| July, 2011 |
| Private equity execs are growing their ranks among pro basketball owners. In 2005, private equity firm Bain Capital offered to buy all 30 National Hockey League teams for $3.5 billion. The league was in the midst of a season-long player lockout, after claiming $500 million in losses over the previous two years. But most team owners weren't ready to turn over their keys, quickly rejecting Bain's offer and eventually restructuring on its own (including the implementation of a salary cap). Fortune |
| It was the first and last time that private equity had bid on an entire U.S. sports league. But, team by team, it slowly seems to be taking over the National Basketball Association. Fortune |
The league and players’ union have not held any official negotiating sessions since  the lockout began July 1. But they have spent plenty of time jostling in the press over the NBA’s claims that teams have collectively lost about $300 million per year on average over the last half-decade. This took the fun sport of basketball into the esoteric world of accounting, with the union (and some observers) claiming teams exaggerate operating losses by including interest payments, asset depreciation and other costs linked to the acquisition of an NBA franchises — costs the union insists don’t have much to do with the day-to-day cash operations of a team. SI.com |
| The league countered that franchise sales did not factor into final operating loss numbers, and that all the league’s financial records fell in line with Generally Accepted Accounting Practices (GAAP). Throughout the whole back-and-forth, the league reminded everyone that most private entities do not open their books to the public, but it did so for the union in unprecedented fashion as part of the larger negotiations. SI.com |
| But the players dispute that, according to the charging document in the unfair labor practices case it filed against the league with the National Labor Relations Board. They accuse the NBA of failing to bargain in good faith (something the league has denied), and “failing and refusing to provide relevant financial information … needed by the union to understand, test and analyze the NBA’s bargaining proposals as well as its asserted justification, based on financial weakness, for its grossly regressive contract demands.” SI.com |
| In addition, Katz said the union has made about 20 requests for various financial tidbits, and that the league has failed to respond adequately to those requests. He would not get into the details of those requests. SI.com |
| In addition to the New Orleans Hornets' obvious candidacy for contraction, what other NBA teams should be on the chopping block as the league seeks relief from hundreds of millions in annual losses? CBSSports.com |
| The NBA uses a formula developed by consulting group McKinsey & Co. that handicaps how teams are performing on and off the court given the size of their markets and available resources. This would be the place to start, though the NBA does not divulge the results of the annual study -- which it uses to dole out a portion of luxury tax and revenue-sharing funds. CBSSports.com |
| The NBA sent out a press release late Friday that included the 2010-11 season audit of all Basketball Related Income (BRI) and player compensation. Results: Holy mother of money. CBSSports.com |
| The league says: BRI increased by 4.8 percent from $3.643 billion in 2009-10 to $3.817 billion in 2010-11. Total player compensation also increased by 4.8 percent from $2.076 billion in 2009-10 to $2.176 billion in 2010-11. This marks the sixth consecutive season that player compensation increased under the expired CBA. Total player compensation equaled 57 percent of BRI. The average player salary for the 2010-11 season was $5.15 million. Over the six-year term of the expired CBA, the average player salary increased by a total of 16 percent. CBSSports.com |
| What's this mean? Why did the league do this? The NBA wants you to see that while yeah, the league is making a crapton of money the system clearly needs fixing because player salaries have also gone way up. The NBA might be raking in some $3.8 billion, but if it lost money last season, then what does that say about the system? CBSSports.com |
| That's the whole idea. But to fans and others, all they see is a dollar sign and the word "billion" behind it. It's also hard to ignore that revenues increased by 4.8 percent. The question the players have here, as always, is, "How in the world did your franchise lose money then? If you're paying us too much, run a better business!" That's essentially true in most ways and kind of hard to argue with. If I've got a small business and I'm operating with a $200,000 a year revenue stream but I hired all my employees and signed them to a bunch of five-year, $75,000 a year deals, I'd be kind of a moron, right? CBSSports.com |
