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Collective Bargaining Agreement in 2011

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Collective Bargaining Agreement in 2011
National Basketball Association & National Basketball Players Association
-Individual assignment-
Course: Strategic Negotiations
Goran Luburić
1468970
Vienna, 12.05.2016
Collective Bargaining Agreement between NBA and NBPA
Contents
Introduction on topic ......................................................................................................................3
History of negotiations ....................................................................................................................3
Features of the negotiation environment ..................................................................................... 4
Negotiation parameters .................................................................................................................. 5
Barriers to agreements.................................................................................................................... 5
Strategies ......................................................................................................................................... 6
Assessment and recommendations ............................................................................................... 8
References........................................................................................................................................ 9
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Collective Bargaining Agreement between NBA and NBPA
Introduction on topic
The subject of this assignment is process of negotiations during the Collective
Bargaining Agreement (CBA) between the National Basketball Association (NBA) and the
National Basketball Players Association (NBPA) in 2011.
History of negotiations
We could say that history of negotiations between owners of teams and players is old
as the league itself, but the fact that these negotiations have always been painful, litigious and
stressful became publicly known only after 1980.
The following timeline gives us insight in the most important points in history of
negotiations between these two parties.
1946
1946-49
1949
1954
1957
1961
1967
1968
1970
1976
1983
1987
1991
1995
1996
1997
1998
2005
$55,000 salary cap (salaries $4,000 - $5,000)
Due to existence of rival league, top players carved out bigger contracts
Two leagues, NBL and BAA, merged to form NBA
Bob Cousy formed NBPA - the first team sports player's union
Increasing traveling expenses, extension of the summer break, reducing the numbers of
exhibition games, moving expenses for a traded player
Agreement over a player pension
New rival league formed (ABA); players' salaries increased, new medical and insurance
benefits, seasons’ 82-game limitation
Minimum rookie ($10,000) and veteran's salary ($12,500)
3-year deal; increase in minimum salaries, the playoff pool and the per diem allowance
NBA and ABA merged; new 6-year deal; increase in pension benefits, minimum salary of
$30,000, term life insurance, player's shares for the All-Star Game, free agency rights
New 4-year CBA; players get 53-57% of the NBA's gross revenues
New deal signed; the players get 53% of the leagues revenues, new rules for the college
draft and veteran players
NBPA discovered that the league had underreported their income
Lockout after season lasted for 3 months; new deal brought unrestricted free agency and a
guarantee of 48% of all Basketball Related Income (BRI) to the players
Another lockout, which lasted for a couple of hours before the next season
During the season, owners voted to re-open the CBA, claiming losses by 13 teams; league
signed new 4-year $2.4 billion television deal
New lockout lasted 200 days; the season started in February with a 50-game schedule
New 6-year CBA
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Collective Bargaining Agreement between NBA and NBPA
Features of the negotiation environment
Taking into consideration history of negotiations, it is easy to conclude that this is
classical two parties’ negotiations over multiple issues and in sense of nature of relationship
between parties we could say that these are repeated negotiations. In past, CBA was usually
signed for 3 to 6 years, but recently we witnessed breaching contract from parties, re-opening
of agreement and lockouts, so this characteristic of frequent repetition in negotiations is
probably the most important feature and it makes parties doing compromises and trade-offs
again and again, and all this lead to signing a very fragile contract in the end.
As already mentioned, two parties in this process are NBA and NBPA. NBA was
represented by their commissioner David Stern and deputy commissioner Adam Silver, the
league's chief negotiator. NBPA was represented by their president Derek Fisher and with
NBPA executive director Billy Hunter.
CBA is a multi-billion agreement and as a legal contract it sets rules which define the
way how league operates. CBA determines many issues, such as Basketball Related Income
(BRI) distribution, structure of the salary cap, player contracts, trades, taxes, age limitations,
revenue sharing among teams, guaranteed contracts, rookie salary scale, drug policy, NBA
development league, conduct and discipline rules, pensions, etc.
Parties are monolithic during the negotiations, despite the fact that members of each
party may have different preference over some issues. Teams could be divided in 2 big groups
“haves” and “have nots” in a sense of their operating market. Some teams (“haves”) are in big
cities, with a lot of fans and financially they stand very good, unlike others. On the other hand,
players, depending on their basketball ability and their age have also various preferences
(rookie bonuses, guaranteed payment, big contract, veteran protections, etc.). But, in these
particular case, members are always trying to stay together and defend their mutual stands.
