An Explanation of the NBA Lockout

With the lockout looming as of Friday, it seemed like an appropriate time to give a preview of what to expect in the coming months. Most fans in talking about the draft and their team's moves did not take into consideration the impending lockout when evaluating trades, draft pics, etc. So here is a run down on everything lockout related: how long it will last, what each side wants and a cursory look at the impending lawsuits.

The Situation: The NBA is about to shoot itself in the foot. And by shoot itself in the foot I mean blow its entire leg off. It is coming off of arguably its best season in years, rinding the LeBron Express (while simultaneously spawning countless fantasy teams named the "South Beach Talents" and about 50 different uses of the phrase "taking one's talents to South Beach") through the most compelling regular season in a decade all the way to the most-watched finals in years, complete with story lines sports writers lay in bed at night fantasizing about.** And now, a labor stoppage is about to blow it all to smithereens.

**For all intents and purposes, this NBA Finals was like the real-life version of Hoosiers. Dirk as Jimmy Chitwood who might have left the team before the season began, Stern/NBA fans as the townspeople of Hickory, and Cuban as Norman Dale who we all conveniently forgot we hated when the Mavs drew Miami in the Finals, and of course Miami as the bigger, faster, stronger team from "South Bend" favored to win it all.

To start, this labor stoppage is not coming out of nowhere. NBA franchises are hemorrhaging money (except for the Lakers, Knicks, Heat and Mavs).** With little exception, most teams are losing money. Exhibit A: The New Orleans Hornets. Some franchises are fortunate as their owners are too rich for it to matter (Paul Allen, Mikhail Prokhorov) but the rest cannot afford to be losing money. The owners recognize the current CBA (collective bargaining agreement) is fundamentally flawed and needs drastic overhauling.

**This is in contrast to the NFL, where the owners opted out of the former CBA after only three years when they realized they could do better. Obviously the situation is not as simple as "NFL owners are greedy", but greed is the primary reason for the current NFL lockout.

Part of the need for the drastic overhaul is to save owners from themselves. By and large, NBA front offices do not spend money wisely and are more or less incompetent.** They consistently overpay role players (Corey Maggette, Elton Brand, Baron Davis, John Salmons, et. al.) and stick themselves with bad contracts (Tracy MacGrady, Gilbert Arenas) are surprised when the moves do not work out. Other times they are forced to give out bad contracts (Brandon Roy) under the oft-used "we had no choice" line of reasoning. Either way, the owners realize the system needs changing.

**Isiah Thomas is exempt from the "incompetent" label as he suffers from a rare psychiatric disorder causing him ton confuse players such as Eddy Curry and Jerome James with Bill Russell and Dominique Wilson.

(For those of you I have not lost by calling Roy's a bad contract, this is what I mean. Brandon Roy, along with LaMarcus Aldridge, singlehandedly turned around the Blazers after the Jailblazer years and it was clear he was a franchise-caliber player, doubling as one of the best two or three finishers in the game. The Blazers could have easily won a championship with Roy as their best player, he just would need to be surrounded by the right pieces. KP realized this and went about it the right way. Roy would need a low-post scorer who could also stretch the floor (Aldridge), a shot-blocking, rebounding defensive presence inside (Oden), as well as a distributor and shooter to help space the floor (Sebastian Telfair, Steve Blake, Andre Miller, Jerryd Bayless, Patti Mills, all tried but none could ever fit the bill), as well as another rebounder/perimeter defender/shooter (Nicolas Batum was to provide extra defense off the bench and Rudy Fernandez the shooting). Roy was to be the center of it all as the creator, primary scorer and alpha dog, especially during crunch time. And it almost worked. Oden was the right pick, if only for the potential he brought to the table and what the Blazers needed at the time. Plus there is no guarantee Durant develops into the player he is now if he is on the Blazers with Roy as the alpha dog. Ironically enough, Gerald Wallace is the perfect compliment to the Roy/Aldridge/Oden plan at the 3, being a tenacious defender but also a potent scorer. I know it is pointless, but imagine a healthy Blazers squad with Felton, Roy, Wallace, Aldridge, Oden as starters, Batum as the sixth man, with another shooter and big man coming off the bench. That team could win a Championship. Clearly the Blazers are an entirely different team now, but KP almost pulled if off. But I digress.)

