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The National Basketball Association

Essay by   •  October 27, 2012  •  Essay  •  2,719 Words (11 Pages)  •  1,413 Views

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The National Basketball Association (NBA) has become a multi-billion dollar industry that has spread its appeal all over the world. However in early 2011, the league claimed that it was losing $300 million a year and that 22 out of the 30 teams were losing money under the current Collective Bargaining Agreement (CBA). The CBA is a contract between the NBA (the commissioner and the 30 team owners) and the National Basketball Players Association (NBPA). The CBA dictates the rules of player contracts, trades, revenue distribution, luxury tax, the NBA Draft, and the salary cap. These losses ultimately led to a 161 day lockout of the players by the owners upon expiration of the 2005 CBA. This lockout lasted from July 1, 2011 until December 8, 2011. The 2011 NBA Lockout was the fourth lockout in the history of the league and delayed the start of the 2011-12 season until the new CBA was signed. The lockout delayed the regular season from November 1 to December 25, and reduced the number of games from 82 to 66. The main issues that lead to the lockout revolved around a disagreement between players, represented by the NBPA, and the team owners. These issues primarily had to do with the division of revenue between the two parties, player contracts, as well as the structure of the salary cap and its exceptions. So how did the league, as popular as it has been in years, get to this point? Who benefits and who loses from the new bargaining agreement? And how is this new agreement supposed to lead to a more profitable league?

Before the 2011 lockout is analyzed, it is important to look at how these problems arose. After the NBA's previous lockout in 1998-99, the league and its players were able to reach a six-year bargaining agreement that expired in 2005. These six years went by, despite a dip in the NBA's popularity, without any reports of significant financial losses. In 2005 when negotiations began for a new CBA, both sides were able to quickly come to an agreement on another six-year CBA and were able to avoid a lockout altogether. However, it wasn't long before problems began arising. A year after signing the deal, eight owners in 2006 signed a petition requesting NBA commissioner David Stern to address the disparity between small-market and large-market teams. The petition stated, "We are asking you to embrace this issue because the hard truth is that our current economic system works only for larger-market teams and a few teams that have extraordinary success on the court and for the latter group of teams, only when they experience extraordinary success. The rest of us are looking at significant and unacceptable annual financial losses." In essence, that letter was the root of the 2011 lockout.

The CBA that was signed in 2005 dealt with a number of issues ranging from rules of player contracts, trades, revenue splits and sharing, rookie age-limits, the salary cap, and luxury tax. When the CBA expired in 2011 after years of financial losses for the NBA, most owners felt the terms of the new deal must be revised and changed. Most notably, they felt the rules regarding revenue splits and sharing, salary caps, and player contracts needed transformation. However, the players believed that no such change were necessary. This dispute, the 2011 NBA lockout was started.

The summer and early fall of 2011 lockout featured constant back and forth negotiations between the NBPA and the NBA owners. After numerous meetings, the two sides seemed far apart on most issues. By mid-November the NBPA had been dissolved, games had been cancelled through Christmas, and negotiations had stopped. Commissioner David Stern stated that the NBA season was in jeopardy in its entirety, and that the league could be headed towards a "nuclear winter."

After the 2011 reported losses, the owners felt that the CBA rules regarding the revenue distribution were the main issue that needed to be addressed. In the NBA, all basketball related income (BRI) is split between the NBA owners and the players. This BRI is composed of the money from ticket sales, national television contracts, local television deals, luxury boxes, concessions, jersey sales, and other team merchandise (basically everything tied to basketball). Under the terms of the 2005 CBA, the players received, in salary, 57% of the basketball related income (BRI) that the NBA brought in, while the owners received 43%. This system of revenue splitting was successful for teams like the Los Angeles Lakers and the New York Knicks located in large metropolitan areas. They had a big enough market, due to their population and popularity, to be profitable despite a system where the players received a significant amount more of the revenue. Even teams like the San Antonio Spurs, who had a lower population than L.A. and New York, were popular and consistently successful enough that they were able to be profitable. However, as mentioned in the owner's petition in 2006, the majority of teams had trouble making money due to both inconsistent success and smaller-market cities. To deal with this problem, the owners desired to lower the players' cut substantially. During the lockout, the owners called for the players split to be as low as 44%. This was strongly rejected by the players as it would have lowered salaries to less than three-quarters of their current level. Players were also skeptical of the losses that the teams had reported. Owners claimed to be operating in the red due to player salaries, but franchises kept selling for record amounts that exceeded their reported worth. Even the smaller-market teams were paying out big money. For example, Memphis signed non-All Star Rudy Gay to a max contract in 2010 worth $80 million over five years. During negotiations, the NBPA and its Executive Director Billy Hunter offered to lower their cut to 54%, but went no lower.

Another main issue of the 2005 CBA that lead to the lockout had to do with the NBA rules on the salary cap. The NBA salary cap is the limit to the total amount of money that NBA teams are allowed to pay their players. The actual amount of the salary cap varies on a year-to-year basis, and is calculated as a percentage of the league's revenue from the previous season. In the last four years the cap has stayed between $55 and $58 million. Like many professional sports leagues, the NBA has a salary cap to keep teams in larger markets (with more revenue) from buying all of the top players and extending their advantage over smaller-market franchises. However, unlike the NFL and NHL, the NBA features a "soft cap," meaning that there are several significant exceptions that allow teams to exceed the salary cap to sign players. This is done to allow teams to keep their own players, which, in theory, fosters fan support in each individual city. However, due to the long list of exceptions (Larry Bird exception,

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