Tuesday, November 23, 2010
I know who's going to lose the CBA negotiations
By Henry Abbott
Grant Halverson/Getty Images Sport
Future stars like Harrison Barnes aren't represented by either side in CBA talks, and it costs them dearly.
The players' union and the NBA have staked out positions, and the union is now as gloomy as the league in predicting a lockout starting next summer. Both sides say they intend to meet again in the months to come, and hope to make real progress toward a new collective bargaining agreement. But neither has expressed willingness to come up with anything approaching the $800 million or so a year that would be needed to fill the gap between the two sides' current positions.
And it's not like some third party is going to show up to write that big check. Right?
Well ... maybe.
If the past is any guide, players who are not yet in the NBA -- step right this way, Harrison Barnes, Perry Jones and Kyrie Irving -- will foot a big chunk of the bill.
Players who are not yet in the NBA, you see, are represented by neither side in these negotiations. The union represents its members, who are existing NBA players. The most vocal and powerful among them are veterans -- a group that tends to do very well in CBA negotiations, at the expense of the young players who literally have the most at stake.
Research has shown that in recent years that group has kicked in something like $200 million a year, and there seems to be no limit to the league and union's willingness to force that group to come up with ever more cash.
Before he took on his current positions working for both the Cleveland Cavaliers and the White House Office of Management and Budget, Dan Rosenbaum wrote a paper -- still unpublished -- called "It Doesn't Pay to be Young in the NBA."
Rosenbaum writes that it really started in 1995:
After tumultuous negotiations, the 1995 collective bargaining agreement granted veteran players greater free agency rights and increased the share of total revenue going to the players. However, there was one group of players who were worse off after this agreement -- future rookies. Rookies drafted in the first round of the 1995 draft were restricted to signing three-year guaranteed "rookie scale" contracts with below market maximum salaries.
These rookie scale contracts resulted in the first round draft picks in 1995 being paid 15 percent less (adjusting for inflation but not for NBA salary growth) than first round draft picks in 1994 in their respective rookie seasons. In their second seasons, they were paid about 23 percent less, while the deficit increased to 39 percent in their third seasons. After their third seasons, these first round draft picks were eligible for restricted free agency, i.e. the players' teams retained the right to match offers made by other teams (the right of first refusal).
In the 2003 paper, Rosenbaum then tracked the factors that determine the market value of a player -- statistical production, race, age, height, draft position, all-star votes and ticket sales over 14 seasons. And he concluded that various CBA restrictions (the rookie wage scale mainly, but also maximum contract amounts, shorter maximum contracts, four-year rookie scale contracts, and veteran minimum payments) resulted in young players giving veterans about $200 million a year for the simple reason that they are not represented in the talks. Rosenbaum writes:
If players were paid based strictly based upon statistical productivity (and race, veteran status, and draft status did not matter), non-veteran first round picks would have been paid $4 million more in 1994-1995 and $191 million more in 2002-2003 (the inflation-adjusted average salary for this group increased by less than one percent over this period). Veteran first round picks would have been paid $71 million less in 1994-1995 and $336 million less in 2002-2003.
Those at the negotiating table -- the owners, and the veteran tables, had given up as much as they were prepared to give up. To keep their earnings intact, they conspired to get the veterans the money they wanted by taking it not from owners, but from players who would come later (and, to a lesser degree, from the very biggest earners in the NBA, whom Rosenbaum also showed earned below their market value).
LeBron James is as useful as any player in illustrating the difference. By the time he reached the NBA, he was already one of the most prized players in the sport. It's easy to argue that absent a rookie scale he may have been one of the NBA's highest paid players. Yet he has earned far less than that. In James' rookie year, the NBA's highest paid player, Kevin Garnett, made $28 million. James made about $4 million that year. And that's more or less how it went his first four seasons. Even with a massive pay jump in his fifth year, he still only earned about half of the league's highest-paid. Over seven years in Cleveland, if James had been the highest paid player in the NBA every season, he would have personally made about $100 million more in salary.
Would he have commanded that kind of money on the open market? Maybe more, maybe less. Will he earn it back being overpaid as a veteran? Some players do, but it's especially difficult for superstars -- whose annual value exceeds a maximum contract -- to make what they are worth.
The bigger point is that it's inarguable that first-round picks who entered the league after the 1995 and 1999 collective bargaining agreements have paid a steep price in the first years of their careers.
The direct beneficiaries have been veterans, who, per Rosenbaum's analysis, have been earning more than their market value. The indirect beneficiaries are the owners and the NBA, who convinced those veterans as a whole to share 57% of basketball-related income. Had the incoming rookies not sweetened the pot so dramatically, it's entirely possible the players would have forced the owners to dig deeper into their pockets.
Thanks to a bad economy, owners and players are now talking very tough about the next CBA. The tougher they talk, the more certain it is that among those taking a big hit will the group with no voice in the process.
There is undoubtedly a basic issue of fairness there -- it's unseemly for mediocre older players to earn fattened salaries on the backs of younger, better players, some of whom, owing to injuries and the like, may never get to enjoy the overpaid later years of their careers. (One good thing about the current system: It certainly encourages players to take care of their bodies, to hang around as long as possible into the salad days.)
But at some point, if rookie pay is low enough, it could come to hurt the league itself. For instance, there once was a time when smart owners assembled veteran teams -- think of the Pistons with Chauncey Billups, Richard Hamilton, Ben Wallace and the like -- to win titles. Fans like to cheer for players they know. All but the richest teams, however, can no longer afford so many expensive veterans. The value in the market is in rookie scale contracts. So the cash-savvy strategy has come to include more young players than ever on title teams, simply because they're affordable.
If rookies take further income hits, it could get that much harder to lure top international stars to the NBA. In total, the NBA pays far more than the Euroleague. But for a top Euroleague star like Ricky Rubio, the NBA could come to represent a pay cut for many his best years. And these economic realities might also encourage more top American players to investigate their options overseas. Their market value is much higher in the NBA, but their income might not be.