First part in a series
NEW YORK -- As the NBA heads into a long, dark summer and beyond with the expiration of the collective bargaining agreement, there appears to be only one way to bridge the gap between players and owners:
Pain. Lots of it.
We could come up with brilliant, innovative ways to fix the broken system that has the NBA willing to waste one of the high points it has experienced in the past two decades, and it would be pointless. The players are clinging too stubbornly to the status quo, while owners are determined not to budge until they solve all their problems with massive salary concessions from the players. Translation: See you in September. Or November. Or maybe even January.
|Derek Fisher and Billy Hunter can make concessions in revenue sharing to gain leverage in later negotiations. (AP)|
That would be me, the guy forging ahead with the Berger Plan -- a flawed, imperfect, but practical approach to solving the NBA's labor dispute in ways that would be better for both sides than a lengthy lockout.
Call me naïve, but I'm going ahead and revealing my plan -- let's call it free, unwanted advice -- even though both sides are going to ignore me because they'll be too busy surgically removing their noses to spite their faces at 12:01 a.m. ET Friday, when the current CBA expires.
Let me preface this by saying these issues are complicated and too overwhelming to address with anything approaching completeness here. But I think I can give you the basic tools needed to see the middle ground -- there's always a middle ground in a negotiation -- while also highlighting some issues that each side views as religiously untouchable, and why we should not only touch them, but blow them out of the negotiating room.
We're going to do this in installments because A) there's too much ground to cover in a single column, and B) we're going to have plenty of time to tackle all the issues while the owners and players are sitting in their respective corners pouting while their sport dies a slow, excruciating death.
The first installment, without surprise, is the single most important issue in these negotiations: The split of revenues between owners and players.
Under the current deal, the players' salaries and benefits total 57 percent of basketball-related income, and the players are guaranteed to receive this percentage regardless of negotiated salaries through an escrow system. Phooey on the escrow system; it's complicated, convoluted, and doesn't address any of the important issues at hand.
So for the just completed 2010-11 season, sources say league revenues (BRI) are expected to come in at $3.8 billion, and player salaries and benefits at $2.17 billion (or 57 percent). How can we get the owners on their way to addressing their stated annual losses of $300 million without forcing the players into a lose-lose negotiating position?
Actually, it's fairly simple, though it requires patience on the owners' side and sacrifice on the players'. Let's work off how far each side has publicly acknowledged it is willing to go.
The owners have proposed a system that would guarantee the players no less than $2 billion a year in salary and benefits. The players have proposed reducing their share of BRI to 54.3 percent. As you will see, these two positions are not that far apart.
Let's also use National Basketball Players Association president Derek Fisher's rationale for the players' offer of a $100 million-a-year salary concession. Fisher's explanation was that this amount roughly equates to the players taking responsibility for 57 percent of what he called the owners' "true losses." Fisher and the union deduct interest and depreciation to arrive at this figure.
The owners are too committed to a lockout for this last-ditch attempt to work. Read More>>
|Eye on Basketball|
For the purposes of getting a deal, we're going to let the owners count those expenses. The players will be able to get something more valuable elsewhere in the negotiation to make up for it.
However, under my plan, the owners will not be adding any more expenses to those they already deduct from gross revenues before sharing with the players. That's just being greedy, and deals aren't driven by greed -- they're driven by compromise.
So let's take the owners' claims of a $300 million annual loss at face value; they're not budging off it anyway, so why waste everyone's time? Let's inch the players downward from the 54.3 percentage they've already proposed and bring them down to 52 percent.
What does that get us? A 52 percent share of BRI would yield a total of $1.976 billion in salary and benefits -- a $194 million concession by the players that would get the owners nearly two-thirds of the way toward erasing their stated losses in Year 1 of the deal. It would be a significant move by the players, one that has them moving more on a percentage basis from their most recent offer than the owners. This piece of leverage should be filed away for future use by the players when it comes to devising the details of a new system that would serve everyone's needs.
What happens after Year 1? The owners clearly need to reap more savings on player expenses, or why would they agree to this deal? So for marginal revenues beyond the benchmark of $3.8 billion, owners would keep 100 percent in Year 2. So that's a $194 million pay cut in Year 1 for the players, and a salary freeze in Year 2 -- substantial, meaningful concessions that David Stern would be roundly ridiculed for daring to call "modest."
