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Key players in labor negotiations from left to right: Commissioner David Stern, Deputy Commissioner Adam Silver, NBPA Executive Director Billy Hunter and President of the NBPA Executive Committee Derek Fisher

CBA Basics: Owners, players brace for negotiations


Posted Nov 17 2010 4:14PM

The Issues
Glossary

The NBA's collective bargaining agreement -- the blueprint for all business that takes place between the league and its players in this multi-billion dollar industry -- expires on June 30, 2011. If the two sides are not able to hammer out a new agreement by then, the league seems almost certain to stop operations until a new one is signed. That would effectively "lock out" the players and threaten the start of the 2011-2012 season.

Both sides have insisted that reaching an agreement is paramount to maintaining the league's soaring popularity. The NBA has had only one work stoppage in its 64-year history -- the 1998-99 lockout that reduced that season to 50 games -- though negotiations always stir passion and sometimes rancorous debate.

"We know we're going to get an agreement done," NBA commissioner David Stern said on the eve of the season. "And we think that the enthusiasm of the season and the prospective growth that it will ultimately represent will enable us to sit down with the players and negotiate in good faith. And we both seem intent on doing all that we can to reach a deal."

National Basketball Players Association president Derek Fisher, a guard for the Los Angeles Lakers, said earlier this year: "We don't want a lockout. We don't want our fans to not experience our game. We want to play basketball. That's what we love to do and that's what a lot of us have been blessed to do. There's no desire on our part to not play basketball in 2011-2012."

If the two sides agree on one thing, it is that achieving labor peace is going to take time and a lot of painstaking work. The sides continue to talk, somewhat sporadically, yet they reportedly remain apart on several important issues.

Tops among them, as is often the case: money.

The NBA is pushing for a dramatic adjustment to the league's economic system. Stern claims that the NBA has lost more than $1 billion since the current CBA went into effect in 2005-06, including $380 million last season. In October, Stern said that the league is looking to cut $750-800 million annually from player salaries and benefits that total $2.1 billion, though the league reportedly may be willing to phase in those cuts.

The players note that the NBA, by its own accounting, is coming off a season of record revenues, which has led to bigger player payrolls and the highest cap on salaries ever. A LeBron James Summer that helped spur season-ticket sales to their highest levels in years has only added to the league coffers. Sports Business Journal reported in September that the league had received $100 million in new full-season ticket sales.

The league contends that costs -- mainly player salaries -- have skyrocketed out of control. It claims many teams continue to lose vast amounts of money, necessitating the new economic model. The league won't say how many teams lost money last season, but Forbes put the number at 12 for the 2008-2009 season.

"Even though we reported we have record season ticket sales over the summer and otherwise very robust revenue generation, because of the built in cost of the system, it's virtually impossible for us to move the needle in terms of our losses," said deputy commissioner Adam Silver, the league's chief negotiator. So the league has proposed, among other measures, a set restriction on salaries -- a "hard" salary cap -- along with the rollback in player salaries that Stern mentioned in October.

NBPA executive director Billy Hunter has disputed both the league's figures and its accounting methods. He added that the league's insistence of "a hard cap, a 40 percent rollback in player salaries, unlimited expense deductions and the elimination of guaranteed contracts" would "inevitably result in a lockout and the cancellation of part or all of the 2011-2012 season."

The league actually has an option to extend the current CBA for a year, as long as it notifies the players union by December 15. But the league almost certainly won't sign on for another year of what they consider a bad deal. Stern, Silver, key owners and a host of lawyers are ready to work with the union to hammer out something new.

Here's a look at some major issues that face the two sides in what promises to be a complex and -- if history is any indicator -- sometimes contentious negotiation. (For a more detailed glossary of some of the basketball labor terminology used below, click here.)

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The Salary Cap

What you need to know: The owners' initial proposal, according to reports, called for a "hard" cap, which sets a fixed figure on team salaries that cannot be exceeded. Players favor a softer cap, which includes several exceptions (see glossary, and below).

Bottom line: An insistence on a hard cap could be the major sticking point in these negotiations. The union flat-out doesn't want one. The league says it has to have one, though some outsiders suggest that owners would be willing to discuss a cap with fewer exceptions than the current one.

Salary Cap Exceptions

What you need to know: Both sides favor the ability to create a system that would help teams to keep their own free agents. A logical way to do that is with exceptions to the cap. A new agreement could bring new exceptions, such as the "franchise" tag that's used in the NFL. An enhancement of Bird rights (see Glossary) is another possibility. "Amnesty" provisions could be reinstated to allow teams tax relief for current contracts, too.

Bottom line: Despite the owners' insistence, an NBA with a "true" hard cap, one without any exceptions, will be hard to come by given the union's stringent resistance to the idea.

Basketbal Related Income

What you need to know: Players get 57 percent of all Basketball Related Income (see Glossary) in the current agreement. That percentage, along with what constitutes BRI, is going to be hotly negotiated.

Bottom line: The league not only wants to scale back the percentage of BRI the players receive -- from 57 percent to about 41 -- it wants to narrow what revenue is considered as part of BRI. The union, predictably, wants to keep the percentage at or near where it is now, and possibly include revenue streams that are currently not considered basketball-related.

Salary Rollbacks

What you need to know: Across-the-board salary rollbacks -- in effect, changing the terms of existing contracts -- are a possibility. The NHL bargained for a 24-percent rollback on all existing salaries after its 2005 lockout. Such a move in the NBA could impact all current contracts.

Bottom line: The union and its rank-and-file would fight against restructuring existing contracts.