These negotiations are also interesting for many other parties, especially player agents,
but also for other professional sport leagues and players’ unions, because they have the same
systems of organization. Furthermore, CBA is quite transparent and since the basketball is
one of the most popular sports in USA, the whole process of negotiations is practically public
which puts additional pressure on closing the deal. When parties are unable to reach an
agreement on time, then the lockout is called, which is harmful for both sides, especially for
players. In the 1998-99 lockout, owners combined lost about $1 billion and players lost on
average more than $1 million. Since, the negotiations are very complex, hard and tense, both
sides are trying to find outside help, primarily in lawyers, who they appoint as consultants.
In 2011, the current CBA of 2005 ended up, leading to requirement for a new and
different agreement based on the current economic conditions of NBA. Owners claimed that
the last CBA was very bad for teams and David Stern announced that the NBA has lost more
than $1 billion since the current CBA went into effect in 2005-06, including $380 million last
season. Furthermore, league reported that 22 of 30 teams are operating with losses.
Since there were no previous constructive proposals from both sides, on the July 1, 2011
at 12:01 am the NBA locks out its players.
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Collective Bargaining Agreement between NBA and NBPA
Negotiation parameters
One of the things that makes these negotiations so interesting is that both sides have
very bad BATNA (best alternative to negotiated agreement). If players walk away from the
deal, they have an option to play for amateur American teams or to find a new club abroad.
Current average salary for players in NBA is a little more than $3 million a year (top players
earn more than $20 million a year), while average salary for a player in Euroleague (the second
best league in the world) is around $1 million (top players have around $3 million a year). On
the other hand, teams could sign replacement players, but the NBA without current players
would lose on quality and attractiveness and it would lose primacy as the best basketball
league in the world. Usually, it is considered that parties do not have real BATNA at all, so
the agreement will be somehow reached, the only question is “when”.
As always, the main dispute was over BRI distribution and salary cap, while other issues
were less important and they were usually used to cover trade-offs and to level expatiations.
Naturally, goals for parties were quite distant. NBA owners wanted to sharply cut the players'
57% share of BRI, down to 41%, while players offered to downsize their share to 54.3%.
Additionally, owners wanted to restructure the salary cap, to set a fixed figure on team salaries
that cannot be exceeded (“hard cap”). On the contrary, players favor a softer cap, which
includes several exceptions.
Reservation deal for teams was splitting the BRI with some restraining on salary cap,
while NBPA was prepared to agree on 51-49 percentage share in their favor, but in return to
gain a lot of other “small” concessions in contract, which means that there was no ZOPA (Zone
of Possible Agreement) of that ZOPA is very small after some trade-offs are made.
Barriers to agreements
There is a big number of barriers to potential agreement in this case, and some of them
are already mentioned in text above, like the fact that both parties had very bad BATNA, that
there was very small ZOPA and that negotiations over CBA are always public which puts
additional pressure on partakers. The last CBA ended in July and the regular season usually
starts in the last week of October, so time pressure was included too. Moreover, in the first
chapter is already given insight in history of negotiations as one of the structural barriers.
Beside all mentioned, there were also some psychological barriers especially on the
players’ side. Distrust was one of the main problems. During the 90’s, NBPA discovered that
the league had underreported their incomes. In the past decade, there was a big increase in
season-ticket sales which also increased revenues and just in the last season, NBA, by its own
accounting, reported record revenues, but also record losses. NBA reported that 22 of 30 teams
had losses, but Forbes estimated that real number of these teams was actually “only” 12. All of
this, lead to conclusion for players that league is not quite honest whit their reports. Further,
players are naturally loss averse and they managed to claim big share of BRI in the past, and
now they have to waive the part of their share. Also, players’ ego was hurt and that is best
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Collective Bargaining Agreement between NBA and NBPA
pictured in the statement of Jeffrey Kessler, players' union attorney, who said: "Instead of
treating the players like partners, they're treating them like plantation workers."
Some of the obstacles for fruitful agreement for both sides could be also found in
tactical behavior. NBA approached in a quite aggressive way with anchoring negotiations
with a very low first offer. During the whole process, a lot of threats were uttered from both
sides.
Strategies
Parties were aware that the CBA is ending in 2011, but still they did not make a big effort
to improve situation, so it is obvious that behind the lockout both sides were using some
negotiating tactics.