The other part of the problems is small market teams are at a fundamental disadvantage. Bill Simmons of and the founder of** broke down exactly how the NBA's small-market teams are at a tremendous disadvantage, especially in regards to the ownership situations with most teams. Essentially what Simmons said was small-market franchises need a combination of the following: luck, smart draft picks, smart trades, avoiding overpaying veterans, hoard cap space and draft pics and target character players. He cited specifically the Oklahoma City Thunder as the best blueprint for small market teams. Here is the kicker to his argument: the Blazers have done all of those things, they have just been supremely unlucky with injuries the past three or four seasons (see above paragraph).

**If you have not visited Grantland, I highly recommend you do so.

What both sides want: Very simply, the owners want the following things in the next CBA: a hard cap (as opposed to the soft cap/luxury tax system in place now), shorter guaranteed contracts worth less and some sort of franchise tag (much like the NFL in order to prevent future LeBron James/Chris Bosh situations, where all the small market team gets is a massive trade exemption). The franchise tag would probably also include some incentives for players to stay with their current teams like the Bird Rights give currently (for free agents signing with a new team the max length the contract can be for is 5 years, it is 6 if they resign with their current team). There is also the possibility of each team receiving an amnesty clause for one contract on their roster. Meaning a team could waive a player, removing him counting against the team's salary cap number while still paying the remainder of his contract.

The Blazers are most likely to use the amnesty clause on Brandon Roy, for obvious reasons. I am not clear on if a team uses the amnesty on a player if they are eligible to re-sign him or if he would be forced to sign with a different team. Though I would imagine he would be free to sign with whatever team he wants (much the same way a player is eligible to resign with a team who traded him away after 30 days if the team he is traded to waives him or buys out his contract). So with Roy the Blazers would love to keep him, but he is no longer worth the $85 million dollar contract he signed.

Most of what the owners want is fairly simple (simple does not mean uncontroversial, just I do not need to explain what a "franchise tag" is). What the owners and players will fight over is the total amount of dollars paid to players. Under the current CBA players are guaranteed to receive 57% of Basketball Related Income (BRI), which is calculated every July 1 and is how the new cap figure is determined.** If the total number of player's salaries and benefits does not equal 57%, the NBA cuts the players union a check and the union distributes the amount to the players. On the lower end of the scale, teams must spend 75% of the salary cap. If they do not, they are assessed a fee at the end of the year to make up the difference.

**For example, say the NBA project $5 bil in revenues. They would take the determined percentage of BMI (under the 2005 CBA it was 51%), subtract the amount paid to players in benefits, then divide the remainder by 30. So 51% of 5 bil is 2.55 bil, subtract say 150 mil for player benefits, then divide the remaining 2.4 bil by 30, giving each team an $80 million dollar cap. The luxury tax level is determined by the same calculation, only using 61% rather than 51%. In this scenario the luxury tax would be $96.6 mil. Since the luxury tax this season was just north of $70 mil, clearly revenues were not close to $5 bil.

The hard cap is not being pushed by only small market teams. Clearly small market teams want it to level the playing field with the Lakers, Knicks, and Dallas-es of the NBA, but even teams like New Jersey and the Clippers who are in a large market but are also losing money want it. This falls under the "save us from ourselves" line of reasoning. If a hard cap was in place the cap would be higher than what the current soft-cap is, in order to give players a better chance at hitting the pre-determined percentage of BRI in the new CBA. What the percentage will be is one of the main issues being talked about currently. Last year the players made $2.1 bil in player salaries, so the hard cap would be somewhere around then. What the owners are are really pursuing is stability with the cap. Right now it changes from year to year even though players salaries do not. A hard cap would give teams stability while also guaranteeing players a certain percentage of revenues.

The other thing being talked about in these negotiations is revenue sharing. The NBA does not do revenue sharing in any meaningful way currently. What the owners of small market teams want is a new revenue sharing system in place, something guaranteeing them increased revenues like the extremely successful system in place in baseball. What's interesting about this though is revenue sharing takes place outside the confines of the CBA. In other words, if the owners want to engage in revenue sharing, they simply have to work out a deal amongst themselves, they do not need union approval or even have to notify they union about it. This will become important when looking at what the union wants. 

