FanPost

Some Thoughts on the Business of Sports and the CBA Negotiations

I must admit that my thinking has been somewhat muddled on how to think about the current CBA negotiations, which is unusual for me, because right or wrong, I'm usually sure.  Seriously, I've spent a significant amount of time and thought on labor issues in my life, but it took me a while to figure out why these sports negotiations seem so complicated.  Below the fold, a long (long) essay on why this is so complicated, what the issues are, and how I think they might play out.  (I don't think I got the formatting right; hopefully you can follow).

  1. Why do we have trouble approaching/thinking about this issue? It seems to me that we often get bogged down when trying to figure out both what the issues are and what they should be.  There are a couple of reasons why this is.  First, because in a usual labor/capital dispute, while we might have differing political or philosophical viewpoints, the questions are fairly straightforward.  It’s the Steelworkers vs. U.S. Steel.  The issues are about economics and working conditions.  What rights should workers have?  What protections?  In a sports labor dispute, however, there is a 3rd side, which is not represented at the table, and that is the fan.  Ultimately, how the U.S. Steel negotiations play out don’t effect us in a direct or even noticeable way.  Sports, however, are obviously different, in that we are much more invested in them.  Second, sports leagues/franchises rest uneasily within our understanding of business competition and our anti-trust laws.  Are NBA franchises competing businesses, or are they a partnership?  Obviously, the different teams "conspire" on things like schedules, rules, and even collective bargaining.  On the other hand, teams compete with each other for players, and for fans.  Furthermore, unlike a situation where a business is negotiating with a union for its best interests (as they should), here, there are 30 businesses, not all of which necessarily have exactly the same interests.  Small market vs. large market.  L.A./Miami vs. Milwaukee/OKC. 

 

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    1. Fan investment in collective bargaining.  I acknowledge that I tend to look at collective bargaining from a workers’ rights perspective.  That’s why some of the ideas thrown around, like franchise tags and one-way guarantees rub me the wrong way.  Why should worker earnings be artificially limited?  On the other hand, many of the good people I argue with have a completely legitimate perspective—that of making the game as good as possible for the fan.  That means making player acquisition/retention as even as possible across the league.  It means trying to create conditions which make success on the court as close to equally available to all franchises, to the extent that they are managed effectively.

 

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    1. Related to that is the question of whether the NBA is one business or 30 businesses.  Are they partners or competitors?  In a normal competitive environment, Dell and Gateway are competing, and that’s a good thing for consumers.  They compete on quality and price, and we get the benefits.  Each company would like to out-compete the other so much that they drive the other out of business.  However, in the NBA, teams obviously need each other, because the product itself is the competition.  But we are, justifiably, hesitant to extend complete protection from the anti-trust laws to sports franchises.  This was the heart of last year’s American Needle case, in which the Supreme Court ruled 9-0 that, at least in the context of licensing, the NFL (and by extension all sports leagues) is NOT one entity, but 32 separate businesses.  Ruling the other way would have opened the door for sports leagues to claim 1 entity status for the purposes of labor relations, allowing them, for example, to collude on free agency.  The Court rightly (IMO) found the NFL to be over-reaching. 

 

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    1. However, in collective bargaining, what is fair?  As noted above, what fans want is a legitimate and even chance to compete regardless of whether they root for the Lakers or the Grizzlies.  Does that mean, then, that the players should accept a deal that satisfies the lowest common denominator?  Accept a deal that works for the smallest market?  The worst owner?  That hardly seems fair, especially if one of the results of that agreement is windfall profits for large market owners when players are getting significantly less than they would on the open market.  Whether they are doing so or not, the owners at least pretend that they are negotiating to make the smallest markets viable and profitable.  If, in fact, that’s what they were doing, it would be good for fans, and great for owners, but pretty terrible for players.  

 

  1. What’s happening in the NFL and how might it affect the NBA.  As everyone knows by now, the NFL negotiations broke down last week, the owners locked out the players, and the union decertified.  The reason the union decertified is because in this sort of collective bargaining, there is an inherent anti-trust exemption; if there is a union representing the players, and that union agrees to bargain with the teams as a unit, then there is no violation of the anti-collusion laws.  However, with no union, players can now go to court (which they have now done) asking for an injunction ending the lockout on the theory that the owners are colluding in restraint of trade to keep workers out of the workplace.  As a lawyer, I’m hesitant to assume I know what the court will do, but my best guess is that the players will win, and will be allowed to go back to work under the same conditions that prevailed under the previous agreement (the rules that governed the 2010 season).  If that happens, it obviously gives the NBA players a model to follow to avoid a lockout.