Generally, teams are in a little bit better bargaining position because they are
employers and they have the money. It was known that BRI share must be restructured due
to big loses for teams, so owners estimated that they should use their better position and try
to anchor negotiations with aggressive first offer on BRI distribution of 59-41% in their favor
and cut down in salary cap from $58 million to $45 million per team. Waiting for lockout was
also a way of putting more pressure on players in attempt to squeeze more money from CBA.
During the 90’s NBA has experienced great expansion in new teams, an increase of TV-ratings
and ticket sales, but players also felt this change and they managed to claim a big amount of
money for themselves (more than a half) and some top players contracts skyrocketed and they
were unbalanced with incomes, so this was opportunity for the owners to get back things in
control.
NBPA first tried to be attentive and offered downsize in their share, but lowering of 3%
was dismissed as “modest”. After this, players tried to “show some teeth” in this combat. Their
tactic was in making commitments, threats and attempt to divide owners, such as statements
of Executive Director Hunter: “We can now really begin to negotiate” and “We are miles apart
from agreement”. Further, Kobe Bryant and some other top players went public and talked
about their concerns and thoughts about playing overseas. Also, unions’ President Derek
Fisher wrote a letter to players that there is a "divide" among NBA owners about their
commitment to a "hard" salary cap. During the negotiations, players filed antitrust lawsuits
against the league in federal courts in California and Minnesota.
Later, both sides tried to be more aggressive in negotiations. NBA offered take-it-orleave-it proposal of 50% split of BRI, but player rejected and tagged this offer as
“unacceptable”, and offered 52.5-47.5% in their favor.
During the long and hard negotiations, parties managed to add a lot issues to contract
such as Salary Cap Exceptions, Salary Rollbacks, the maximum length of contracts, rules for
rookie contracts, some options on signing free-agent and re-signing own players, etc. All of
these things were improving potential CBA. Also, some trade-offs were made. For example,
more protection for veteran players (in favor for players), but in contrary limitations on rookie
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Collective Bargaining Agreement between NBA and NBPA
salaries (in favor of owners). But all these improvements meant nothing while there was still
big dispute on the BRI distribution.
After the negotiations ran into scheduled regular season time, parties decided to bring
in mediation to solve the problem, so rest of process was lead between lawyers for the players
and the NBA.
On the next picture we can see timeline of lockout and bullet point in the process of
negotiations.
Lockout lasted for 149 days, it took about 150 hours of negotiations, ultimatums and
various scenarios, but at the end the NBA and its players finally reached an agreement on a
labor deal.
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Collective Bargaining Agreement between NBA and NBPA
Assessment and recommendations
After arduous negotiations final agreement was reached on the theoretical split of 50%
of BRI, but real share would be calculated for each year depending on the actual economic
situation with limitation that one side cannot have more that 51%.
Many critics consider that owners took a great win in these negotiations. Their
commitment to stay united during this process was astonishing. They kept their differences
under wrap and they demonstrated a great example of following their tactic which lead them
to their goal of making the entire NBA a more competitive and profitable league, and all that
in the best interests of the basketball. The NBPA did everything they could think of to try and
divide the owners, but it just did not work.
Fear was one of the deciding factors. The owners feared that signing a similar contract
as before would lead to losing current business model and more dangerous and turbulent
times for all stakeholders. On the other side, the players feared mostly for losing another
paycheck. Owners were more durable with their tactics.
CBA was signed for ten years, until the end of 2020-21 season with an option for both
sides to terminate the contract after its sixth season in 2017.
It is very important for both sides to understand fragility of their agreement and to try
to make bigger effort to save good relationship because big disputes and lockouts are harmful
not just for the both sides, but also for many other people like ushers, ticket takers, concession
stand employees, security workers, etc. Furthermore, a lot of fans were disgusted with the
greed on both sides and some of them even stated that is questionable if they will go back to
see another game.
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Collective Bargaining Agreement between NBA and NBPA
References
1.
NBA, official site – published Highlights of the 2011 Collective Bargaining Agreement
http://www.nba.com/media/CBA101.pdf
2. NBA, official site – biggest issues during the negotiations
http://www.nba.com/2010/news/11/17/labor-primer/
3. Complete CBA of 2011
http://www.ipmall.info/hosted_resources/SportsEntLaw_Institute/NBA_CBA(2011)_(newvers
ion_reflectsJeremyLinRuling)May30_2013.pdf
4. History of NBA and NBPA negotiations
http://www.apbr.org/labor.html
5. Los Angeles Times, official site – article about lockout in 2011
http://articles.latimes.com/2011/nov/26/sports/la-sp-nba-lockout-timeline-20111127
Page 9 of 9
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