you’re like the vast majority of fans, you’re not exactly sure what’s going on or why it will lead to less basketball games next year.

Have no fear: this primer will break down the basic information so you can understand the framework of what’s happening. I by no means have wrapped my head around every aspect of what’s taking place or all of the ramifications, but I know enough to help clarify the most talked about issues pertaining to this whole mess.

Very Basics

The Collective Bargaining Agreement (CBA) is simply an agreement the players and owners come to every five years or so that determines things such as how much teams are allowed to spend (salary caps, luxury tax, etc.), how much players are allowed to get paid (maximum and minimum salaries, length of contracts), and how the two sides share the revenues of the league. The CBA was also involved a few years ago in player dress codes and the no-more-high-schoolers-in-the-draft rule. All of these things were agreed upon by the two sides, although there is obviously a lot of give and take.

The reason this has been in the news recently is that the current CBA that was signed in 2005 will expire next summer. Usually the two sides sit down for a little bit, play some hardball, realize they’re not that far apart on what they want, and then agree on something similar to the last one with a few new caveats. The problem for 2011 is that the owners want to radically change the current CBA, whereas the players want it to remain very similar to what they’ve been operating under since 2005. If they can’t come to an agreement by July 1, 2011—which looks quite possible considering how far apart the sides currently are—there will be a lockout until a new CBA is signed.

Salary Cap

Currently there is a “soft” salary cap in place in the NBA. This means that although the cap is set at $58 million for next year, teams can exceed that amount with a zillion different exceptions (Larry Bird exception, Mid-Level Exception, rookie exception, etc.). In fact, over half the teams are already slated to have more payroll than that next season, and in all likelihood only about 8 teams will be below that number by tip-off on October 26. For example, the Lakers—often at the top of the list—will be spending around $95 million on player salaries next year. The owners want a “hard” salary cap, meaning teams have to spend below a certain level each year with no exceptions. Say a “hard” cap is set at $65 million; that would mean about half the teams (those with larger payrolls) would have to reduce the amount of money spent on player salaries, which obviously means player salaries around the league would go down. In addition to saving owners money, this would also allow more teams to compete financially with the Lakers and Mavericks of the world who have more money to spend because of local TV and radio deals or due to having richer owners willing to spend the cash. The players don’t want a “hard” cap because their salaries would go down. Kobe Bryant would never be signed at $30 million per year if that leaves only $35 million to be spent on his 11-14 teammates. A “hard” cap would also negatively affect players who make the Mid-Level Exception and even those at the very bottom of the spectrum. A “soft” salary cap makes it easier for teams to retain the players they have because teams can always re-sign guys already on the roster without taking a hit to their team’s cap. This is why it was possible for the Heat to sign the Big Three; Dwyane Wade was already playing in Miami so they had much less to worry about with regard to his new contract affecting their cap. In fact, the Larry Bird exception was specifically put in place in the 80’s so that the Celtics wouldn’t have to break up their roster due to everyone’s collective worth far exceeding the salary cap.

Player-Owner Revenue Sharing

One of the key factors in determining the salary cap is the issue of revenue sharing. Currently, the players make 57% of all Basketball-Related Income (BRI) in the NBA (quick and approximate clarifying math: NBA BRI last year was around $3.65 billion, 57% of which is around $2.1 billion. Divide that by 30 teams then divide it again by about 13.5 players per team and you get $5.2 million, which is pretty close to the league’s average player salary.). You order tickets, you watch games on TV, you buy jerseys – 57% of that goes to the players. The owners want to lower that amount quite a bit. They haven’t formally said how much lower, but the players’ union claims the owners are looking to drop the players’ cut all the way to 43% of the BRI. If true, this would lower salaries to three-quarters of their current level. The players obviously hate this idea, and they say the owners are playing games with the math. Owners claim to be losing money hand-over-fist chiefly due to player salaries, but rich guys can’t stop lining up to bid on franchises, and even the smaller-market teams keep throwing around crazy money (Memphis just signed non-All Star Rudy Gay to a max contract). 

Team-Team Revenue Sharing

This issue doesn’t affect player salaries as much as the potential to move toward overall parity in the league. Comissioner David Stern has recommended that teams start sharing their revenues with each other. Currently, clubs keep 100% of their home gate and 100% of money made from local media, so large market teams obviously have much more moolah at their disposal and always will than small market teams. The NFL and MLB do a much better job sharing the wealth, particularly in pro football where almost 75% of teams’ monetary resources come from revenue sharing. The owners’ stances depend on their franchises. Teams in big cities don’t want to do this; teams in smaller cities do. Honestly, I don’t know what the players association’s opinion on this issue is.

