The Sports Law & Policy Centre | The NBA Lockout
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The NBA Lockout

By Nandan Kamath

Introduction

On the 137th day of the National Basketball Association (NBA) labour lockout, the players finally decided to dissolve the National Basketball Player’s Association (NBPA), after attempts to carve an amicable Collective Bargaining Agreement (CBA) to between the franchise owners and the NBPA proved to be unsuccessful. This extreme measure was taken in response to the last offer made by the NBA and franchise owners who had also laid down an ultimatum. The NBPA upon finding that the offer did not satisfy their requirements, disbanded the union, and have now decided to take the NBA and the franchise owners to court seeking damages. With these developments having occurred on November 14, 2011, it seems likely that the entire NBA season 2011-2012 will be lost as a consequence. The current NBA lockout however, is not the first instance of its kind. NBA lockouts have plagued the game on three prior occasions, disrupting the seasons to varying degrees and resulting in considerable losses. In the present case, the NBA decided to lock out its players after the NBPA and the franchise owners failed to arrive at a consensus on the new CBA upon the expiry of the previous one.

Basketball Related Income

The NBPA and the franchise owners were at loggerheads, inter alia, on the issues of division of Basketball Related Income (BRI) and the introduction of a hard salary cap – a provision that did not feature in the earlier agreement. The previous CBA provided for a break-up in the BRI in the ratio of 57% and 43%, the larger share being allocated to the players. This meant that the majority of the BRI found its way into the hands of the players and not the franchise owners. The franchise owners demanded an increase in their share of BRI. They based their contention on the reasoning that, on account of the paltry share, they were registering huge losses as all the major expenses such as those on the procurement and maintenance of venues, advertising, marketing, etc. were borne by them. Over the course of the 2010-2011 NBA season, 22 of the 30 NBA teams were in the red with regard to their financial standing. The franchise owners had been collectively losing approximately $ 300 million annually. While the big market teams such as the Miami Heat, Los Angeles Lakers and Dallas Mavericks, who have extremely rich owners at their helm, may not have felt the pinch, the losses hurt the smaller market teams and their owners, especially in these financially stifling times.

In order to alleviate these losses, the franchise owners proposed a scheme wherein the BRI would be equally shared between the league owners and the players. This would significantly impact the earnings of the players as they would lose close to an estimated $ 1 billion over a 5 year period. The players who initially opposed the 7% reduction of their income, however, later agreed to come down to a 52.5% share in the BRI out of which 1% was to be deposited in a separate fund which would then be used for the benefit of retired players, thereby agreeing to sacrifice approximately $ 500 million in income over the next 5 years. The players who believed that they were the face of their respective teams and carried the weight of the NBA on their shoulders, refused to negotiate any further as regards the share in the BRI and also refused to accede to any further demands of the franchise owners. On the issue of team losses, the players were of the opinion that the predicament needed to be rectified by the franchise owners themselves by incorporating better revenue sharing measures among the 30 teams.

Player Salary Cap

The other issue that was being deliberated upon between the NBPA and the franchise owners was the introduction of a new ‘hard’ salary cap. A salary cap is instituted to either ensure that a particular player’s salary is not beyond a permissible limit or the salary of the team as a whole does not exceed a certain pre-determined amount. The salary cap would be determined on the basis of the revenues of all 30 NBA teams, the income of the NBA as a whole, and other factors. The players were opposed to the salary cap that was to be imposed upon the teams as a whole.

Under the previous CBA, there existed a ‘soft’ salary cap, somewhere in the region of $ 58 million. The ‘soft’ salary cap had numerous exceptions which were often misused by the teams that belonged to wealthy owners. One such exception was that the team could make payments in excess of the ‘soft’ salary cap by paying a ‘luxury tax’, a provision which did not really affect the wealthy owners. Thus, the tax which was to act as a deterrent failed to do so as the owners who would lose money on its payment would recover the same and more by putting together a championship winning team consisting of a multitude of stars. This soft salary cap resulted in some teams such as the Miami Heat and Los Angeles Lakers being able to afford better players and, hence, having better teams which were able to dominate the league. This disparity caused by the talent pool being shared between a few of the wealthy teams led to some teams being able to rule the roost while the others consistently wallowed at the bottom of the league.

In order to put an end to this practice, which was becoming unhealthy not only for the teams and the franchise owners but also for the sport, a hard salary cap of $ 45 million for all teams was proposed. The franchise owners also proposed the deletion of the exceptions enlisted in the earlier CBA and called for stricter punishments for those teams that flouted this amount by subjecting them to hefty fines. This, the NBA and the franchise owners believed, would lead to a more competitive league where every team would theoretically have a shot at the title. This salary cap was seen by the players as a further reduction in their incomes as it meant that they would have to forgo a large chunk of their salaries, thereby leading to large scale dissatisfaction.

With the decision to disband the NBPA, the players are now planning on taking the NBA and franchise owners to court and seeking treble damages and also instituting anti-trust lawsuits. The franchise owners for their part are willing to deal with the consequences of going to court. Consequently, basketball operations may not even take place for the year 2011-2012. NBA players, including superstars Kevin Durant and Carmelo Anthony, had filed class-action anti-trust lawsuits in 2 states – California and Minnesota  – respectively. The anti-trust lawsuit in California was assigned to a U.S. District Judge, Samuel Conti. The lawsuit in Minnesota is filed before the District Court which had previously given a ruling in favour of the National Football League Players Association in a similar matter.

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