On Monday, the National Basketball Player's Association rejected the NBA owners’ latest proposed collective bargaining agreement and announced that they would vote to decertify their union. For the first time in the now five-month lockout, the entire 2011-2012 NBA season is in jeopardy.
And while many people will blame greed on both sides for this situation, there’s more to the NBA lockout than billionaires and millionaires squabbling over percentage points of a multi-billion dollar pie.
The owners have received an unprecedented amount of concessions, and there are some ready to settle. The reason the lockout isn’t over is the small group of over-leveraged ones demanding an overwhelming victory, essentially asking the players to bail them out of their own poor business decisions. The players and the protestors of Occupy Wall Street are, in many ways, fighting the same battle.
The lockout is not being driven by a growth in player salaries. The league has grown steadily over the last decade while salaries have been capped at 57% of revenue. Had non-player expenses (adjusted for inflation) remained constant from 1999 to 2010, the NBA would have made a record profit last season.
Instead, a new generation of owners have bought into the league in the last decade, many with a net worth barely more than the value of their franchises. Now that their debt payments have soared in the aftermath of the 2008 economic collapse, they are looking to take as much money from the players as they possibly can so they can make themselves whole.
The deal the players rejected had an across-the-board 9% pay cut even though their industry has steadily grown at 4% a year in the middle of a recession.
It’s obviously hard to have sympathy for grown men getting paid fortunes to play a children’s game, but the money the league generates isn’t going to charity otherwise. Instead, it’s lining the pockets of owners like Dan Gilbert, who made his fortune selling adjustable-rate mortgages to people who didn’t need them, and Donald Sterling, who made a concerted effort to rid his rental properties of black families.
Many players aren’t earning anything close to their free-market value because there isn’t a free market for American basketball players. In contrast to their European counterparts, NBA players are subject to an age limit, a rookie draft, and a maximum salary.
Because of the NBA’s monopoly on professional basketball, these measures would be anti-trust violations if they weren’t collectively bargained. But there’s a strong temptation for ownership, who naturally have deeper pockets, to leverage that advantage unfairly in negotiations, which is why FDR created the National Labor Relations Board (NLRB) in 1934.
The owners waited months to come to the bargaining table, trying to use missing monthly paychecks as leverage while negotiating a 10-year deal. The players filed a complaint with the NLRB months ago, but the NLRB is operating with only a two-member quorum, as Senate Republicans have prevented the board from having its full complement of members since 2007.
The players have now been backed into a corner where their only option is to decertify the union and bargain for themselves individually, forcing the courts to issue a temporary injunction to end the NBA lockout. But when the NFL players tried that earlier this year, the owners were able to tie it up in court, a process which can take years to unfold while effectively ending the short-lived careers of many players.
In effect, the players have been completely powerless in these negotiations, despite being responsible for the majority of the NBA’s popularity and revenue.
In theory, ownership supplies the necessary capital to run a business, which is why they are entitled to a large share of the profits. But a modern stadium is a critical component of any NBA franchise, and taxpayers have been the ones supplying the capitol to build those, despite most research indicating they create little to no economic value.
To pay for these stadiums, municipalities often issue bonds that take 25-30 years to mature. A lack of revenue from NBA games this year would create a budget shortfall cities have to fill. Memphis, after spending $250 million on the Grizzlies’ FedEx Forum in 2002, could lose $11 million over the course of the bond, a problem for a city undergoing a massive budget crisisthat’s forced it to lay off hundreds of teachers.
The owners aren’t even endangering public services in an effort to remain profitable; the players have already conceded far more than the owners’ largely fictitious $340 million loss from last season. A 50/50 split of basketball-revenue would give owners an extra $3.3 billion dollars over the next decade.
In a broader sense, the lockout isn’t that different from the Wall Street bailouts of 2008: A few people who got rich profiting off public investments made a series of poor business decisions that left them over-leveraged, and rather than take the losses themselves, they frantically tried to force someone else to cover for them by using hostages — the NBA season, commercial bank lending.
What’s scariest of all is the sense of inevitably surrounding the whole proceedings. For many fans frustrated with the lockout, the bottom line is simple: The owners have a lot more money so they are going to win. Why delay the inevitable?
And if that’s what the U.S. has become, then so be it. But that’s not what my mother signed up for when she immigrated here to leave a third world country where justice had been completely distorted by the vast concentrations of wealth in the upper 1% of the population.
Photo Credit: Eric Kilby