| Children aren't the only ones who have problems with caps. From Joseph Valencia: I have a question about one of the top debating points of the CBA negotiations, the salary cap. What I was wondering was, why can't, as a compromise, the players give in to a hard cap, but demand for it to be higher than the owners' proposal of $62 million? If the cap was raised to around $70-75 million per team, teams like the Lakers wouldn't have to make as drastic salary cuts. Instead of being 32 million over the cap like they were last year, the Lakers would have to trim their payroll by only $15 or 20 million. But there would be less or no exceptions to the cap, just like in the NFL and NHL. Is there some reason why either side wouldn't want this? Since it seems like the whole NBA system could be drastically changed, this could be a good place to meet in the middle. NBA.com |
| Billy Hunter, is that you? As I've written before, the union would sign off on a hard cap if it's high enough -- think $75, $80 million and up. But there's no way the league would agree to such a system that would lock in fixed costs for salaries at such a high rate. Several low-revenue teams claim their chances at turning a profit or even breaking even financially becomes untenable for them even at the current salary cap limit of $58.044 million, so they likely wouldn't go higher even if they were able. Their hope is that teams like the Lakers have to come much closer to where they are than for them to go anywhere near where Los Angeles is. NBA.com |
| Keep one number in mind as powerful agents beat their chests about decertification: $4 billion. That's the total amount of guaranteed contract money in the system that the NBA and its owners insist will go poof if the players decide to dissolve the National Basketball Players Association. The only reason to decertify would be to hit the owners with an antitrust lawsuit that could, conceivably, net the players a huge financial windfall (treble damages, remember) that would then entice owners to the bargaining table. But it's a gamble. NBA.com |
| As far as the $4 billion goes, the league's contention that the contracts would disappear is true only to a point. At some point, the league will reach a deal with the union, and would almost certainly have to reinstate the players' contracts once the union recertified. The alternative would be either implementing work rules on the players without a deal, which would leave the league vulnerable to a potential players' strike, or additional antitrust penalties if players sought redress while they continued to play under the imposed rules. NBA.com |
At any rate, the agents do not believe that the league would actually go ahead and void  all of those contracts. Such a move could, at least theoretically, make every player in the league a free agent, able to go wherever they wanted. And owners like, say, Miami's Micky Arison, might have a problem with that. NBA.com |
| "Think of the chaos of that," a prominent agent said Sunday afternoon. "All of a sudden Kobe and Chris Paul and Deron Williams are free agents? Some owners would lose their marbles. If your top 20 players in the league could, all of a sudden, do what they wanted?...can you imagine Oklahaoma City? (Kevin) Durant and Westbrook? See ya." NBA.com |
| August, 2011 |
| For one, the pressure of losing regular season games isn't real yet for either side. Neither is the threat of losing money, especially after it was revealed last week that not only will the players get their $162 million escrow withholding back because salaries did not exceed 57 percent of BRI, but they also will receive an additional $26 million because salaries came in slightly lower. That's $188 million deposited into the players' lockout warchest, paid out according to salary. CBSSports.com |
"Even in that meeting we had, they didn't engage," Evans said. "In the proposals we've  given them, the players have compromised over $650 million into the owners' pockets over six years. You say you're losing money, and we've offered over $100 million a year to take out of our pockets and they say, 'That's all? That's all? Just a modest $100 million a year?' That's just not bargaining in good faith. It's hard to get anything done that way." CBSSports.com |
| The NBA contends that the players' $100 million-a-year concession would result in the average player salary rising from its current level of about $5 million to $7 million by the end of the NBPA's six-year proposal and says the players actually are proposing slowing the growth of salaries by $100 million a year. With every dollar sign and zero, the fans' eyes glaze over. CBSSports.com |
The owners made the first proposal before last season. They wanted to reduce the players' total salary  (roughly $2.2 billion) by $800 million and institute a hard salary cap of $45 million as opposed to the current soft cap (multiple exceptions are allowed for every team) of $58 million. As might be expected, it wasn't received well by the players. In fact, after hearing this offer, NBPA union director Billy Hunter told the players to prepare for a lockout and to miss a season. Concord Monitor |
