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Friday, April 15, 2011
NBA labor: Don't believe the hype

By Chris Sheridan
ESPNNewYork.com

NEW YORK -- If you listened closely enough to Commissioner David Stern's deputy Friday at the NBA Board of Governors meeting, you got a clearer picture of the likelihood of a work stoppage this summer.

And if you thought a lockout was a certainty, you may want to reconsider.

"It doesn't take that long to make a deal. It's a question of whether there will be movement," deputy commissioner Adam Silver said.

And movement is coming, Stern said in announcing that NBA owners had authorized the labor relations committee to make a new formal proposal to the players' union within the next couple of weeks.

Now, understand that formal proposals are not always as important as the informal proposals that are discussed when Stern, Silver and player's union chief Billy Hunter hold their regular meetings, with have been ongoing.

But formal proposals move the needle, and this will be the first one the owners have given the players since late January, 2009 -- a period of nearly 16 months.

"Certainly there's plenty of time, roughly 75 days before the conclusion of this deal, to strike a deal," Silver said. "The question is whether there will be movement by the parties between now and then, and we'll see."

It is now clear that the owners are seeking a recalculation of the formula used to calculate the percentage of revenues that go toward player salaries. Currently, the players are guaranteed 57 percent of gross revenues (also known as Basketball Related Income, or BRI), and the owners are left with the other 43 percent to cover their expenses and try to turn a profit.

It is a system that has not been working for the owners, as 22 teams are projected to lose money in the 2010-11 season and only eight are expected to be profitable, Stern said. The owners' annual losses (which the union disputes, claiming half of the purported losses come from interest payments and depreciation) have gone from $370 million in 2008-09 to $340 million in 2009-10 to an estimated $300 million in the current season.

"As we've said before, if players are taking 57 percent of the gross, it's mathematically impossible to move to a profitable position without a new system having a major impact on player salaries," Silver said.

So the question then becomes, what kind of a new system would reduce owners losses and leave current salaries intact?

The answer: A system in which the players absorb some of the operating expenses, gradually if need be, to get the new system ratified when the players vote on it.

In the owners' first formal proposal, the one made back in 2009, they asked for an $800 million reduction in player salaries. Silver would not characterize how much movement the owners will be making in their next proposal, only saying that the league is seeking a system in which all 30 teams have a chance to compete for a championship and make a profit.

But they don't need an $800 million reduction in player salaries to achieve that goal, so as we look toward the end game of this negotiation, we have to start wondering how much of that $800 million the owners will settle for as an alternative to shutting down the league. $200 million? $300 million? Something in between?

And let's be perfectly clear on something, when attendance is up for the seventh consecutive season, when television ratings are up 38 percent on ABC, 28 percent on ESPN and 42 percent on TNT, when video views on NBA.com are up 140 percent from a year ago, when global merchandise sales are up 20 percent in the past 12 months, there can be no question that business is booming.

And we are all supposed to believe they are ready to take out the dynamite and blow that up?

Sorry. It just doesn't pass the smell test.

That is not to say that there are not fundamental financial problems that need to be addressed. Annual losses of hundreds of millions of dollars don't cut it as a successful business model, but there is a middle ground here that everyone should be seeing.

If the players agree to absorb the cost of some of the expenses, their share of revenue is going to drop, but they'll still want a 57 percent or larger share of the newly calculated pool of money.

But before the players agree to absorb some of the expenses, they want to see some of the larger market owners share more of their local TV revenue with the smaller market owners who receive only a fraction of that money from their local TV deals.

When this thing gets settled, look for that BRI recalculation and enhanced local TV revenue sharing to be major parts of the new labor deal. Other factors such as age limits, rookie scales, lengths of contracts, etcetera, are secondary.

It's about the pool of money, redefining how to calculate the pool of money and then splitting it up.

"We're not looking at the same system. We're looking at changing the definition of what is now BRI to become more of a net system where certain expenses are reduced before we begin sharing with the players," Silver said.

In other words, the NBA wants what the NFL had in its last agreement -- something commonly known in sports labor circles as a cap credit. Under that old NFL formula, $1 billion in expenses was deducted from total revenues, and the sides split up the rest.

"They have been receptive to the deduction of certain expenses, but they have not been receptive to substantial changes to the system, which we're seeking," Silver said.

But if the players are open to paying some of the freight in terms of operating expenses, that in and of itself is a substantial change.

And from that, we can only extrapolate that they are making progress, albeit at a glacial pace.

As Silver said, once they agree to the big-picture parameters (i.e. the splitting up of the money, and the formula for determining the composition of that money pool), the deal can be completed in a matter of hours. And that right there is your 11th hour settlement scenario.

Both sides can see where the middle ground lies in all this, which is why we will leave you with these cautionary words:

When someone says a lockout is a certainty, don't believe the hype.

Eventually, they are going to settle.

With their business booming in a bust economy, it serves everyone to achieve a settlement without going through a work stoppage first. At the end of the day, these guys are too smart to do something so stupid.