Now it is time to look at what the union wants. The union is not in favor of a hard cap because it inherently limits the amount of money teams can spend on players. (Theoretically, in a soft cap system every team could spend above the cap, meaning players would earn more than the 57% of revenues they are guaranteed to earn.) They are also firm in their desire to keep fully guaranteed contracts and for obvious reasons do not want to limit the length contracts can run. One of the union's largest arguments in the bargaining negotiations surrounds revenue sharing. Essentially what the union is saying to the league is they recognize certain teams are losing money, but do not feel the players should be taking cuts because of it. Instead, the union is suggesting the owners institute some form of collective bargaining agreement, then if they are still losing money the players are willing to negotiate. I am not going to spend as much time on the union's side, as the salary cap situation is the more complicated piece and I already explained it.

What is happening in the negotiations: Well it really depends on what source you read and how much you believe what both sides are publicly saying. This much is clear: both sides have presented several proposals to each other and are still fairly far apart on total numbers. The NBA has agreed to drop its wishes for non-fully guaranteed contracts, which represents progress on the negotiations front. The owners have also come up to $2 bil in player salaries and benefits, which is huge. The "magic number" in these negotiations seems to be $2 bil for player compensation, and for the league to have already come up to it this early is significant.

Other than those two nuggets of progress, the two sides are still negotiating how to calculate BRI as well as the form of the new salary cap and what percentage of revenue players will receive. Those are just the big issues; they are still working on all of the smaller issues as well (franchise tag, Bird Rights, shorter contracts, etc.).

Will there be a lockout? The NBA an NBPA are 1-1 when it comes to lockouts the past two CBA negotiations. There was an 8 month long lockout in 1999, and the NBA and the union avoided a lockout in 2005. As it stands, basketball is going to come to a screeching halt on Friday. The only way for a lockout to be avoided is if someone comes up with something genius and unthought of thus far in the next 3-4 days. Barring such a miracle, any "basketball" news will only be labour related for the length of the lockout.

As a side note, on the day of the draft NBPA head Billy Hunter said the owners were attempting to "break" the union, a very pessimistic comment on the future of the league on a night when the entire point is to celebrate the future. It is entirely possible the owners are taking a hard line stance, whether because Stern feels he has lost the last two CBA negotiations to Hunter and wants revenge or because the owners know they hold all the cards and can get the exact deal they want in the long run. Whether or not it is true, it was a classless, unnecessary and ill-timed comment.

How long will a lockout last? It depends. It depends on who you believe, as some commentators believe the two sides will come to an agreement by mid August and others believe the entirety of next season will be lost. The biggest determinant in how long the lockout lasts is how willing the owners and union are to negotiate. If the owners take a hardline stance on a hard cap and reduced contract lengths and the players stay unified, this could be a very protracted lockout very similar to the one in 1999. All of next season could potentially be lost.

Using the NFL as a measuring stick, the lockout could go on indefinitely. When the NFLPA decertified and filed its antitrust suit against the NFL, part of the suit was a motion to end the lockout. While Judge Susan Nelson ruled the lockout had to be lifted, it was quickly overturned by the three judge appellate court. A final ruling on making the lockout permanent has not be issued yet, but the majority in the preliminary decision made clear they saw the lockout as a labor issue, not an antitrust issue. They reasoned decertification and the antitrust lawsuit on the players part and the lockout on the owners part were both tools each side was legally using in a labor dispute.  The judges are free to change their minds, the initial ruling was ini no way binding, but as it stands it looks as if the three judge panel is prepared to rule the NFL lockout legal.

This is a very good sign for the NBA owners. Even if the NBPA decertifies and files an antitrust lawsuit, it looks as if a lockout would be ruled legal. The other advantage NBA owners have is the NBA is legitimately losing money and is prepared to prove it. The NFL is not losing money, and their owners have not been as willing to prove what teams are losing money up to now.

The bottom line is this could easily turn into a very long, drawn out fight. If both sides are willing to negotiate it could end very quickly, but if both sides take a hardline stance it becomes a matter of which side breaks first. My money in that scenario is on the players. The owners are wealthy apart from basketball, they do not need the paychecks coming in to stay afloat. The players do. The owners and David Stern know this, it is just a matter of how much they want to "win" these negotiations and by how much.

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