Could the NBA actually prefer a lockout?

I’ve received several emails from readers requesting an explanation of the impact of the expiration of the collective bargaining agreement on player movement that I keep referring to. Below I provide my own (controversial) thoughts.

Incidentally, if you have any questions you’d like my perspective on, please feel free to email me and I will either answer them individually or incorporate them into a post.

For the past several months, we South Floridians have had our heads in the clouds, scheming about all the different ways Heat management can build a winner in the off-season. We’ve been educating ourselves on the rules and regulations in order to figure out what’s possible. We’ve made ESPN’s Trade Machine our best friend. But is it possible that we’ve overlooked the biggest story of all – perhaps the biggest of the decade for the sport of basketball?

Over the course of the past season, we’ve seen a flurry of predictable contract-related activity. Brandon Roy, Kobe Bryant, LaMarcus Aldrige, Marcus Camby, Pao Gasol and Rajon Rondo have all agreed to extensions. And Dwyane Wade, LeBron James, Chris Bosh, Amare Stoudemire have all announced their intentions to opt out of their contracts in favor of new, long-term deals.

We’ve also seen the mind-boggling.

Dirk Nowitski, Tyson Chandler, Yao Ming. Each threatening to leave their cities, sacrificing big dollars in the pursuit of long-term security.

A whopping 103 early entry players initially declared their names for the 2010 NBA Draft (Heat hopeful Eric Bledsoe, with nary a single season under his belt playing the point, among them). Add to that a number of draft-worthy seniors. Sixty will be selected. Thirty will receive guaranteed contracts.

Why are they doing this? What has everyone so spooked?

I have suggested that most every highly-regarded potential free agent will be seeking a full value, full length contract this off-season. There is simply too much uncertainty surrounding the potential for gargantuan changes to come after the current collective bargaining agreement expires at the end of the 2010/11 season.

David Stern seems intent on getting the league’s cost structure back in line and positioning teams so they once again can be profitable. The problem lies in the split of league-generated revenues. Players currently receive not less than 57% of every league-wide dollar generated by the NBA in salaries and benefits; team owners receive the rest. Players have no costs. Every dollar they make, they get to take home (excluding taxes, of course). Owners need to net their 43% share of revenues against all the costs of fielding their teams. The league has projected these costs to exceed revenues by more than $375 million this season alone. Stern also spoke of losses of at least $200 million per season in the first four seasons of the current agreement, 2005-2009.

The NBA certainly over-reached on its first proposal to the players association back in March. The proposal effectively sought out a hard salary cap, eliminating such tools as Bird rights and the Mid-Level and Bi-Annual exceptions that allow teams over the cap to sign free agents. Also incorporated were drastic reductions in the value of minimum and maximum salaries, reductions in salaries of first round draft picks by one-third, shortening of contract lengths, reductions in the guaranteed nature of contracts to half their value (and in some cases even lower) and, most importantly, reductions in the share of basketball-related income earned by players from the current 57% to 45%.

It was not exactly what one could consider a first proposal conducive to constructive negotiation. The biggest question yet to be answered is whether the intention was to give the league room to negotiate in subsequent sessions, or whether it put forth such drastic changes because that is truly what the owners expect to get.

It is quite possible the league has every intention of actively pursuing a lockout.

In June of 2007, the NBA extended and expanded its partnerships with Walt Disney and TBS, reaching eight-year agreements to have ABC, ESPN and TNT televise NBA games through the 2015/16 season. The NBA receives about $930 million per year, good for a total of $7.44 billion, for all of its broadcast rights.

Even if a lockout is imposed, owners will continue to get paid. Consider how much money that is. The $930 million figure represents more than 25% of the total $3.61 billion generated by the NBA and all of its teams last season. That equates to approximately $31 million per owner. Under that scenario, with no player salaries and in some cases no coaching salaries, most teams will actually make more money by not playing under the current economic conditions.

Given the circumstances, the league would appear to have a lot of staying power. Players, on the other hand, would seem to have limited leverage.

Could this be the reason why we are seeing such strange activity?

Will it even matter?

Another issue is how the league will get the players’ percentage of basketball-related income down to as low as 45% when many players’ salaries are already so inflated.

Common sense would dictate the NBA to follow the lead of the NHL and phase in a hard salary cap, which would require players to place a predetermined amount of their salaries into an escrow account to pay back owners at the end of each season. In fact, such a mechanism is actually already in place in the NBA today, which required players to place 9% of their salaries into escrow this past season. However, with players forecasted to receive more than 70% of total league-wide generated revenues in the form of salaries and benefits, the 9% give-back was hardly painful.

The message in all of this? For Pat Riley, the time actually is now. He already received his extension in May. He needs to build a winner immediately. Because he may not get the opportunity to add on in 2011. He may not even get to see a 2011.

Of course, if there is a lockout, it will come with Dwyane Wade at the peak of his career. After all of this waiting, that would be a shame.

2 Responses

  1. K215215 says:

    I hope they dont change the bird rights rules. I think that the NBA’s soft cap system is the most fan friendly of all the sports. I hate seeing a team lose a guy who’s been with them for years because of their cap hit (like in football). At the same time, I like the balance, where the big market teams dont have a substantial advantage over the small market teams like in baseball.

  2. Heat-Struck says:

    Baseball is the worst when it comes to overpaying players. It’s the reason why the Yankees always get the best players… because there is no limit to how much money they can spend on players.

    I actually like the NBA cap/salary structure, because it encourages star players to not leave their teams. I do however think that the NBA needs a hard cap, so teams like the Lakers can’t going into the luxury and afford Kobe, Gasol, Bynum, Odom, Artest, etc. With a hard cap, mostly every team would have one max superstar, a great second option, and a bunch of role players. This would make the NBA a lot more enjoyable to watch with better competition. Since the lower teams would eventually develop more fans (hopefully), then you wouldn’t have such a crisis of teams losing money.

    I don’t know if there is one great solution to the problem, but I really don’t want a lockout. I would be forced to watch NCAA Basketball.

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