The NBA Lockout: Common Man Edition

NEW YORK, NY - JUNE 30: Commissioner of the NBA, David Stern announces that a lockout will go ahead as NBA labor negotiations break down at Omni Hotel on June 30, 2011 in New York City. The NBA has locked out the players after they were unable to reach a new collective bargaining agreement (CBA). The current CBA is due to expire tonight at midnight. (Photo by Neilson Barnard/Getty Images)


The NBA lockout is officially here.  Say goodbye to free agency, trades, summer league play, and all exciting NBA conversations.  After all, reading and rereading NBA Draft analyses is entertaining for only so long.  Some experts say it will end quickly, others project that there will be no 2011 season at all.  In other words, the length of this thing is unclear at this time.

If you’re like me, the only thing you really know about the NBA lockout is that there IS one.  I have read articles explaining the deeper issues of it all, but by the end I’m falling asleep, overwhelmed by the jargon that is business and economics.  I sat down (with much determination and help - see NBA Stoppage) and attempted to decipher the NBA Lockout to a language for the everyday man - a language that we can understand.  At the end of the day, it essentially came down to three main issues.  

 

The Hard Cap vs. the Soft Cap

This is the biggest issue surrounding the lockout.  In the NBA, there is a soft salary cap.  In other words, a cap number is set every year, but if a team wishes to exceed this number and fits the requirements to do so, the team is permitted to exceed the cap.  If a team exceeds the cap by a certain amount, then they must pay a luxury tax - $1 for every $1 the team exceeds over the limit.

For example, let’s say the NBA salary cap is $80 million and the luxury task is implemented at $90 million.  If a team’s payroll is $100 million, then they will pay a luxury task to the league of $10 million.  That $10 million is turned around, distributed, and rewarded to the rest of the teams who didn’t exceed the cap of $80 million - an incentive for teams to stay below the original cap amount.

Enter the NBA owners.  

The owners want to do away with the soft cap and implement a new hard cap - preventing the teams from going above it in any situation.  Why?  It will create a more equal, well distributed league in preventing the top markets (i.e. New York and Los Angeles) from going above the cap.  This is great for teams like New York and Los Angeles, because they can save money while still reeling in the revenue.  

Enter the NBA players. 

The players HATE the idea of a hard cap.  A hard cap will reduce the salaries that a team can take on, and, generally, a player’s salary will decrease because of a team’s desire to prevent spending their whole payroll on only a handful of players.  

Contracts:  Guaranteed vs. Not Guaranteed

When applying for a new job, one looks for the long-term promise.  If a company promised YOU a four-year deal while another company promised you a two-year deal, you’d take the four-year deal.  One has more time with the company to prove himself and provide a stable financial environment for his family. 

Enter the NBA players.

Naturally, the players are employees and want the same thing for themselves.  No player enjoys getting up and moving their family to a new city unless the benefits greatly exceed the costs.  Currently, the NBA promises a maximum of a 6 year contract when granting long-term deals and offering the player security.  The players union thinks that this is a great length of time and is comfortable here. 

Kevin Durant shares his perspective with Koco.  "Players want the guaranteed contracts because you never know what will happen in this league," he says.  "Teams could easily say, ‘We don’t want this guy on our team anymore.’"  

For the players, the 6-year contract length is a weapon against unexpected injuries, replacement signings, or trades.  It ensures the player will get paid at the end of the day despite what ownership decides to do with the franchise.   Again, it's about individual security.

Enter the NBA owners.

The owners believe that a 6-year maximum is too long.  If a player gets hurt or under performs but is in the 5th year of his 6-year contract, the team HAS to pay him throughout the remaining time.  If the team wishes to trade the guy, they can do that - but they still have to pay the player for the remaining time on the contract: even though the player is on another team.  That’s absurd! A team is paying for another player to play with another team.  

NBA owners want to cut this 6-year maximum contract to a 4-year contract.  A 4-year contract prevents a lot of the issues explained above, while still providing players somewhat of a long-term security.  

Balancing Profits

There’s something in the league called the BRI.  BRI stands for "basketball related income."  BRI includes all the money the league gets from revenue, tickets, food, memorabilia, season tickets, and broadcasting rights.  If you’re buying something NBA related, most likely it’s going into the big pot that is the BRI. 

Enter the NBA Owners.

When it comes to splitting the BRI, the owners feel that they are cheated:  they only get 43% of it.  Because of this small share, the owners claim to have lost a total of $370 million last season. The newer NBA owners are struggling, and those thinking about buying NBA teams are realizing that buying a team at this time isn’t such a great investment.  They want the league to grow and seem appealing to future investors, but are afraid that a loss of $370 million will push prospective owners away.  Therefore, they’re pushing for a 50/50 split of the BRI - that 7%, they believe, will do wonders in the long run while still giving players a reasonable amount.

Enter the NBA Players.

The players currently get a mighty generous cut of the BRI - a whopping 57%.  So if at all possible, they prefer to stay put exactly where they are.  The big issue for the players is simple: they believe the owners are not telling the truth.  Players’ Union director Billy Hunter made  the statement that the owners claim to have lost that much money "...just doesn’t hold water."

He says this because the NBA just had one of the most successful seasons of all time in 2010-2011.  Record TV ratings, record memorabilia sales, and record ticket sales.  The NBA owners claim to have taken in a massive positive revenue in the 2009-2010 season.  Does it not make sense that in a more successful season they’d have a more successful revenue?

The players want to see how the owners are handling this money.  They lack a deep understanding on how the net BRI is split among the teams, and believe that if the BRI were split more evenly amongst the league, more teams will be able to spend money.  Perhaps they are willing to sign off a 50/50 split agreement, but before they do so, they desire a better understanding on how the revenue is split between the teams.

Enter the Memphis Grizzlies.

This IS a Grizzlies blog, after all.  Now that the lockout is broken down and easily read, what does it MEAN?  How is it going to affect each individual team, especially the Grizzlies?  The Grizzlies just ended a momentous season - going deeper into the playoffs than they ever have before.  In this, they gained new fans (did you see the Forum?!).

The challenge is going to be keeping these fans.  The Grizzlies, supposedly, had a massive increase of season ticket sales.  As the lockout comes closer and closer to the actual season, does it jeopardize these sales?  Will purchasers desire a refund for part or all of the games?

Memphis is a small-market team.   When all of this ends, you’ve gotta assume the big guns are going to be fine.  Los Angeles.  Chicago.  New York.  These guys will be alright.  But it’s the small market teams of OKC and Memphis that are fighting this battle with the most passion - just to stay afloat after a great season.

Nobody has any idea which direction this will take the league.  I hope everything goes smoothly.  I hope that both sides are respected and that the integrity of the sport is maintained.  I hope that you and I aren’t looking back, ten years from now, and remembering that "great playoff run" the Grizzlies had in 2010-2011 and wonder "what if?" if the lockout hadn’t taken the league by storm.

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