Guaranteed Contracts and Contract Lengths

Player contracts in the NBA are currently guaranteed. Eddy Curry has long been a lazy flop, but the Knicks are still forced to pay him $11.3 million next year no matter how hurt and out-of-shape he is; his contract says so. The flip-side of this would be the NFL where guys are signed to all sorts of deals with ridiculous lengths that the teams can end without repercussion whenever they want (Michael Vick once signed a 10-year deal through 2014 but he’s been a free agent for a while). As for contract lengths, NBA free agents are currently allowed to sign with a new team for up to 5 years or their current team for up to 6. The owners want to do away with guaranteed contracts so that they can cut players like Curry once their production drops below the value of their contract. Teams currently try to negotiate buy outs with players from time to time, but players will refuse the buy out if they know they can’t get the difference in a new contract. Owners also want to shorten the length of contracts to 4 and 5 years depending on the situation (whether they sign with a new team or their current team). These two changes would help owners not get burned by terrible deals. The players don’t like either of these changes because they would take away their job security. A lot of fans and pundits feel that the owners should be held responsible for haphazard, stupid spending and not get to bail themselves out whenever they realize they can’t scout talent for crap (Isiah Thomas anyone?). Franchises will only become more willy-nilly with their cash if they know they won’t have to live with their mistakes caused by no self-control and careless overspending.

Why Are Superstars Showing Up To Meetings?

The players association and owners are already sitting down trying to find a way to make this work out by next July. So far it’s clear they are nowhere near each other because the owners want to make drastic changes to protect themselves (from themselves) financially, but the players want to keep things where they are. To help show solidarity among the players and to provide a strong, positive face for their side, certain superstars have shown up to some of these initial meetings, players such as LeBron James, Dwyane Wade, and Chris Paul. I assume Derek Fisher, the player representative, is at all of these meetings anyway. Charlotte owner Michael Jordan (the only ex-player to become an owner) has not been to any of these meetings, and Cleveland owner Dan Gilbert was not at the most recent meeting that James attended – go figure.

What Should Happen?

Owners are claiming the league/they lost approximately $370 million last year, chiefly due to player contracts, so things need to change. The players say that number is horribly inflated, and loses are caused by the current recession and teams’ careless spending habits. They do not want to change the entire nature of how they get paid based on a what’s-happening-right-now economic problem. The players association is also quick to point out that franchises continue to sell for hundreds of millions of dollars over the price the selling owner bought them for, plus teams wouldn’t be spending the money they are if they really were in a tight spot financially, which are both valid points.

Fans often dump on how much players make, pointing out that teachers and fire fighters should earn more than they do, and there seems to be a lot of overriding “young thugs with no education getting lots of money to party” sentiment when people rag on players’ salaries. I personally have a much bigger problem with the cut the owners get in the whole deal. Almost all of them were born with silver spoons in their mouths, own an NBA franchise as part of an investment portfolio, make zillions of dollars when they sell it, are raking in 43% of the BRI simply because they’re the owners, and frankly have nothing to do with any fans’ enjoyment of watching a basketball game (that would be the players). If the money goes anywhere, I want it going to the players who did far more of the work and are far more likely to have come from humble backgrounds. Of course there is way too much money wrapped up in the NBA, but until the day owners are willing to only make $10 million on the sale of a team and players are willing to play for $1 million per season—happening concurrently with ticket and merchandise prices dropping 75%—I’d prefer the players get that money. They work hard to make the product what it is, and they don’t have nearly the rap sheet of ethical shenanigans of the average owner (new Nets owner Mikhail Prokhorov admitted to bribing the government on his way to building his fortune, and everyone laughs it off as part of a funny story about a mysterious guy). I’d be fine going back to the old way where clubs could sign players for any amount at any length so that teams with stupid management get burned over and over; they deserve it.

As for revenue sharing between the teams, I think this is an absolute must to help create some parity in the league, allowing smaller markets to compete without praying they can do both of the following: a) land and keep the best GM of the decade and b) have the dumb luck of falling into David Robinson and Tim Duncan.

If you’re really interested in reading about a totally different way that the owners and players can end the work stoppage threats every five years, here’s a lengthy article outlining a unique way to shift contracts and revenue sharing that could permanently change the structure of things for the better. The author points out his idea’s shortcomings, but the idea would definitely be a welcome improvement to watching no basketball next fall.