| As it stands now, the players' last proposal offered to give back $500 million in salary during a five-year span. That would reduce their share of the Basketball Related Income (as defined by the current CBA) from 57 percent to 54 percent. The owners countered with a deal that would cut total salaries by eight percent, putting them at $2 billion a year, and keeping them there for the next 10 years. The players aren't having it. Concord Monitor |
| "If you punch in the projected growth numbers of the NBA, that eight percent goes to something like 12 percent in year two, 15 in year three, 17 in year four and so on, and by the end of the deal we'd only be getting 30 percent of the BRI," Bonner said. "We acknowledge the teams are losing money. We want to help them reach profitability as a league and we're willing to share that burden, but they want us to take all of it. And we want to share in some of the growth the NBA is going to experience as it moves forward." Concord Monitor |
| September, 2011 |
| Yes, under the 10-year collective bargaining agreement the owners have proposed, the gap is indeed somewhere in the area of $7-8 billion range. But if you look at the six-year deal the players have proposed, which includes $500 million less in annual revenue (than what they would have received under the old deal) over the six upcoming seasons, the simple math tells a different story: Sheridan Hoops |
| Over those six years, the difference in proposed revenues that would go to the players adds up to $2.97 billion. That is still a significant amount of money, but it is nowhere near as significant as what is being put out there publicly. Sheridan Hoops |
| Moreover, if you look at years 1, 2 and 3 of the proposals, the sides are a total of $870 million apart. (The players are asking for $2.17 billion in salaries and benefits in 2011-12, $2.33 billion in ’12-13, and $2.42 billion in ’13-14. The owners are offering a flat $2 billion per year.) Or to put it another way, in a business that brought in $4.2 billion in revenues last season, the sides are only $170 million apart for next season. Sheridan Hoops |
| Any day now, Kobe Bryant will receive a check in the mail for $1,984,400, courtesy of the NBA. Rashard Lewis’ check is for $1,565,817. Even oversized and overpaid Eddy Curry, whose name has come up in lockout talks as the symbol of what is fundamentally wrong with the NBA’s salary structure, is getting another windfall: $927,746. Sheridan Hoops |
| The money represents the 8 percent of each player’s salary that was withheld from their paychecks last season under the NBA’s escrow tax system, which was put in place to ensure that the players received no more than 57 percent of basketball related income in the 2010-11 season. Sheridan Hoops |
| A total of $161 million in escrow funds were withheld last season, and the league office sent a stack of more than 350 checks to the Players Association last week to begin issuing the refunds, SheridanHoops has learned. Sheridan Hoops |
| Sources say the two sides are trying to tackle the biggest obstacle first -- the split of revenues -- before fully addressing the system by which the money will be distributed. One of the people informed of the state of negotiations said the players have expressed a willingness to compromise on the split of revenues -- they received 57 percent under the previous deal and have proposed 54.3 percent as a starting point in a new collective bargaining agreement -- if they can keep many aspects of the current system in place, such as guaranteed contracts and contract lengths. But if asked to accept a dramatic decrease in their percentage of BRI and a curtailment of guarantees, rookie scale, cap exceptions and contract lengths, "I think the players would fight that to the end," one of the people said. CBSSports.com |
The most recent concessions by the owners that were made public included a "flex-cap"  with a $62 million midpoint and a sliding scale up and down -- similar to the cap system implemented in the NHL after a lockout that cost the entire 2004-05 season. On June 23, the players declined to counter that proposal after Hunter called the owners' demands "gargantuan" and said, "We just can't meet them." At the time, the owners also expressed a willingness to relax their insistence on eliminating fully guaranteed contracts -- which Hunter has called a "blood issue" for the players. CBSSports.com |
| There are some insiders, however, who believe the players’ offer to lower their share of basketball-related income from 57 percent to the 52 percent range was paramount to negotiations. Such a move encouraged positive vibes, especially when deputy commissioner Adam Silver intimated that economic progress had been made over the past two weeks. Boston Globe |
| Nearly 30 years ago, the NBA was a mess. A drug scandal had battered the image of players, a handful of bad owners were running teams into the ground, and the public generally didn’t care—even some NBA championship games were shown on tape delay. So when the league and the players’ union sat down to figure out a new collective-bargaining agreement, it was clear that they needed to do something drastic. David Stern, then a vice president under commissioner Larry O’Brien, put out a radical idea: How about if the league instituted a salary cap but, in doing so, guaranteed players a percentage of all league revenues? Sporting News |
