On Monday, NBA Commissioner David Stern elected to cancel the first two weeks of the 2011-12 season due to an inability to reach agreement on a new labor deal with the National Basketball Players Association.
During the course of this lockout, much has been made of the league losing money, as owners have claimed that 22 of 30 teams lost money during the 2010-11 season (Los Angeles Times, 10/10/11). But the league’s apparent inability to turn a profit and/or control player salary is a chronic condition that dates back a half-century.
Presented here is a brief history of how the NBA has tried to control player salary historically, followed by several quotes from league figures dating back to the 1960s.
First, A Very Brief History
In an effort to distill about a half century of NBA labor issues into a few paragraphs, some important incidents will not be addressed, and some terms not explained in full detail. With that said, here is a very quick look at how the NBA has tried to control player salaries over the past several decades.
Though today’s observers look back at the salaries of the 1950s and 1960s and consider those players to have been far less greedy than today’s millionaires, keep in mind those salaries were exorbitant to the owners of the time. For years, the NBA’s owners have sought ways to maintain or introduce constraints on player salaries.
Until the mid-1970s, the reserve clause system kept teams from having to bid for players by preventing free agency. Players were bound to a team beyond the expiration of their contracts if a team chose to keep them. Even in the case where a player reached the open market, the compensation clause, a version of the NFL’s Rozelle rule, inhibited player movement by requiring that teams picking up free agents compensate the player’s former team.
After the reserve clause was eliminated in the settlement of the Oscar Robertson antitrust suit, the compensation clause remained until 1981, when it was replaced by the right of first refusal. Under the new system, player salaries increased — and so did reports of team losses. Entering the 1982-83 collective bargaining negotiations, the league’s reported financial state necessitated change. “The league believes it cannot continue its system of free-market free-agency and a salaries with no ceilings. In any given season, says the league, only four or five of the 23 teams make money” (New York Times, 10/24/82).
After contentious negotiations, which included the most-recent threatened strike by NBA players, the NBA and NBPA came to agreement on a new deal. Key to the new CBA was an unprecedented salary cap. As The New York Times‘ Ira Berkow put it in 1983, the cap was “a strange thing for a union to accept,” and “anathema to the free-enterprise system” (New York Times, 3/4/83). The NBA’s cap became the envy of the other major leagues, and the desire to implement a similar system led to lost games in the NHL and Major League Baseball in the mid-1990s.
The NBPA agreed to the cap in 1983 because of the evidently dire state of the league. However, under Larry Fleisher and, later, Charles Grantham, the union sought to have the cap removed in 1988 and 1994, as the league’s fortunes had improved and the restriction was viewed as no longer necessary. Various attempts to challenge the cap on antitrust grounds failed, however. In the 1994 NBA v. Williams case, a New York District Court ruled:
“Antitrust immunity exists as long as a collective bargaining relationship exists. Accordingly, the NBA is granted the declaration it seeks — the continued implementation of these challenged measures [salary cap, NBA Draft and right of first refusal] by the NBA do not violate the antitrust laws as long as the collective bargaining relationship exists.
This does not mean that the Players are ‘stuck’ with these provisions forever. Certainly, they can attempt to bargain these provisions away?including exerting economic pressure by means of a strike. Or, the Players may request decertification of the NBPA as a collective bargaining agent. I do not mean by this ruling to encourage the Players to decertify their union so that they may bring an antitrust claim. But, decertification is certainly an option the Players have. … It is up to the Players to weigh the risks of all their actions. While I am not unconcerned that this decision may affect their decision to decertify, I simply note that the Players may not have it both ways. They may not avail themselves to the benefits of federal labor and antitrust law at the same time.”
Over the years, the owners’ various constraints on player salaries backfired in one way or another. The salary cap had frequently been circumvented by various teams — including twice involving deals with Chris Dudley. The rookie wage scale, introduced in the 1995 CBA, resulted in young stars receiving massive contracts from their original teams very early in their careers, as those teams would use the Bird exception to go well over the cap to retain them.
Though the 1995 CBA had only been in place for two seasons, the league opted out in April 1998, seeking changes that set in motion the 1998-99 NBA lockout. The owners’ push for a hard(er) salary cap has become one of the NBA’s defining issues.
Now, In Their Own Words
Context: In 1964, the NBA All-Stars threatened to not play in the 1964 NBA All-Star Game due to the lack of a pension plan. Days later, a “man high in the NBA councils” spoke anonymously to the New York Times.
“The owners in this league are not wealthy men and I guess only Fred Zollner of Detroit could be classified as a tycoon. The rest of them amaze me. Why do they take this financial beating, year after year? There’s only one answer: They’re basketball nuts.
“Eddie Gottlieb is struggling in San Francisco, but he still pays Wilt Chamberlain $75,000 a year. When Boston had Bob Cousy, it paid him, Bill Russell and Tommy Heinsohn over $100,000 a season. Cincinnati must be over that, with Oscar Robertson, Jerry Lucas and the others. Even the rookies in this league, the unknown ones, get more than $10,000 and the ones with reputations get $15,000 at the very least.
“Our payrolls are idiotic and we’re not even competing for talent with another league as is the case with football” (New York Times, 1/23/64).
Context: The NBA and ABA sought an antitrust exemption to merge in 1970. During hearings in 1971, as the New York Times reported at the time, the leagues faced “[s]tiff opposition from” North Carolina Democrat Sam J. Ervin.
