Tuesday, October 25, 2011
How "small market" owners took control
By Brian Windhorst
A couple of days before the start of training camp in 2006, David Stern received an uncomfortable letter at the NBA’s New York offices.
Eight owners signed a petition that demanded Stern address the small market/big market financial disparity they felt was a serious and growing problem. Obviously, they didn’t need to write him a letter like he was their local representative in Congress; he works for them. They did so to make a symbolic point and then released the letter to some media outlets to make sure the issue became public.
It read: “We are asking you to embrace this issue because the hard truth is that our current economic system works only for larger-market teams and a few teams that have extraordinary success on the court and for the latter group of teams, only when they experience extraordinary success. The rest of us are looking at significant and unacceptable annual financial losses."
The authors of the letter were Paul Allen of Portland, Herb Simon on Indiana, Bob Johnson of Charlotte, George Shinn of New Orleans, Larry Miller of Utah, Michael Heisley of Memphis, Glen Taylor of Minnesota and Herb Kohl of Milwaukee.
Johnson and Shinn have since sold their teams and Miller has passed away, giving way to his son, Greg. But the situations in those markets haven’t changed.
In essence, that letter is the root of the current lockout. And, it is turning out, perhaps a core reason the owners can’t make a deal with the players after more than two years of negotiations.
Multiple league sources have emphatically told ESPN.com in the past several days that the sticking points with the players’ union do not solely break down market-size lines and that there’s unity among the owners on the need to win significant economic concessions from the players.
But there seems to be a difference between unity and harmony.
TrueHoop’s Henry Abbott reported Tuesday that the owners were holding a hastily-scheduled meeting in New York to further address revenue sharing issues. It comes on the heels of an owners’ meeting last week where enhanced revenue sharing was discussed -- a conversation that has been going on for nearly as long as talks with the players -- but no plan was agreed to. Stern has promised a new system that will at least triple the money being shared by teams. But so far that has just been a promise, as no plan is in place.
The NBA’s last collective bargaining agreement was ratified in 2005 and included an increased piece of the pie for the players in the form of a jump to 57 percent of basketball-related revenue. Just a year later, those eight teams that drafted the ’06 letter were already complaining openly to Stern that it wasn’t working for them.
In his podcast with Bill Simmons on Monday, union president Billy Hunter re-told a story about meeting with Stern during the 2007 NBA Finals in Cleveland, nine months after Stern received that letter. At the time, Hunter said, Stern talked about the need to roll back the players’ share and revealed his owners were already talking about locking out the union in 2011 if their demands for givebacks weren’t agreed to.
That was two years before an economic crisis slammed the country and further hammered the bottom lines. Since then, the number of allies for the eight owners who wrote the letter has only increased, and it has shaped the dynamic in both talks with the union and with big-market owners.
Robert Sarver of Phoenix and Dan Gilbert of Cleveland didn’t sign the letter in ’06, but they are now two of the biggest advocates for change in both revenue sharing and reducing player compensation. The Maloof family that owns the Kings was coming off six consecutive winning seasons and was used to selling every seat when the letter was authored. Now, they are in dire financial straits and are certainly looking for reform. In addition to the Bobcats and Hornets changing hands, the Wizards, Warriors, 76ers, Pistons and Hawks have also been sold in the past two years to groups who are expecting a new CBA to be more favorable to owners than the previous one. The Nets were also sold last season, but new owner Mikhail Prokhorov is not believed to be among those clamoring for change.
Then look what has happened to the big-market teams. At the time of the last CBA, the Knicks, Celtics and Bulls were all experiencing some sort of down cycle. Even the Lakers were struggling, missing the playoffs in 2005 for the first time in 10 years. Now, all of those teams have returned to prominence and their revenues have soared as well, opening up a gulf of disparity in cash.
When the Lakers agreed to a new local television deal worth several billion dollars last winter, it only further united their small-market competition in pressing for a makeover of both the revenue-sharing system and the split with the players.
“That Lakers’ TV deal scared the hell out of everybody,” one league official said. “Everyone thought there is no way to compete with that. Then everyone started thinking that it wasn’t fair that they didn’t have to share it with the teams they’re playing against.”
Pile all of those factors together and you have a faction of owners in 2006 that has turned into a majority in 2011. They are furious that the players are getting paid so much. They are furious that the NBA's current revenue sharing ($60 million a year) is worth less than half of a league like the NHL ($137 million). And they are trying to take advantage of throwing their new weight around.
This is what deputy commissioner Adam Silver was referring to last week when he mentioned “robust” discussions about revenue sharing at recent owners’ meetings. This is also what Hunter has been referring to when he’s described a fracture within the ownership ranks.
At the heart of this labor dispute is money, of course. But there’s that other classic element at play as well: power. And who has it among the ownership ranks is changing.