| “We were struggling looking for a system that would work for both of us and, at the same time, get our business back on track or get it in line with what we felt should be a growth industry,” recalled Charles Grantham, an official under union head Larry Fleisher at the time who later became lead the union himself. “So Stern and those guys threw it out there, and Larry and I sat back and said, ‘Well, you know what? Given where we are, it may make sense if we can guarantee that the minimum percentage would be X.’” Sporting News |
| The X wound up being between 53 and 57 percent, and what happened thereafter was remarkable. The league took off. That was helped by the rise of players like Larry Bird, Magic Johnson and Michael Jordan, but it was helped, too, by the collective bargaining agreement that transformed the league’s business model. “It worked,” Grantham told Sporting News. “Business got better. Having the cap and having the system generated interest from new investors, and the value of franchises started to increase, we got better owners in, we got a better TV deal, and because of the deal we made, player salaries went up along the way.” Sporting News |
| The principle of a guaranteed revenue split has remained the foundation for all labor talks between the NBA and its players since then, and that’s the prime reason that Grantham—unlike so many other observers—remains positive when assessing the state of the league’s lockout. Because they take their revenue from the same pool, ultimately, what’s best for the owners is also best for the players. The brinksmanship that is going on now, as top-level officials from the league and union meet in New York on Thursday with the preseason now in peril, should not be a surprise. Sporting News |
| “The question of whether it is a hard cap or soft cap is unimportant,” Grantham said. “I don’t know that the NBA has had a real soft cap since I left in 1994, because then we had the full exceptions, no rookie wage scale, no maximum player contract. All those are in place now. I don’t know that you can go to any one of the players who signed a max deal and tell them there isn’t a hard cap. There was certainly a hard cap on their contracts. I think that is more semantic than anything. I don’t see either side, certainly not the players, missing salary over the question of whether it is a hard cap—in fact, it is a pretty hard cap now.” Sporting News |
| Stern, according to one source, told Hunter in Thursday's meeting the owners want to reduce the players' cut of basketball-related revenue to a figure well below 50 percent. Under the previous agreement, which expired July 1, the players were guaranteed a minimum of 57 percent of basketball-related revenue would be spent on salaries. ESPN.com |
| In negotiations, the players' union had offered to reduce its percentage to as much as 54 percent to accommodate the owners' contention they lost $300 million last season, with the stipulation that a mechanism would be instituted to reward the players if future revenue increased. ESPN.com |
| The league offered players a 46 percent of basketball-related revenue, 11 percent less than they received in last deal and seven percent less than last proposal by players, a league source said. Owners agreed to try to come up with a mechanism to solve their issues without adding a hard salary cap before the next meeting, according to the source. ESPN.com |
| In fact, according to a Forbes report cited by I am a GM, 12 NBA owners rank among the 400 richest people in America. Nuggets owner Stan Kroenke, however, is the only person on the list for whom “sports” is listed as the primary source of wealth. Sporting News |
Here’s where NBA owners rank on the list, as well as reported net worth.  No. 23 Paul Allen, Portland TrailBlazers, $13.2 billion No. 60 Richard DeVos, Orlando Magic, $5 billion No. 75 Mickey Arison, Miami Heat, $4.2 billion No. 107 Stan Kroenke, Denver Nuggets, $3.2 billion No. 159 Tom Gores, Detroit Pistons, $2.5 billion N0. 171 Mark Cuban, Dallas Mavericks, $2.3 billion No. 242 Glen Taylor, Minnesota Timberwolves, $1.8 billion No. 273, Herb Simon, Indiana Pacers, $1.6 billion No. 293, Dan Gilbert, Cleveland Cavaliers, $1.5 billion No. 293, Michael Heisley, Memphis Grizzlies, $1.5 billion No. 293, Donald Sterling, Los Angeles Clippers, $1.5 billion No. 309, Joshua Harris., Philadelphia 76ers, $1.45 billion Sporting News |
| As for reported here earlier this month, the sides began September $2.97 billion apart in aggregate dollars over the first six years of the proposed deal, with the owners seeking a 10-year agreement that would not raise players’ salaries and benefits to where they were last season – $2.19 billion — until Year 10. Sheridan Hoops |