[Ervin] challenged the idea that [NBA and ABA] teams were losing as much money as they contended, and asked them to submit data giving a more complete picture of each owner’s finances and of business related to the cubs, including income tax returns. …
The burden of proof, he said, is on those seeking the exemption. When it was argued that without a merger, ruinous bidding for players would continue, he declared: “It seems to me that you’re saying those who operate the leagues are incapable of exercising restraint on themselves, so we’re asking Congress to put restraints on the players” (New York Times, 9/22/71)
Context: A 1972 New York Times article explains why the “reserve clause” — rules by which players are essentially bound to their current team until said team trades or releases them — is the key issue in the proposed NBA-ABA merger:
Openly, and on the record, [owners] assert that bidding for players will bring them to the point of economic disaster. What ‘merger’ really means is establishing a common draft and reserve arrangement. …
The clubs argued that sports should be exempt from anti-trust laws in the reserve-clause area because such player control is essential to keep ‘competitive balance’ between ‘rich’ clubs and ‘poor’ clubs; and because continued bidding for players, in the absence of the common draft and reserve system, will bring many clubs to ‘financial disaster’ …
When tax write-offs, depreciation of player contracts, value of franchises, and a host of other factors are taken into consideration, is it true that teams are going broke? And if they are, is the money being paid to players the chief element in their problem?
The best way to determine that, decided Senator Ervin, would be to see the tax returns of the various club owners. The club owners declined his request. They did submit various financial statements, and had them analyzed by an economist. … The financial picture painted by the clubs was so bleak that even the senators supporting the merger were moved to observe that according to those figures, many teams would fold even if the leagues did merge.
But the financial picture painted by the committee’s experts indicated that losses to individual owners were minimal when tax and other indirect benefits were taken into consideration” (New York Times, 1/30/72)
Context: More from 1972.
The economists, Roger G. Noll and Benjamin A. Okner, reported that the actual financial position of most teams was good, because of tax depreciation and write-off opportunities, but that the half-dozen teams that were actually in trouble would still be in trouble if the players had no salaries at all. The important factor, they said, was income at the gate, not player compensation. (New York Times, 5/4/72).
Context: The NBA began negotiating a new collective bargaining agreement after the 1981-82 season.
“Painting a bleak financial picture despite what he described as peak fan interest, Commissioner Larry O’Brien of the National Basketball Association yesterday delivered the league’s first collective-bargaining proposals to the Players Association.
Among the 22 proposals were a salary-moderation plan, [and] the elimination of guaranteed contracts …”
“There is a wide gulf between the NBA and the players on all issues,” [David] Stern, the executive vice president of the league, said. …
Stern said he thought the situation was “very serious.” Did he foresee a strike?
“We don’t think strike,” he said. “We don’t even use the word, but there has to be some give by the players in this situation. The average NBA player earns $220,000 and the average NBA team loses $700,000” (New York Times, 10/20/82).
“It’s no secret that a number of franchises have lost tremendous amounts of money,” said [Trail Blazers owner Larry] Weinberg, “and it’s no secret that the league can’t afford to operate in the same fashion anymore.”
But one owner, who asked not to be identified, said the problem was not so much with the players as with his fellow owners: ”The dispute is really between the haves and the have-nots,” he said. ”Don’t blame the players, blame the owners who are tossing around the big money and putting the little guy in trouble. What we really need is someone to save some of our owners from themselves” (10/20/82).
Context: After the NBPA floated the idea of a strike during the 1982-83 negotiations, SuperSonics owner Sam Schulman said he would relish the opportunity.
“I dare them to strike. The players are overpaid. A strike would enable us to return to normalcy and start all over again. [NBPA general counsel] Larry Fleisher has admitted to us that at least 10 teams are in financial trouble. I venture to say that there are more” (New York Times, 2/18/83).
Context: The New York Times‘ Ira Berkow on the owners’ financial troubles during the 1982-83 negotiations:
“The league is doing well enough so that some clubs are perking merrily along. But there are numerous teams losing money, and the league says, four or five clubs that, without help from the players, may soon go out of business …
The Chicago Bulls, for one are losing money, its management says. But the Bulls, purchased in 1972 for about $3 million, are currently valued at somewhere between $8.2 million, according to an appraiser hired by the Bulls, and $15 million, according to an analyst hired by the group that has successfully sued the franchise for blocking a bid to buy the team. Whatever the correct price, that’s a handsome increase in value” (New York Times, 3/4/83).
Context: NBA Commissioner David Stern and Deputy Commissioner Russ Granik expressed concern over rising player salaries in during the run-up to the 1997-98 lockout.
“We remain eternal optimists in the face of reality,” Stern said during an informal news conference at the annual league meetings. “In some ways,” he added, “the current collective bargaining agreement is a vast improvement over former agreements — in terms of 50 different loopholes, balloon payments and salaries to untried rookies for the long term” (New York Times, 9/20/97)
In explaining the owners’ decision yesterday, Granik cited figures — some of which are disputed by the players’ association — to bolster his argument that the current system is broken.
Using the $23 million a year that each team will average in network television revenue the next four years from a recently signed pact, Granik said, “Now if you’re Minnesota and you’ve given Kevin Garnett $21 million a year, then essentially you’ve given away all of your network television revenue. Obviously you have other sources of income. But on a long-term basis, that’s not a healthy situation.”
Granik said that four teams received revenue assistance from the league last season, with one franchise receiving the maximum $2.9 million allowance, and that half of the league’s 29 teams would not turn a profit for the 1997-98 season (New York Times, 3/24/98).
Final Thought
If NBA teams have had such difficulty affording player salaries dating back to the Johnson administration, if the league’s various artificial constraints on said salaries have been in need of constant adjustment, and if after all this time the league is really no better off in terms of profitability than it was during the lows of the early 1980s — then would it not make sense to shut down permanently?
How can a league whose financial structure has been unsustainable for fifty years continue operating?
