Will NBA players strike back for a bigger share of TV revenue?

Bert A. Ramirez
Will NBA players strike back for a bigger share of TV revenue?
Will more money mean more problems for NBA owners?

With the inking of a new, significantly more lucrative deal by the NBA with The Walt Disney Company (ESPN/ABC) and Turner Broadcasting System, Inc. (TNT/TBS) last week, the players are bound to see a similarly huge spike in their salaries. But while they’re guaranteed a bigger income with that new TV deal ($24 billion for nine years, or an average of $2.66 billion for the entire league yearly), the players can still get a bigger share than the percentage they’re currently getting.  

This is because after the 2011 collective bargaining agreement, the players saw their share in the so-called basketball-related income reduced from the fixed 57% under the 2005 CBA to between 49% and 51.15% under the current CBA. Either the players association or the owners, despite that 10-year agreement in 2011, are expected to opt out of that pact that’s open for renewal in 2017 and revive talks for a new contract four years before it’s supposed to expire in 2021.

The question is, will the players settle for the old system where their share in the BRI has been set at a certain percentage? Or will they go for a bigger share of the pie, as indeed a number of their peers have indicated?

One must remember that the owners came out of the last negotiations a big winner since they were able to get what they wanted when a new economic system was established, enabling them to receive more than the 43 percent of the BRI they used to get. This happened after the amount of money the players would get for the duration of the CBA was set at no more than 51 percent of the BRI (this includes 50 percent, plus or minus 60.5 percent of the amount by which BRI exceeds or falls short of projections, with one percent of the players’ share going to a new pool funding post-career player benefits).  

BRI actually includes practically every revenue stream, including tickets, parking fees, broadcast rights (the one the league just signed), and concession fees. Revenue-sharing payments (the money received by financially losing teams from the bigger-earning franchises) and expansion fees (the money paid by new franchises to get into the league) are, however, excluded from being part of the BRI.

The owners were able to wangle that deal after claiming they lost $370 million, $340 million and $300 million the previous three seasons under the 2005 CBA, and 22 of them (out of 30) were operating at a loss. They pointed out that the BRI formula is based on gross revenue, something that puts them in a tougher position when they spend additional money to promote ticket sales, or undertake marketing ploys and other related activities, which eat into their share of the pie much unlike what happens in the players’ case.

But the players are no longer buying that story. In fact, they were implying even at that point when the 2011 CBA was being hammered out that the league was using Enron-esque accounting (in reference to energy company Enron Corporation that was hit by an accounting scandal in 2001, leading to its bankruptcy) to generate those figures. If the NBA indeed was a losing proposition, why did the Golden State Warriors sell for a then-record $450 million the year previous to that?

Now, the players can invoke an even larger deal after former Microsoft CEO Steve Ballmer bought the LA Clippers from its controversial long-time owner Donald Sterling for a mind-boggling $2 billion. And these are not even the Lakers, who are traditionally the more celebrated franchise in Hollywood!

“The whole thing that went on with the last negotiation process was the owners were telling us they were losing money. There’s no way they can sit in front of us and tell us that right now,” LeBron James was saying when asked how he thought the new TV deal would affect the next CBA negotiations.

“After we continue to see teams selling for billions of dollars, being purchased for $200 million, (selling) for $550 (million), $750 (million) and $2 billion and now (Mikhail) Prokhorov is possibly selling his majority stake in the Nets for over a billion. So that will not fly with us this time.”

At the very least, the league’s salary cap will undergo a drastic upgrade. The cap had undergone a 27.4% increase over the last 10 years, going up from $49.5 million to $63.1 million after hovering around $58 million for about 5 years before jumping by some $5 million this season due to revenue increase. One can just imagine what the huge rise in TV revenue would mean to the cap using the history of that main component of the league’s earnings.

From a miniscule $1.5 million from USA TV for three years in 1979-1982, for instance, the TV income rose to $11 million for two years on a pact with USA/ESPN from 1982-1984 and to $20 million for two years with TBS from 1984-1986. It then gradually grew to $25 million for two years with TBS in 1986, to $50 million (two years) with TBS/TNT in 1988, to a breakthrough $275 million (four years) with TNT in 1990, and to $397 million (four years) with TNT/TBS in 1994 before more than doubling to $840 million for four years with the same network in 1998.

The TV contract then breached the billion-dollar mark when the league signed a $2.2 billion, six-year deal with TNT in 2002, presaging the existing $7.5 billion, eight-year agreement the league inked in 2008, which set up the current deal that would account for a record increase of 186 percent.

While it’s unlikely that the new deal will also account for a similar magnitude of increase for the salary cap, Adam Reisinger of ESPN estimates that the cap may rise to $88 million in 2016-17 when the deal kicks in, which would represent a 39.5% increase from the current ceiling of $63.065 million.  This is significant when one considers that the cap just had an incremental increase of a little more than 27 percent for the past 10 years.