 

  1. The owners are demanding lower labor costs.  This is obviously the center of the dispute, as the players are quite happy with the status quo.  The questions arise are fairly clear: what’s a fair distribution?  As we discussed above, how do we make it fair for all franchises without radically low-balling the players?  What mechanisms are available to meet the situation? 
    1. Let’s begin with a threshold question: Should Glen Taylor make money when he provides a lousy product?  I think most of us would agree that Glen Taylor should not be guaranteed a profit merely because he owns an NBA team.  Put a sub-mediocre product out there year after year, and you don’t really deserve to make a profit.  However, I think most of us agree that Glen Taylor should be in a position to make a profit should he ever figure out how to put a successful product on the court.  I suspect that the current system allows for that, but I don’t know the numbers (I just know that I believe nothing that comes out of the mouth of David Stern).  The problem, though, is that there are always going to be lousy teams—if someone wins, someone else has to lose. 
    2. One of the things the owners have apparently asked for is non-guaranteed contracts.  Is this a good thing?  There are two kinds of non-guaranteed contracts: the NFL kind and the fair kind.  The NFL kind seem to me to be utterly unfair to the extent that I would not like to see them in my favorite sport.  One-way guarantees where the player is bound but the owner is not aren’t fair.  More fair would be a system in which either side could opt out of the contract.  Not earning your contract?  You can be cut after 1 year or 2 years.  Playing above the value of your contract?  You can walk away and be free to sign anywhere. 
    3. Hard salary cap?  Another thing the owners have talked about.  I think this would be very difficult to execute with the small rosters in the NBA.  In the NFL, you lose a few guys to the cap, hardly anyone notices.  It seems almost inevitable to me that if there’s a hard cap, some teams are going to lose their best players because of it, unless they further significantly lessen the maximum salary, which seems unfair to me, since the best players are all underpaid as it is. (The "Bird exception" got its name for a reason).  It might distribute the talent a little more, though ultimately, I doubt it would have much of an effect on results; certain players will still not be available to certain teams.
    4. Unintended Consequences.  Things we don’t anticipate always come along with major changes.  One of my guesses is that if they adopt non-guaranteed contracts (or shorter contracts) and a hard cap, there will be more player movement, which is not in itself a bad thing.  But I also think planning will become problematic for teams.  I still think it’s likely that, outside the draft, the best players will still not be realistically available to certain teams.  Clearly, the owners aren’t interested in the same things fans are; they are making these proposals because they want more money, not because they would help the game. 

 

  1. Solutions. I’m not smart (or stupid) enough to think that I have solutions that will satisfy everyone.  However, I do believe we can more broadly simplify the issues and options when we accept that the confusion comes due to the hybrid nature of sports leagues as I talked about above.  It seems to me that there are two models that are more or less working.
    1. The one entity model.  This is the NFL (despite what the courts say).  In this model, the franchises share almost all of the revenue, and strictly limit salaries.  I think the system the NFL has is awful for players, and while some advocate it because they say it provides parity, I’m not entirely convinced that it does.  Some have pointed out the worst-to-first potential in the NFL, and while I myself have no philosophical objection to teams going worst to first, I like to know why it happens.  We all knew the Heat would be better this year, and we all knew why.  I don’t really see this in the NFL.  There is an argument for sharing more revenue in the NBA, (and in all leagues), but it isn’t entirely clear cut.
    2. The independent businesses model.  This is more like MLB.  Teams share some revenue, but not nearly all of it.  There is no limit on salary spending.  This has not ruined baseball, and small and medium markets regularly succeed.  However, it’s certainly true that the Yankees can and do spend twice to five times what most teams spend, and there is some correlation between payroll and winning (as there should be).  Due to the nature of the games, I suspect that this correlation would be even higher in the NBA over the long term.  Not ideal. 
    3. The NBA has straddled these positions.  They have tried to limit salaries through the soft cap, but they don’t share very much local revenue.  And with these negotiations, it appears that they are trying to have their cake and eat it too.  In other words, they seem to want to negotiate based on the financial state of the weakest franchises/markets, while paying bare lip service to the idea of revenue sharing. 
    4. Revenue sharing.  Particularly local revenue sharing has its pros and cons.  If every cent of revenue were shared equally, providing each team with the same amount of income each year, spending on salaries could more or less be left to the market.  Some owners would be willing to endure short term lowering of profits (or even losses) in order to win, teams on the down side of the cycle could save.  On the other hand, sharing of all revenue severely reduces the incentive to innovate in an attempt to bring in more money.  Why spend on marketing when I only get to keep 1/30 of every dollar I bring in?  Further, is it a good thing that Donald Sterling can run his team like he does (or Glen Taylor for that matter) and be guaranteed as much income as a team, that, you know, does a good job? 
    5. The conflicting desires of our hearts.  Philosophically, I am a proponent of the MLB model more than the NFL model, because I believe in labor rights and unions.  I do acknowledge that such a system would probably be difficult in the NBA.  However, I think it bears pointing out that the thing we (fans) want—an equally fair shake for every team in the league, probably cannot be achieved by collective bargaining, unless we return to a draconian system in which players are not permitted any rights to free agency.  The reason for this is that most players (and indeed, most people) are going to prefer Miami and Los Angeles to Cleveland or Milwaukee.  If players are going to have free agency rights (which they are), it’s going to always favor certain markets.  We cannot legislate that away. 
    6.  The question ultimately is how we overcome all of this confusion and create the best system  From a fan perspective, my guess (and it is just a guess) is that what would ultimately work would be much more revenue sharing (evening the financial playing field at least).  If you want to limit guaranteed contracts, I’m not necessarily opposed to that, but I do think that needs to cut both ways.  My sense is that if you are going to have a salary cap, it has to have some flexibility. I want to know what you all think. 
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