NBA staring down labor crisis in 2017
In the latest sign that the NBA and National Basketball Players Association (NBPA) are headed for a lengthy and contentious labor dispute in 2017, the NBA says the NBPA has refused proposals to “smooth” the infusion of new TV money into the league. The TV money will arrive when the league’s massive nine-year, $24 billion contract with ESPN and Turner goes into effect in 2016. The money will lead to a significantly higher “Basketball Related Income” (BRI), a collectively-bargained figure that includes revenue from TV contracts and other sources and is shared by owners and players in a near even split. At the risk of over-simplification, higher BRI would mean a higher salary cap for NBA teams.
As numbers stand right now, the surge in TV money is expected to cause the NBA’s salary cap to skyrocket from $68 million in the 2015-16 season to approximately $90 million in the 2016-17 season. This would represent a stunning 33 percent increase over just one season and the highest percentage annual increase since the NBA’s salary cap climbed from $16 million in the 1994-95 season to $23 million in the 1995-96 season, a 44 percent bump. $90 million would also represent a massive escalation over recent salary cap growths. Consider that the salary cap for the 2014-15 season is set at $63.1 million, after being $58.7 million in the 2013-14 season and $58.0 million in the 2012-13 season. These recent annual salary cap increases are dwarfed by the projected increase set for the 2016-17 season.
The salary cap is not the only figure set to rise steeply. Teams are also required to spend 90 percent of their cap space, meaning there is a salary floor in addition to a salary cap. As a result, teams would have to spend at least $81 million on player salaries if the salary cap is set at $90 million.
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On the surface, players and fans would seem poised to celebrate a higher salary cap and a correspondingly higher salary floor. There would be higher salaries for players, for whom teams would have more money to bid and in some cases might need to sign in order to satisfy the salary floor. Along those lines, a higher salary cap would enable more teams to be “under the cap” and thus able to compete for free agents. Fans who feel as if their favorite teams are stuck in “salary cap hell” would be granted a reprieve.
This enthusiasm for a higher salary cap might wane, however, when studying the actual impact of a sudden and sharp increase in the salary cap. From the perspective of the NBA—and possibly some if not many players—a massive infusion of new TV money would not be a surefire plus. Odds are it would disproportionately benefit a small class of players: those who are set to become free agents in 2016 and those whose salary negotiations are tied to available salary cap space. This description is most closely linked to superstar players due for free agency in 2016. Two such superstar players who could benefit are Chris Paul and LeBron James, the NBPA’s president and first vice president, respectively. Paul and James both have the option of becoming free agents in 2016 through clauses in their contracts.
With the NBPA’s consent, the NBA hoped to smooth the infusion of new TV money over a period of years so that more players would share it. Smoothing the money would translate into more modest and gradual increases in the salary cap and salary floor. But players would be guaranteed the exact same amount of money since players would continue to receive the same split of BRI. As of now, it appears the NBPA won’t go along with a smoothing plan—at least not as part of a standalone issue before the next CBA negotiations.
Therein lies the uneasy relationship between the next CBA negotiations and policy challenges that might be resolvable in standalone negotiations. Smoothing and negotiated revisions to the league’s domestic violence policy are two such challenges. The current CBA is set to run through the 2020-21 season, but do not expect that to happen. Anytime on or before Dec. 15, 2016, either the NBA or NBPA can exercise an opt-out clause that would end the CBA on June 30, 2017. Both sides have financial reasons to exercise the opt-out clause. Most significantly, each would like to see a change—in opposite directions—in the split of BRI. Assuming either the NBA or NBPA opts-out and the two sides negotiate a new CBA before it expires in June 2017, the NBA would be poised to lockout the players. A lockout would threaten the 2017-18 season and potentially lead to an antitrust litigation.
The NBPA appears interested in negotiating policy changes within the framework of negotiations for a new CBA, rather than in piecemeal. NBPA executive director Michelle Roberts signaled such a desire in an interview last fall with SI.com concerning possible changes to the league’s new domestic violence policy. In collective bargaining negotiations, each side can essentially make trades on rules and policies. For instance, the NBPA might be willing to accept salary cap smoothing in exchange for higher minimum salaries, the league committing to maintain the current eligibility rule or some other negotiation preference of the NBPA. The problem, from the NBA’s perspective, is that smoothing needs to be implemented before the two sides are likely to negotiate a new CBA. The league also stresses that smoothing would not reduce the amount of money received by players, only how equitably and in what sequence it is distributed, and therefore should not require the NBA to offer anything in return.
The inability of the NBA and NBPA to agree on a strategy for incorporating TV money follows other signs of a fraying relationship between league and NBPA leaders. Roberts, for instance, has complained about players being artificially “deflated” by restrictions on salaries while various players have taken critical notice of the Los Angeles Clippers selling for $2 billion and the Atlanta Hawks likely to sell for over $800 million. The rise of Paul and James as NBPA leaders also invites concern that they will prioritize the financial interests of superstars over other players. The NBA, meanwhile, has independently-audited financial records to show a number of teams are losing money. Moreover, the league’s sound business strategy on television and international growth—not to mention NBA commissioner Adam Silver’s adroit handling of the Donald Sterling crisis—appear to have benefited players as much as owners. Despite these achievements, tensions between the NBA and NBPA seem to be rising.
The NBA and NBPA are also at odds over the league’s desire to see the eligibility rule rise from 19 years old plus one year out of high school (more colloquially known as the “one-and-done” rule) to 20 years old plus two years out of high school. Under a 20 + 2 rule, players who graduate from high school would need to wait two years until they are eligible for the draft. They could play in college, in the D-League or professionally overseas. From the NBA’s perspective, a 20 + 2 rule would provide teams with more time to evaluate players before guaranteeing those players NBA contracts. The NBPA, in contrast, contends the risk of drafting young players should fall on owners and general managers, who are obviously not forced to draft those young players.
Bottom line: if you disliked the 2011 NBA labor crisis, you’re likely going to hate the 2017 NBA labor crisis.
Michael McCann is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law. He is also the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law.