That preordained leap would inevitably affect many things besides the cap, including the maximum player salary as well as the league’s luxury tax level that currently stands at $76.289 million. As we previously said, the new TV deal is the major reason why James, for example, just signed a two-year deal in his return to Cleveland instead of the full max to which the league’s acknowledged top player is unquestionably entitled.

The implementation of the deal is actually planned such that the money will be infused on an escalating basis. When the contract kicks in for the 2016-17 season, it will start at $2.1 billion, and it will then escalate in even year-to-year increments and top off at $3.1 billion in the final year in 2024-25. There is, however, a possibility of both the NBA and its TV partners – who are the same partners in the old deal anyway – agreeing on “smoothing,” or spreading out the increments even more evenly by making the 2015-16 season, the season the current deal expires, a “hybrid” year of sorts through the application of a price bridging the current $930 million and the incoming $2 billion-odd. That would further make the jump in revenue after that season a bit less dramatic, and possibly stave off one summer of freewheeling spending.

Superstars LeBron James and Kevin Durant could see a big pay increase when the new NBA TV deal kicks in. File photo by Larry W. Smith/EPA

This is particularly ominous in the face of the looming free agency in 2016 of Kevin Durant as well as James himself, his former teammate in Miami Dwyane Wade, who signed just a two-year contract this summer with the Heat, and New Orleans’ Anthony Davis, whose rookie deal will run out at that point, making him then eligible for the max.

Grantland’s Zach Lowe, in fact, warns that for all the Brooklyn Nets’ cap issues right now, a huge spike in the cap could put them in the position to take on two more maximum cap slots on top of Deron Williams’ existing contract. Ditto with the New York Knicks and the Lakers, who could, in fact, take three max cap slots with Kobe Bryant’s huge deal set to expire that year.

But the resolution of the cap issue could be a messy one in the face of the conflicting interests between the players and the owners, and this presents the potential of a labor dispute between the two parties in 2017, when either one of them can opt out of the existing CBA.

“I hope guys are preparing,” Williams, who represents the Nets on the players’ union, said when asked about a possible lockout like what happened in the last labor negotiations in 2011.

Of course, James has made his point clear about those previous talks, which could just provide the impetus for the players to initiate another faceoff.

While player salaries will certainly continue to rise as the TV payouts do, the players are still smarting from the massive concessions they made in 2011, giving up $300 million yearly after the owners (22 of them) claimed hundreds of millions of dollars in losses.  But with the new TV deal in place, team owners are set to collect $70 million each starting in 2016-17, more than doubling their current take and removing the justification for those concessions in the eyes of the players.

“I think it’s a pretty good bet, based on both of those things (that the players will opt out),” Michele Roberts, the union’s new executive director who took over from the discredited Billy Hunter in July, told Bleacher Report even before the new TV deal, which had long been anticipated, could be announced.  “It would be silly for anyone to assume (otherwise).”

The players certainly want some of those concessions back by pushing for a restoration of a few percentage points in their BRI share, particularly with the league’s enormous windfall from its TV rights and the Clippers’ recent record sale for $2 billion. These twin developments alone have emboldened them and their agents in the belief that they deserve a larger share in the growing pie.

“Both sides continue to grow it, but there’s some things that we’d like to see changed as players going forward,” James declared as he talked of the TV deal.

One of those changes could be the pursuit by the players’ union of the abolition of maximum contracts, where James himself could possibly become the first $34 million man, which would break the record $33 million annual paycheck received by Michael Jordan in 1997-98. James would not comment directly on the subject, but ESPN’s Brian Windhorst, for one, has hinted that the increase or removal of max contracts is indeed part of James’ agenda when the next CBA comes.

But the league’s reigning MVP, Durant, has made no bones about his stance on the subject, saying that he is all for the abolition of a maximum restriction on player contracts, drawing a retort from Dallas owner Mark Cuban.

Cuban said that if the league does that, the players have to be willing to give up something significant in return. “If you give up guarantees, that’s a tradeoff,” Cuban said.

Durant, however, snapped back the players can’t do that. “I don’t think that makes sense,” the Oklahoma City superstar said over the weekend. “Give up guarantees?  Nah, I don’t think so. Why? Why would we do that? Just because we asked for… I’m not going to talk about this, man.”

Durant said the league should do away with a ceiling on player salaries since a number of maximum-salaried players generate more revenue than they are paid.

“Look at it like this: Kobe Bryant brings in a lot of money to Los Angeles, that downtown area,” Durant told The Oklahoman. “Clippers are getting up there – Chris Paul, Blake Griffin and those guys are bringing in a lot of money as well. Look at Cleveland, look at Miami when LeBron James was there.  These guys are worth more than what they are making because of the money that they bring to that area.  That’s a conversation you can always have, but until it’s changed, you never know what will happen to it.”

