Things may not be so bleak. The predictable doom and gloom about losing part or all of the upcoming NBA season may be overstated. With daily meetings this week -- and tight lips from both sides -- perhaps there is progress. Of course, the two sides have numerous issues -- the revenue split, the mechanics and amount of the salary cap, exceptions to the cap or lack thereof, draft order, etc. -- before a new CBA can be hashed out and a new season can begin. Although these are the central issues, the path to resolution may begin with the negotiation of something more basic: the length of the next CBA.
Television: The lifeblood
The primary revenue source of the NBA, NFL and all major professional sports leagues is broadcast revenue, particularly that from television rights fees. The NBA’s current television deals -- with ABC, ESPN and Turner -- all expire after the 2015-16 season. Thus, the new television contracts -- and the expected increase from those deals -- will not take effect until five years from now, unless renegotiated sooner than that.
Predictably, the NBA owners have proposed a 10-year deal that will allow them to capture the bulk of the benefits from those increases, and the players have steadfastly refused to entertain such a long agreement.
The 10-year term now has some very recent and relevant precedent from the just-completed CBA between the NFL and the NFLPA. And not only did they negotiate this long term, but they have done so with no “outs” for either side, ensuring labor peace for a decade. Time will tell if that is a good thing for the NFL and/or its players.
NBA commissioner David Stern has repeatedly noted that his league is losing $300 million annually. Of course, the numbers can be interpreted different ways, and the NBPA certainly disputes that figure. However, the number becomes more relevant as -- according to 2011 estimates by Forbes and Adweek -- the current NBA television deals may be undervalued by, you guessed it, $300 million per year.
The most recent television contracts were negotiated in 2007, when the NBA’s popularity was at a multi-decade low. Kobe Bryant’s Lakers were mediocre, there was backlash from the “Malice at the Palace” incident, and some of the most successful teams -- Detroit, Dallas, Phoenix -- were without superstars with widespread appeal.
The recent uptick in interest in the NBA has enabled networks to collectively earn $1.25 billion in revenue per year from their NBA broadcasts, a healthy return over the $930 million paid in rights fees. When the new deal is signed, that difference should be eviscerated, resulting in an at least an additional $300 million paid to the NBA.
Players’ game plan
Were I advising the NBA players, I would strongly consider the following:
Accept in good faith that the owners are losing $300 million per year. NBA players would concede another $200 million annually beyond their initial $100 million per year proposal, bringing their revised offer to a reduction in their revenue share of $300 million per year. This preemptive strike would put the onus on the NBA to get a deal done. Otherwise, owners would look disingenuous for refusing to accept a deal that would restore profitability.
In return, the length of the deal will be five years. If the players are willing to restore owners’ profitability in the short term, they should receive a substantial share of the benefits when the new revenue streams arrive.
Require preservation of the current cap system and its general structure complete with the exceptions that allow for a soft nature of the limit. The players should make it incumbent upon owners to make small markets more competitive through enhanced sharing of local revenues as well as other non-monetary measures, such as changes in the draft order or lottery weighting.
As a further concession, reduce the length of free-agent contracts by two years (for both Bird and non-Bird free agents). Since the total pool of compensation is fixed, having such long deals places the wrong incentives and does not help the majority of players.
Rather than risk losing a season -- and $2 billion in compensation that they can never earn again -- the players would give back $1.5 billion total over five years. They would be accepting the loss figure from ownership while preserving their long-term upside by reaping the benefits of new and improved television contracts to come.
This is, of course, only a template for a possible deal. But this structure -- fixing the short-term problems only, and dealing with how to split the much larger revenue pool when it arrives later -- would make sense for both sides. Players would have more leverage next time around, when the issue becomes not how to reduce losses, but how to split profits.
There is hope amidst the gloom for an NBA season yet ...
Andrew Brandt, a former NFL executive and agent, is a sports business analyst for ESPN.
Follow him on Twitter @adbrandt.