NBA Breakdown: CBA Talk, Revenue Sharing, Salary Caps and Lockouts


We all realize a lockout is coming to the NBA once the current Collective Bargaining Agreement (CBA) expires at midnight on June 30. Seeing that the two sides—the owners and the players—are still very far apart on negotiating the next CBA, there is an excellent chance a lockout could extend into the 2011-12 season which would normally start the last week in October.

The last time we had a work stoppage in the NBA due to prolonged CBA negotiations was the 1998-99 season, when we lost 32 games and the All-Star Game, resulting in a 50-game season with lots of unpopular back-to-back-to-backs.

If you’re confused what exactly is going on with the CBA negotiations and why a lockout seems imminent, possibly erasing an entire season of basketball much like how the NHL lost the entire 2004-05 season due to negotiations, this article will help simplify a lot of the issues.

Very Basics

The 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.

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 CBA with a few new caveats. The current problem is that the owners want to radically change the existing CBA because they claim to be losing tons of money under the current deal, whereas the players want it to remain very similar to what they’ve been operating under since 2005 and claim that the owners are fudging the numbers. If they can’t come to an agreement by this Friday—which looks likely considering how far apart the sides are—there will be a lockout until a new CBA is signed. The three major issues being debated between the owners and the players are a) how to divide league revenues between the two sides, b) using a “hard cap” versus the current “soft cap” for team salaries, and c) whether or not to continue guaranteeing player contracts.

Player-Owner Revenue Sharing

The largest issue being discussed is that of revenue sharing. Currently, the players make 57% of all Basketball-Related Income (BRI) in the NBA (quick and approximate clarifying math: NBA BRI in 2009-10 was around $3.65 billion, 57% of which is about $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 pay for parking and a beer, you buy jerseys – 57% of that goes to the players and the remaining 43% goes to the owners.

The ownerswant to lower the players’ cut quite a bit. Again, they claim to be losing heaps of cash, specifically $370 million during the 2009-10 season alone. They haven’t formally said how much lower, but the players’ union claims the owners are looking to drop the players’ percentage to around 40% of the BRI. If true, this would lower salaries to less than three-quarters of their current level, obviously a humongous dip. The owners have also proposed a deal that keeps total player salaries at or above $2 billion every year for the next ten years; players don’t like this because they could get locked into a stagnant salary structure for a decade while the league continues to grow, plus they made $2.17 billion this past season.

The players hate this idea, and they say the owners are playing games with the math to look like they’re losing far more money than they really are. Owners claim to be operating in the red due to player salaries, but franchises keep selling for record amounts that exceed their reported worth, and even the smaller-market teams are throwing around crazy money (Memphis signed non-All Star Rudy Gay to a max contract last year). The players’ side, represented by the National Basketball Players Association (NBPA) and its Executive Director Billy Hunter, has offered to lower their cut to 54.3%. Hunter’s comments from last summer on the owners’ supposed $370 million losses: "We have little confidence in their projections, because obviously the league's performance demonstrated their projections were off. We had the best Finals in years, Game 7 had the highest TV rating in 12 years, the '09-10 BRI was the highest in NBA history, player salaries went down, and right now we're experiencing an all-time high in season-ticket sales coupled with the fact that the interest being demonstrated by the public is unprecedented.”

Salary Cap

Currently there is a “soft” salary cap in place in the NBA. This means that although the cap for how much clubs can spend on player salaries was set at $58 million this past year, most teams exceeded that amount with a zillion different exceptions (Larry Bird exception, Mid-Level Exception, rookie exception, etc.). In fact, 24 of the 30 teams spent $59 million or more in 2010-11. For example, the Lakers—often at the top of the list—spent over $92 million on player salaries.

The ownerswant 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 deals or due to having richer owners willing to spend the cash. The owners recently proposed a “flex cap,” which is really just a hard cap set at $62 million that allows the owners the “flexibility” of spending any amount within a defined range up to $62 million – again, it’s just a fancy way of saying “hard cap.”

The playersdon’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 clubs can always re-sign guys already on the roster without affecting their over/under-the-cap status. The “Larry Bird exception,” for example, 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; “hard caps” hurt a team’s ability to keep its core group of players together.

Guaranteed Contracts and Contract Lengths

The third-most important issue to the CBA talks is guaranteed contracts. Player contracts in the NBA up to this point have been guaranteed. Eddy Curry has long been a lazy flop, but the Knicks were still forced to pay him $11.3 million last year no matter how hurt and out-of-shape he was; his contract said 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 ownerswant to do away with guaranteed contracts so that they can cut players like Curry once their production drops below the value of their contract (Curry’s name always comes up in relation to this issue, by the way). Teams 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 playersdon’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 very well (Isiah Thomas signing Eddy Curry anyone?). Franchises will only become more willy-nilly with their cash and how they operate in general if they know they won’t have to live with their mistakes caused by careless overspending.

Other Issues

The players want team-to-team revenue sharing, which means large-market teams would share the higher revenue they receive from TV deals, attendance, etc. with the small-market teams so that all clubs can compete financially; this currently does not happen. This type of revenue sharing would help players not get stuck on teams with very little chance of improving (think Chris Paul in New Orleans) and it would help players who are trying to sign with teams that don’t have much money. Owners are split over this issue and claim they’ll address it later, adding it’s an issue between owners, not players and owners, so it has no place in the CBA. Owners want to increase the age limit on players entering the draft, bumping it from college freshmen up to sophomores, primarily so their clubs have more time to scout prospective players in order to not make dumb draft decisions.

Current NBA players don’t really care about this issue because it doesn’t affect any of them – in fact letting in younger players only hurts their job security. That being said, the players are at least pretending to push for the current age limit so that they can give this issue up later and show they’re willing to “sacrifice” some of their ground. The owners have threatened team contraction, eliminating two or more franchises that are doing poor financially. Players obviously don’t want this because it means less jobs. The owners don’t appear to be very committed to this issue, but it’s one they can always take off the table to show they’re willing to “sacrifice” some of their ground. 

Where Bargaining Is Now

The sides are very far apart. Again, the players want things to stay similar to where they are now (57% of BRI, no “hard cap,” keep guaranteed contracts) and the owners want to drastically change all of that. Obviously this all comes down to money. The owners claim to be losing it because of player salaries and want changes. Players say the owners aren’t being truthful in their claims and that owners need to manage their franchises and finances better. The owners’ demands have been so egregious from the players’ perspective that the NBPA filed an unfair labor practice charge with the National Labor Relations Board back in May, saying the owners aren’t negotiating in good faith. Since then, the owners’ offers have continued to be unacceptable from the players’ point of view, so much so the NBPA made no new proposal at their labor meeting with the NBA last Friday – basically a “you’re not making any compromises or budging, we can do the same” move.

As the two sides brace for a lockout, it is believed the owners will simply try to wait the players out. They personally have more money in the bank—many of them are billionaires—and other investments to fall back on, so they will be able to make their mansion mortgage payments just fine. The players will have no such revenue sources starting Friday, and it’s well known that many professional athletes don’t have the best spending or saving habits. The owners can simply do nothing for a year and wait for some players to go broke and start pressuring the NBPA to make concessions so they can go back to work. This is a terrible way to create good will between the teams and the players, but this is where we are.

Look for upcoming articles on proposed ideas to "fix" the CBA, what we can learn from similarities to the 1998-99 lockout, what you'll be missing if we start losing games in the fall, and why you should side with the players.


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