Other contentious issues that will need to be addressed if negotiations are reopened are the matter of higher minimum salaries, longer contracts, a richer rookie scale and fewer restrictions on payrolls.

Minimum salaries, as well as rookie salaries and the mid-level exception – the primary tool used by teams over the cap to sign quality players – are locked in for the duration of the current CBA. They are not like max contracts that rise in proportion to the cap and illustrate the reality that not every class of player will benefit the same way from the coming cash surge. While all those salary levels outside the max deals will rise moderately in the coming years based on predetermined formulas, their growth will be miniscule compared to the growth in the cap. 

The players, besides seeing their share in the BRI being slashed in the last CBA, also had to give in to a more restrictive luxury-tax system that penalizes the league’s biggest spenders and thus acts as a virtual hard cap on most clubs. The teams that do pay the tax also surrender such rights as the use of the full mid-level exception and the bi-annual exception as well as the ability to acquire players via sign-and-trades.

The players obviously would want to have those restrictive measures reduced, if not totally abolished, under the circumstances of a booming business. And the owners, obviously, too, would have less incentive to opt out of a system that benefits them now just fine, although nobody can tell if there are some among them who could try to push the envelope even further at this point when more money is coming in. 

“I think we have a very fair deal,” NBA commissioner Adam Silver reflected when asked about a potential labor stoppage in 2017. “I don’t want to speak for the union, and I’m not prepared to make a judgment yet from our owners’ standpoint… But it’s my hope that even if we have to do some tinkering or make some adjustments, we can avoid any sort of work stoppage.”

“At the end of the day, we will negotiate,” James, for his part, said. “We know it’s going to happen at some point because our deal is ending soon. We would love to do it sooner than later. We don’t want to it to happen like it happened last time when we went into a lockout.”

Who will blink first? The fans, as usual, will be left as bystanders. It is just the hope of the game’s followers that if and when another labor standoff does ensue, the interest of a public that has enabled the league to grow to where it is now will also come into the equation and serve as a tempering factor for the contending parties. That’s the least they can do for them who have helped both players and owners get extra rich.

SHORTSHOTS: Chris Bosh, who had said he had not spoken to former teammate LeBron James since he decided to leave Miami three months ago and didn’t plan to do it anytime soon, was just glad they could get their first meeting with James after that parting out of the way. “I like the fact we could get everything out of the way,” said Bosh after scoring 19 points in the preseason game between the Heat and James’ new team Cleveland in Rio de Janeiro, Brazil over the weekend, which the Cavaliers won 122-119 in overtime. “Just let everybody see it, so we can move on. As far as seeing LeBron on another team, we’re pretty much over that now.”

Kenneth Faried had the contract extension he signed with the Denver Nuggets reworked to four years and as much as $52 million with incentive clauses. The reconstruction of the original five-year contract was made after both sides found out that five-year extensions can only be allowed for maximum contracts. The 6-foot-8 Faried would have become an unrestricted free agent next year had the Nuggets not signed him now.

Other players whose extension deadline is approaching on October 31 with their rookie contracts set to expire include Kawhi Leonard of reigning champion San Antonio, Kemba Walker of Charlotte, Klay Thompson of Golden State, Jimmy Butler of Chicago, Nikola Vucevic and Tobias Harris of Orlando, and Brandon Knight of Milwaukee.

The Indiana Pacers have signed coach Frank Vogel to a multi-year contract extension, ending speculation he may be on the way out after losing for the second straight year to Miami in the Eastern Conference finals. The 41-year-old Vogel took over the Pacers in 2011 with Jim O’Brien’s firing and steered the team to its first postseason appearance since 2006. In 2012, he led the Pacers to their first playoff series win since Reggie Miller retired in 2005 before a back-to-back appearance in the conference finals the past two years. “We’re very happy to extend Frank’s contract,” Pacers president Larry Bird said. “I believe he has done a great job and I look forward to continuing our relationship and working together to achieve all of our goals.”

Four players of the Washington Wizards – DeJuan Blair, Nene Hilario, Daniel Norton and Xavier Silas – have been suspended one game each for leaving the bench during an altercation between new teammate Paul Pierce and Chicago’s Joakim Noah in their preseason opener. Noah and Pierce were fined $15,000 each.

Atlanta center Al Horford, out since late December after tearing his right pectoral muscle, has joined the Hawks’ five-on-five drills and is optimistic he can play at least two preseason games.

Two other centers who missed a good chunk of the previous season, Andrew Bogut of Golden State and Brook Lopez of Brookyn, are now back in the court playing in the exhibition season. – Rappler.com

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