Revenue Sharing

What you need to know: Owners are in agreement on the need for increased revenue sharing among teams. Currently, about $54 million is divvied up. The league's position is that better revenue sharing will help teams compete and give them a reasonable expectation of being profitable.

Bottom line: This would seem to be a mostly owner-controlled issue, but players must agree to any revenue-sharing plan and will have a say on what monies are to be considered for the revenue-sharing pot. The union wants healthy teams, too -- financially and on-the-court competitively -- because that means more job security for players and, theoretically, better wages.

Guaranteed Contracts

What you need to know: Owners reportedly favor a system that would allow them to cut their losses on so-called "bad" contracts for underperforming players. That could mean shorter-term contracts and less guaranteed money.

Bottom line: Guaranteed contracts have been a staple in the NBA for years. The union isn't going to give up what they have without a fight.

Contraction

What you need to know: Stern has said that the idea of eliminating at least a couple of teams in order to enhance the league's bottom line -- and its on-court product -- is on the table.

Bottom line: Contraction remains a longshot for a few reasons. One, there's a question as to whether any teams, even those losing money, would be willing to sell. Two, other cities may be willing to take on a struggling NBA franchise, so many argue that relocation should be considered before contraction. And, of course, cutting teams would mean fewer jobs for players. That's something the union would fight.

Other Issues

Rookie salary scale

Drug policy

NBA Development League

Conduct and discipline rules

Pensions

--.

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BASKETBALL RELATED INCOME

Generally, income received as a result of basketball operations. The sources include broadcast rights, gate receipts, sponsorships, proceeds from NBA properties, percentage of arena naming rights, suite proceeds, concessions, merchandise sales, etc.

Players are guaranteed 57 percent of BRI in the current agreement. The BRI figure for last season was approximately $3.6 billion, with players guaranteed nearly $2.1 billion in salary and benefits.

LUXURY TAX

An amount levied on teams that exceed the salary cap. The luxury tax level for this season is $70.307 million. Teams whose player payroll exceeds that figure will pay a dollar-for-dollar tax. For example: A team with a payroll of $75.307 million pays $5 million in luxury tax.

The luxury tax is split evenly among the teams that do not pay the tax. Each gets 1/30th of the pot. The remaining money is controlled and used at the NBA's discretion.

SALARY CAP

The limit teams can spend on salaries. The salary cap for 2010-11 is $58.044 million, an increase from $57.7 million last season. It's calculated by multiplying projected Basketball Related Income (see above) by 51 percent, subtracting player benefits and then dividing the result by 30 (the number of teams in the league). The minimum team salary, by the way, is set at 75 percent of the salary cap. This season, that equals $43.533 million.

The league wants a "hard" cap, which would strictly disallow teams from exceeding a calculated payroll limit. The league's current salary cap can only be described as "soft," because it includes several methods that teams can go over the cap (see Salary Cap Exceptions).

SALARY CAP EXCEPTIONS

Rules that allow teams to exceed the cap if the player meets certain criteria. Here are some of the current exceptions:

Qualifying Veteran Free Agent (Bird Exception): Used for a free agent, eligible for up to the maximum salary, if he played for that team for some or the entire prior three seasons, or if he changed teams by trade.

Early Qualifying Veteran Free Agent (Early Bird): Used for a free agent eligible for a salary of up to the greater of (a) 175 percent of the player's salary in the last season of his prior contract or (b) 108 percent of the average player salary for the prior season. The player had to play for the team for some or the entire prior two seasons, or changed teams by trade.

Non-Qualifying Veteran Free Agent (Non-Bird): Used for a free agent who is neither a "Bird" nor an "Early Bird" player. He can sign up to (a) 120 percent of the player's salary in the last season of his prior contract, (b) 120 percent of the player's applicable minimum salary for the current season or, (c) if the player is a Restricted Free Agent, his Qualifying Offer amount.

Bi-Annual: Can be used to sign one or more players to contracts with first-year salaries totalling up to $2.08 million for 2010-11. Can be used only every other year.

Mid-Level Salary: Can be used to sign one or more players to contracts with first-year salaries that provide for a total of up to 108 percent of the average player salary for the prior season. Set at $5.765 million for 2010-11. Can be used every year.

Rookie: Teams may sign their first-round Draft picks for up to 120 percent of the Rookie Salary Scale amount, as negotiated in the CBA.

Minimum Salary: Teams may sign a player to a one-year or two-year contract at the applicable minimum salary determined by years of service.

Disabled Player: Teams may replace a player who suffers a season-ending injury with one player making up to 50 percent of the injured player's current salary.

Traded Player: If a team trades a player's contract to another team, that team can replace the traded player with one or more players acquired by trade. Teams have up to one year to complete transaction to comply to the Salary Cap rules.

OTHER POINTS OF INTEREST

In the current CBA, the maximum length on contracts between a team and its Bird free agents, or between a team that is extending rookie contracts, is six years. For the minimum salary exception or bi-annual exception, it's two years. Rookie contracts are two years, plus two one-year team options. All other contracts, including extensions, can be as long as five years.

The maximum player salary, per year, is based on a player's years of service and a percentage of the salary cap. For players with fewer than seven years of experience, the maximum salary is now $13,603,750. Between 7-10 years, $16,324,500. Ten or more years, $19,045,250.

The current agreement has an allowance for a player's annual salary to either increase or decrease, as negotiated on the contract's signing. Contracts with Bird or Early Bird players can be negotiated to be increased or decreased after the first year by up to 10.5 percent of first-year salary. For all other contracts, it's 8 percent in both directions.

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