DJ COMMUNITY

David Stern and the NBA Owners: Looking for a Bailout

Lord Edward Cecil once defined compromise as “an agreement between two men to do what both agree is wrong.” So far, only one side at the table in the NBA labor negotiations has started inching towards the uncomfortable ground where a deal is likely to get done. The Players Association has expressed a willingness over the past two weeks to give up a significant share of basketball related income in exchange for keeping the soft cap. The owners, according to most reports, met this offer with zero movement — demanding both lower player percentage of BRI and a hard cap to drive down player salaries. With the first night of the season less than a month away, the summer’s largely meaningless posturing is behind us. For here on out, each day without an agreement is another day of NBA games scratched from the schedule.

David Stern didn’t have a particularly good weekend. Leading into Friday and Saturday’s negotiation sessions, the Commissioner reportedly issued a now-or-never ultimatum to the players. The next day, he quickly back-peddled off the widely-reported threat, an unusual loss of message control for a man who has earned his $15 million plus a year for his mastery of such spin. Stern plunged further into unfamiliar territory on Friday, with Dwayne Wade reportedly calling out Stern’s famously condescending demeanor to his face. In lockout limbo, Stern has been stripped of all his usual retaliatory tools — no fines, no suspensions, not even a halftime-interview soapbox for him to “set the record straight.” And although it’s hard to tell just yet — the real negotiations have only just begun — there are rumblings that Stern may be facing just about the most foreign experience the master manager could imagine: a loss of cohesion among the owners he’s so ably steered through more than two decades of labor negotiations.

The issues three months into the lockout are nearly identical to the issues on day one: the owners have a fundamental disagreement about how to operate their league, and they’re looking to build a compromise at the expense of the players. Faction A of the owners just wants a bigger piece of the revenue pie, but doesn’t care about imposing a hard cap on how much teams can spend (and players can earn). Faction B wants a bigger piece of the revenue pie, but also claims to need an additional restriction on the owners’ spending predilections (the hard cap) to ensure that they can turn a profit. The obvious compromise among the owners is a bigger slice of basketball-related income (BRI) and a hard cap. Unfortunately for basketball fans, that proposal is — and should be — a non-starter for the players.

There are complicated ways to explain why the owners’ BRI+hard-cap option makes no sense for the players — without Bird-right and mid-level exceptions, the players lose some of their best tools for negotiating up the value of their deals by playing off the largess of deep-pocketed teams. But at its core, the players’ objection is simple: a hard-cap is little more than a profit-sharing system to protect small-market teams — but one that takes its profits from the pockets of players rather than large-market owners. It’s a highly-regressive solution, capping the earning potential of all the players to protect the profits of a few owners that can’t otherwise make a profit thanks to their own lack of business sense or fundamental flaws in their markets (like, say, New Orleans losing a third of its fanbase post-Katrina). The owners already operate in a highly-regulated environment that places significant downward pressure on player salaries. You can argue all you want about whether players “deserve” what they make, but in purely economic terms they likely could earn even more if it were a truly competitive market among teams for their services. There’s no rational reason for them to accept a reduction in BRI and a hard cap.

If the owners and players were to meet somewhere in the middle, the most sensible deal would be a reduction in BRI with the current cap structure in place. Both sides get some of what they want, and the small-market teams become the owners problem to clean up through increased profit sharing — profits they can take from their now-larger pool of BRI. But this deal hinges on Stern being able to get the wealthy/big-market owners on board with profit sharing or the small-market owners to ease their demands for profit protection. So far it appears he hasn’t wanted or — more ominously — hasn’t been able to do either. The big-market owners pose a challenge because they’re the true power of the NBA, and the least likely to feel a need to rush into a deal. The small-market owners are equally entrenched because many of them recently purchased their teams and are highly leveraged with inflated prices. Their investments don’t make economic sense in the modern economy unless they change the rules of the game. And until one side of the inter-owners dispute gives ground, it’s hard to imagine the owners collectively proposing to the players a deal they’ll accept.

Ironically, the biggest test of Stern’s commissioner career is largely a mess of his own making. It was under Stern’s leadership that the NBA became a players’ league — driving up the value of superstar contracts, which eventually turned into a rising tide lifting all boats. Stern oversaw the expansion of the NBA into smaller and riskier markets — providing a nice pay-day for the league but making the long-term economics much more challenging. And most recently, Stern orchestrated the sale of numerous franchises for investment-bubble prices. In anything less than a boom economy, some of those investments are now looking unsustainable, and the owners that made questionable choices on them are looking for a bailout. David Stern and the NBA owners he serves have yet to articulate any reason that bailout should come at the expense of the players.