If this week’s negotiating sessions represented the 11th hour of the labor dispute, then we’re quickly approaching the 59th minute. The league has made it clear that if a deal is not in place by Monday, regular season games will be cancelled. Fans of Derek Fisher might even point out that we’re quickly approaching the point where just four tenths of a second remain.
The two sides left the negotiating room Tuesday about three percentage points apart on the biggest issue. The split of basketball related income (BRI) is the elephant in the room. It’s the key to the entire process -- come to an agreeable number on the BRI split, and everything else will fall into place.
The rhetoric following the negotiating sessions made it difficult to pin the two sides to an exact number, but it essentially boils down to the owners offering 50 percent, with the players drawing a line in the sand at 53 percent.
Three percent. It’s the difference between an opening tipoff and an empty arena.
For both sides, the negotiating process boils down to a simple question -- should we accept the offer on the table, or can we do better if we say “no” and wait?
For the players, the cost of saying “no” can be easily quantified. The owners have offered the players 50 percent of BRI. This season’s BRI is expected to be around $4 billion, so the owners are offering the players a $2 billion slice of the pie. The players are holding out for a 53 percent share, so they’re looking for $2.12 billion.
That’s $120 million that separates them. Of course, that’s just in year one. Over the course of a six-year agreement, assuming four percent growth per year, the total is closer to $796 million.
To say “no” and wait means to suffer the consequences. Those consequences very soon will be cancelled games, meaning revenue will be lost that will never be recouped. The players will be faced with choosing between a 50 percent share of a larger pie, and a 53 percent share of a smaller pie. The longer they hold out, the more the pie will shrink.
If we use the 1998-99 lockout as a guide, a canceled game costs each player 1/82nd of his salary. A full NBA regular season lasts 170 days, so each missed week represents 7/170th of a player’s income. So if a week’s worth of games is cancelled because they say “no” to the owners’ 50 percent offer, the players miss out on $82.4 million.
The players are holding out for an additional $120 million in 2011-12, but holding out costs them $82.4 million per week. They would lose everything they stand to gain this season in less than two weeks. On Monday the league is expected to announce the cancellation of the first two weeks of the season, which will cost the players $164.8 million.
Over a six year agreement, the players would burn through the $796 million in a little under 10 weeks. If they continue to hold out for 53 percent, and the owners hold firm at 50 percent, the players will reach the break-even point around December 16th. If the sides settle for 53 percent past that date, then the players would have been better off by taking the owners’ offer of 50 percent before games were cancelled.
Keep in mind that December 16th represents the point at which the players as a whole will break-even. Each individual player would need to stay in the league for six years to recoup his lost wages. In a league where the average career lasts fewer than five years, that’s going to be a problem.
This is one reason the owners have an advantage in this labor dispute -- they have a longer window of time to recoup their losses. An average player is likely to be out of the league in a few years, but an owner can hang on to his team for decades.
The players and owners need to find a way to bridge the gap. They are close enough now that a creative solution -- such as a system where players are guaranteed to make no less than 51 percent and owners are guaranteed to pay no more than 52 percent -- can save an 82-game campaign.
For players, holding out for a better deal simply doesn’t make sense.