Sports

NBA's strong relationship with its players could prevent collective bargaining issues

Key Points
  • NBA owners supporting their players' fight for social injustice and economic inequality could help when settling collective bargaining issues tied to losses from Covid-19.
An empty court and bench is shown following the scheduled start time in Game Five of the Eastern Conference First Round between the Milwaukee Bucks and the Orlando Magic during the 2020 NBA Playoffs at AdventHealth Arena at ESPN Wide World Of Sports Complex on August 26, 2020 in Lake Buena Vista, Florida.
Kevin C. Cox | Getty Images

Symbolic. 

That was the word former National Basketball Association player and current Columbia professor Len Elmore used to describe Wednesday's protest by existing players.

Elmore praised NBA players at the league's Disney bubble, led by the Milwaukee Bucks, saying they displayed courage when protesting the shooting of Jacob Blake. He also urged them to keep the dialogue open on social injustices in the Black community. 

"It's not incumbent upon them to represent the race and make statements," Elmore said. "They are entitled to be who they want to be, and do what they want to do, and if they want to play, fine. But, for those who want to undertake this responsibility, in order for it to be effective, they probably would've had to do this is in a sustained matter."

The NBA said it would resume its games on Saturday after fears its $200 million bubble was in jeopardy of folding following the protest. But though the NBA supported players' fight for social injustices, an eventual showdown over revenue losses could surface.

The league's Collective Bargaining Agreement (CBA), which outlines its revenue sharing splits (approximately 49-51 in favor of players) may need to be altered. Some NBA insiders are concerned it could be stripped if common ground can't be reached on ways to spread the losses. 

The CBA is set to expire after the 2023-2024 season, but both sides could opt out after the 2022-2023 season.

It's not yet clear how much the NBA will lose, as audits will not be complete until after the current season. But when factoring in a possible $400 million loss from its media partnership with China and losses from related to Covid-19, the NBA's salary cap is projected to decline.

"The issue is, how do you spread out the lost revenue this year over several years so that nobody takes an inordinate hit right away," said Andrew Zimbalist, a Professor of Economics at Smith College. 

Some agents who spoke with CNBC on condition of anonymity said they see a 10% to 15% drop in the cap. The agents question if the decline will come from this year's figure or the pre-Covid-19 projection of roughly $115 million. They also and predict a "Covid-19 clause" that will help smooth losses over time and don't expect the league wouldn't punish players too much but would need to allow club owners some relief.

That could mean returning the amnesty clause to help teams operate and not approach the luxury tax territory. The NBA may also need to factor in other interrupted revenue streams if spectators are still barred from arenas. 

Depending on the cap changes, if any, agents could then change negotiations tactics, seeking shorter deals, perhaps two-year contracts with a player options. These deals would prevent free agents from being locked into long-term agreements, have security, and be able to test the market when the financial climate improves.  

The NBA did not provide an official for comment on this story.

But what would occur if the parties blew up the CBA, if the termination extension expires?

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Saving the partnership 

Zimbalist, who also consulted the National Basketball Players Association (NBPA) on CBA negotiations in 1999 and 2005, said it would be an "interesting confrontation" should the league and the union trash the current CBA. 

The agreement has worked well for the league, especially after a $2.6 billion media rights deal with ESPN and Turner Sports in 2014, which allowed salary cap levels to spike from roughly $70 million in 2015-2016 to $109 million this season.

Destroying the cap may also damage the current relationship shared by the league and its union. 

But if egos get in the way, agents warn some owners could attempt to rein in some power the players have always utilized in demanding trades and free agency. It could also tilt basketball-related income (BRI) in their favor. And there is still the scare of a hard cap to help control the cost of player salaries. 

Players could also have their plans in any dispute. There has always been talk of superstar players getting more revenue, dating back to when Michael Jordan attempted to decertify the NBPA in 1995.

The thinking is star players are the main contributors to the NBA's revenue and deserve uncapped salaries. Smaller market teams could fight this, though, thinking competition would only favor larger markets that could pay for star players. It's a big concern with Major League Baseball's revenue system

One agent called that scenario "an illusion." The agent used teams' value in smaller markets when stars like LeBron James (in Cleveland) and Kevin Durant and Russell Westbrook (while in Oklahoma City) are playing for those franchises. 

Also, club owners operate on a terminal value point business model when buying franchises. That means owners may buy a team at a high price and sell it for even more later, even if the team loses money.

For example, look at former NBA owner Donald Sterling, who hardly invested in the Los Angeles Clippers on the court (formerly the San Diego Clippers) after his $12.5 million purchase in 1981. Despite this, Sterling still walked away with $2 billion after the 2014 sale to the current owner, former Microsoft CEO Steve Ballmer. 

"That is where the battle would be," said Elmore when discussing hypotheticals about dismantling the CBA. But he also predicted the two sides would "eventually find some common ground" after the initial "bluff and bluster" that accompanies league labor disputes. 

"Sports have been good to too many people," Elmore said. "I don't see the owners trying to shove anything down their throats in the long run."

NBA Commissioner Adam Silver speaks to the media after the Board of Governors meetings on July 12, 2016 at the Encore Hotel in Las Vegas, Nevada.
David Dow | NBAE | Getty Images

Business is good

Elmore's statements were echoed by former NBA commissioner David Stern who expressed optimism about the league's future in a CNBC interview in November 2019 before his death in January of this year.

Asked how owners can continue to grow the league, Stern said: "They continue to invest enormously in a competent organization that Adam [Silver] is heading and what's he's put together. And with 13 offices outside the U.S. – you know we only have 300 people and 120 million-plus homes in the U.S. – there are another seven or eight billion people out there."

Stern predicted media rights also would continue to rise with globalization and added said sports gambling would enhance those broadcast and sponsorship rights.

Asked what the players can do to keep the NBA's revenue in good standing, he said: "We've developed together with them a great system that makes them among the highest-paid athletes in the world.

"They have their licensing rights back," he continued. "They have a union that cares for them. There are healthcare improvements coming from the opportunity to use technology to benefit things. There are always going to be some turns in the world but relax and enjoy it."

Again, the relationship – and what Houston Rockets owner Tilman Fertitta labeled a partnership – with the league and is key to keeping the CBA alive, with some possible tinkering due to Covid-19.

And even after a protest, owners are still supporting players' fight for social injustice, turning all NBA arenas into voting sites ahead of the Nov. 3 presidential election and have contributed millions for economic equality in the Black community.

"The owners have behaved quite well," Zimbalist said. "They are endorsing the players. They are admiring what they are doing. So, it seems like this is a time period of more cooperation rather than more hostility."

VIDEO4:2104:21
Fmr. NBA player Len Elmore on NBA walkout to protest Jacob Blake shooting