With the NBA dangerously close to having to cancel regular season games for the first time in over a decade, basketball fans are finally starting to panic. While over the summer the NBA labor negotiations took a firm back seat to the NFL labor strife, regular season baseball and women's World Cup coverage, reality is finally beginning to set in for sports fans and the media. ESPN and other mainstream media outlets have begun to cover the NBA labor progress (or lack thereof) on a daily, rather than weekly, basis, and independent news outlets and bloggers are chiming in more heavily than ever. Unfortunately, the NBA and the players association (NBPA) have made very little progress over the last few weeks, and the start of the season - if not the entire season - is officially in jeopardy.
Earlier this year, during a conversation about the NBA labor dispute, I verbally outlined my plan for saving the NBA for the first time. At the time, I was encouraged to publish my thoughts, but hesitated to do so for two main reasons. The secondary reason, which I masqueraded as the primary factor, is that I am professionally involved in the world of sports, and didn't want people thinking I was speaking out of turn on what has become a hotly contested issue. The true primary reason, though, was that my proposal is so incredibly simplistic that I felt it couldn't possibly be taken seriously. As we near the NBA's self-imposed drop dead date for starting the regular season on time, however, all of the NBA vs. NBPA debates I've heard have been bogged down by some combination of philosophy-based, accounting-based or economics-based disagreements. Thus, I think it's time for me to try and steer us back to basics.
First, what do we know - or at least think we know - about the NBA labor dispute? For one, the NBA is losing money. How much money is up for debate, but I think both sides can agree that, in aggregate, the league has lost money over the last few seasons. In other words, the teams are paying the players more money than they generate after subtracting non-player costs. This is, obviously, not a sustainable business model. Second, this is a very public debate. While the fans don't have a direct say in the negotiations, the court of public opinion will undoubtedly sway the resulting agreement, if we ever get one. This is why the owners portray the players as overpaid, greedy kids and why the players paint the owners as old, stuffy and exceedingly wealthy tyrants. Both sides want the fans on their side to pressure the opponent into making a deal. Third, the NBA and NBPA's attempts to fix a complex problem by bolting on additional layers of complexity haven't worked. Amending a needlessly complicated Basketball Related Income (BRI) computation formula with even more convoluted mathematical adjustments won't build trust or get us to a deal any time soon.
So what if the NBA offered the players 100% of all revenues after deducting non-player expenses? The NBA would convert the current revenue sharing model - which provides limited downside protection if expenses explode (which they have, for various reasons too numerous to cover here, over the last five years or so) - to a profit sharing model, and for a year or so give the players 100% of the pre-player-cost profits. For one, this would assure the owners a cumulative breakeven (although individual teams might make or lose money, depending on where we end up on revenue sharing) - they wouldn't make money, but they wouldn't lose it either - which is an improvement over last season's reported $400 million loss. Yes, the players would take a pay cut, but it would be hard to argue against the reduction in the court of public opinion. After all, the owners would be offering the players everything for a season. How could the players ask for more than 100% of the pie while keeping a straight face? Over time, the owners would receive a small chunk of the profit (say up to 5%), and the players would retain most (95%) of the pre-player-expense pool. This reduces the argument between the two sides from dozens of issues to only a few, and if the NBA and NBPA could agree on a reasonable list of legitimate expenses, they'd be much closer to a deal than they've been in years. It's a crazy diversion from the current complex system - but might it be crazy enough to work?
Why would the sides not agree to this? Well for one, the NBPA might not trust the NBA's spending policies - if the NBA spends too much, profits would be reduced and the player salaries would be negatively impacted. The solution here is easy enough - cap the fixed expenses at some reasonable level (either a fixed amount or, more appropriately, as a percentage of revenue), above which the NBA would have to pay out of its own pockets. This would encourage the league and teams to cut overhead, which is a good thing, and preserve a minimum guaranteed margin for the players. The NBPA might also feel like this plan doesn't give the NBA league and teams enough incentive to grow revenue. However, since the NBA will, after the first year, receive a portion of the profits, the incentive to grow the pie and make good deals should be there from day one - the NBA can't take a season off and expect to have success next year. The NBA could also guarantee a revenue number for the first few years, which with reasonable effort they should be able to hit, or the profit sharing structure could be a waterfall, where at certain profit milestones the NBA begins to receive increasingly larger proportions of the incremental profit created. The possibilities are numerous - once the two sides agree that this problem should be viewed as one of growing and sharing profits, not spending ruthlessly in a misguided attempt to grow revenue.
With such a system, the NBA and the NBPA would become something they claim to be but aren't - true partners. Furthermore, the league would become an actual business, rather than a loose confederation of teams that seeks to please the players and fans at any cost. The best way to align incentives among partners is through profit sharing, and until the league and the players come to terms with this and give up on a failed revenue sharing-based structure, it's going to be very hard for the sides to come to terms on an agreement that both sides will be happy with. By framing the negotiation as a profit sharing proposal and offering the players 100% of the profits for the first season, the NBA can force the players to view the proposal as a gain of 100% of the profit pool, rather than as a loss of some piece of the revenue pie. The sides may be tempted to stick with a revenue-based plan because more revenue means more power in the world of sports - the NBA likely wants to be seen as a legitimate peer to MLB and the NFL - but at this point a slightly smaller, well-managed and at-minimum-breakeven NBA is better than no NBA at all. While this plan is super-simple and, in and of itself, can't constitute the majority of a major Collective Bargaining Agreement, a profit sharing-based proposal can redefine the problem in terms that both sides can more readily agree on and understand.
Even after reaching a macro-level agreement, it's clear that the sides will have to go through the complicated process of determining how the player salary pool, however defined, will be distributed to the NBPA. How much will rookies make? How will existing contracts be amended? What will the non-salary terms of contracts (length, guarantees, bonuses, etc.) look like? Once the two sides agree on an overall formula for the player pool, though, we'll be much closer to making progress on these issues, and the NBA can potentially trade some of these issues that are important to the players (such as the continuation of guaranteed contracts, for example) in exchange for progress on a profit sharing plan. In any event, it's clear to me that both parties need to take a step back from the current heated discussions about revenue and think about what's best for the sport of basketball. This admittedly simple proposal gives the players the continued opportunity to dominate the NBA profitability landscape while giving the owners a chance to operate financially sustainable teams that are incentived to run more effectively, and most importantly aligns owner and player incentives in a way that is beneficial to both the NBA and the NBPA.
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