| In recent discussions, owners have shown a willingness to raise their annual dollar disbursement, although the numbers being bandied about have been fluid. And while the difference in aggregate dollars between the two sides appears to have been reduced by approximately $400-$600 million in negotiations over the past month, the hypothetical nature of those discussions makes it impossible to nail down exactly how much the financial gap has been narrowed. Sheridan Hoops |
| The owners' number, one of the people familiar with the details said, represented a willingness to move off their most recent formal proposal to cap player salaries at $2 billion a year for the bulk of a 10-year proposal. So, do the math: Assuming 4 percent revenue growth next season to $3.95 billion, the owners' $2 billion proposal represented roughly 50.5 percent of BRI for the players. If the players were willing to go down to, say, 53 percent with assurances that a soft cap would remain in place, that would be $2.094 billion -- leaving the two sides only $94 million apart in the first year of the deal. CBSSports.com |
| The owners have sought a hard cap in every round of negotiations since setting up a soft one — then abandoned it when they got the dollars they wanted. If the owners are united as never before (as they say), and if they are due some relief on this issue, fixing it is no biggie. Here is a key component to remember: The Mid-Level Exception. Put in the 1999 agreement as a trade-off for the players accepting a limit on maximum individual salaries, it started at $1.75 million. Since then, it has grown into a monster. Last season the Mid-Level started at $5.8 million. With 8.5 percent annual raises, the role players it was designed for were getting five years and $37 million. That’s an average of $7.4 million annually. Sheridan Hoops |
| I just counted 24 full Mid-Level contracts ongoing, averaging about $5.5 million per season. Cutting the Mid-Level to a flat $2 million-per-year would save $3.5 million per year per player, or $84 million. Eliminating the Mid-Level entirely would save $132 million. Before negotiations began, it was assumed the Mid-Level was a goner, or would be slashed. Since negotiations began, we haven’t heard a word about the Mid-Level, and very little else on what side issues are being discussed. The owners would love paring down the Mid-Level, or dropping it… and I don’t think the players would be that unhappy to weaken it. If the owners bump up their minimums, never hard to do, the players would have 24 fewer journeymen at $7.4 million, but more bottom-rung players at, say, $750,000, compared to last season’s $473,604. Sheridan Hoops |
| All kidding aside, the split -- how much of the league's $4 billion in annual revenues each side should get -- remains the crux of the negotiations. According to sources, the owners made the last economic move, increasing the proposed players' share of basketball-related income (BRI) from about 44 percent in their late June proposal to 46 percent. The players' most recent proposal called for a salary freeze in 2011-12 (the same $2.17 billion they made last season) followed by a 54 percent share of BRI as a starting point for the rest of the deal. CBSSports.com |
| The key economic sticking point is that the owners have failed to offer the players what they consider to be a fair share of future revenue increases, which union economist Kevin Murphy and others have estimated at 4 percent a year. In fact, under the owners' June proposal of a flat $2 billion annually for eight years, the players' share would decline from about 51 percent in the first year to 39 percent in the eighth. CBSSports.com |
| I tweeted back on June 30 that there was probably a deal to be done at 52/48 in terms of the split in revenue (the players dropping from 57 percent of revenues to 52), and I think that remains the case. But if union director Billy Hunter brings forward a 50/50 split or even a 51/49 split, there would be a strong possibility that the deal would fail to be ratified by the union membership, which would put the sides back at Square One (and put Hunter out of a job). Sheridan Hoops |
| One of the concepts the players have resented most during these negotiations is that the sides are assuming 4 percent annual growth per season, but the players would not get any of those additional revenues because the owners were asking them to accept an offer that flatlined player salaries at $2 billion over the first seven seasons of the proposed 10-year deal. Sheridan Hoops |
| As for the players’ resistance to a hard salary cap, there is a middle ground that would likely be palatable to both sides: Keep the luxury tax, but make it more punitive — something like $2 in tax for every $1 spent over the threshold, rather than the current dollar-for-dollar tax. That would provide more revenue sharing money, in addition to the tripling of revenue sharing from income such as gate receipts and local television dollars that commissioner David Stern has promised. Sheridan Hoops |
Hi, tried to post this now for the third time. Not sure why this is not being allowed but wanting to know where to find the acoustic version of I Am Trying To Break Your Heart version you played on 4/1/12. Thanks.