With league revenues projected to grow 3-5 percent annually, let's take the middle ground and assume 4 percent revenue growth for the foreseeable future. With 4 percent growth, BRI in 2012-13 would be $3.952 billion, and under the current system, the players would've gotten $2,252,640,000 (57 percent). Under the new formula -- 52 percent of the first $3.8 billion going to the players and all marginal revenues going to the owners -- the owners would be $277 million better off in Year 2.
Thanks to a serious approach on the part of the players, the owners would have erased nearly all their stated losses by the second year of the new CBA. And the players would've identified themselves as the party interested in making a deal that actually will make the NBA better in the long term, rather than protecting a couple of years of paychecks.
With 4 percent growth again, BRI would rise to $4.11 billion in 2013-14. In Year 3, the players would get 52 percent of the first $3.8 billion and 25 percent of the rest. Under the old formula, the players would've received $2,342,700,000. Under this formula, their take would be $2,053,500,000 -- a $289 million benefit to the owners.
Year 4 is where the rubber meets the road. The owners would've had three years of salary concessions to put them well on the path to profitability, allowing them to focus on growing revenues and bettering the game. Year 4 is when the players would reach a 50-50 split of revenues beyond the $3.8 billion benchmark and surpass their previous level of $2.17 billion in salary and benefits for the first time in the new deal.
With BRI hitting $4,274,400,000 in 2014-15, the players would again get 52 percent of the first $3.8 billion and split additional revenues 50-50 with the owners. This would be the formula for the rest of the deal (players want a five-year CBA, while owners want a 10-year deal). So in Year 4, the players would get $2,213,200,000 -- surpassing their 2010-11 compensation six years earlier than in the owners' most recent proposal, and leaving the owners $223 million better off than they would've been under the old system.
The responsibility for cutting non-player costs and increasing revenues in creative ways would now shift to the owners, where it belongs.
Having addressed nearly all the owners' stated losses with close to $1 billion in concessions over four years compared to what they would've been paid under the 57 percent system, the players would be strongly positioned to dictate the terms of the rest of the negotiation.
In other words, with such a strong statement addressing the owners' losses, the players would possess the negotiating clout to go for the jugular in the fight to keep the owners from imposing a hard cap and banning fully guaranteed contracts. Plus, with more than 5 percent revenue growth expected in the future -- particularly after the league's broadcast rights deals expire in 2016 -- the players could push for a higher percentage of BRI in the back end of the deal, once more lucrative TV contracts are in place.
They also would have put the onus squarely on the owners to get their own house in order with revenue sharing, because everything offered above in the Berger Plan would be off the table without meaningful changes to a system that allows the Lakers to spend $112 million in salary and luxury tax while the lowest-paying team, the Kings, doles out $70 million less -- a difference that is more than the average salary in the league.
If the players are going to give in the economic part of the negotiation, they absolutely should have a say as to how the money is divided up among the teams that will be paying them. The players must be invited into the revenue-sharing debate, and their admission to this discussion would come in the form of serious salary concessions that would leave the arrogant owners no choice but to partner with them on everything from revenue sharing to profits when franchises are sold -- not just cost-cutting.
The players would have achieved all of this with earnings of $8.2 billion in the first four years of the deal -- more than they would've gotten under the owners' offer of a flat $2 billion a year. In fact, the owners' most recent proposal would've cost the players $8.2 billion over 10 years -- and this plan has the owners far better off on the front end.
If they're serious about stemming their losses, the owners will take this deal and open the discussion on other issues that are important to the players.
A split of revenues that addresses the owners' losses and gives the players clout to win negotiating victories elsewhere -- soft cap, guarantees, and getting a small percentage of profits from franchise sales set aside in a pension fund for retired players -- would form the basis for determining the details of a system that would provide far more competitive balance and revenue growth than the league has ever seen. And despite the owners' grandiose vision, it wouldn't require pummeling the players with more than $8 billion in concessions in a 10-year deal.
Just some compromise. And some smart people to weigh in on the next installment of the Berger Plan: a new cap system that would deliver the players' revised share of revenues in a way that would restore competitive balance and force the owners to confront the real problems that got them into this mess in the first place. For the owners to see this evil, all they'll need is a mirror.