Oct 12th 2011, 16:46 by D.R. | NEW YORK
HALF of America’s four primary sports leagues suffered work stoppages this summer. The National Football League’s (NFL) team owners instituted a lockout on March 12th to demand a more favourable labour deal with the players. Once the courts ruled that their lockout was legitimate, it took just two weeks for the sides to reach a new agreement. The 2011 season started on time.
The National Basketball Association (NBA) has not fared so well. Its owners declared a lockout on July 1st, and despite months of negotiations, the two sides remain far apart. On October 10th the league announced the cancellation of the first two weeks of the 2011-12 season.
Owners in both leagues were willing to risk losing games in order to increase their share of future revenues. But since the NFL as a whole is profitable, its owners were motivated to reach a deal quickly. The NBA’s owners say they do not have the same incentive: the league claims that its teams are losing a total of $350m a year. Such pleas of poverty are probably exaggerated. According to Forbes magazine, the league’s annual operating profit is $183m. However, the publication’s analysis confirms that a majority of NBA teams are in trouble. Those earnings were highly concentrated in a few teams, principally those in big markets like the New York Knicks and Chicago Bulls. Meanwhile, 17 of the league’s 30 clubs were in the red. The bottom three (the Orlando Magic, Charlotte Bobcats and Indiana Pacers) all hailed from smaller cities.
To level the playing field between big and small markets, the NBA has long counted on a limit on each team’s player payroll. However, the cap is riddled with loopholes: teams can exceed it to re-sign players with expiring contracts, or to sign one free agent per year to a league-average salary. As a result, few teams are ever under the cap, and most spend as much as they can afford—or more. In 2006-07, the salary cap was $53m and the Knicks’ payroll was $142m. Although that team somehow managed a losing record, it still forced rival clubs to spend beyond their means to stay competitive.
The NBA’s current collective bargaining agreement (CBA) has two other methods of controlling spending. The first is a “luxury tax”: teams that exceed a payroll threshold around 20% above the salary cap must pay a dollar-for-dollar tax on wages paid above the cutoff. But it has not stopped rich clubs from signing expensive players: the 2006-07 Knicks paid $45m of luxury tax. The last four league champions have all paid luxury tax.
Only the second safeguard, the escrow system, has proved effective. This scheme withholds 8% of every player paycheck. If total player salaries at the end of the year are below 57% of the league’s total basketball-related income (BRI), all the money is released. Otherwise, the players are only paid enough to reach the 57% mark, and the remainder goes to the owners.
As the NBA’s most recent CBA expired, the owners demanded drastic changes to sign a new deal. Their biggest request was replacing the “soft cap” system with a “hard cap” on salaries of $45m a team, with no loopholes. The current porous ceiling is $58m. They also wanted to shorten contracts and let teams end them before their expiration. The union scoffed, and offered to lower the escrow threshold to 54.3% of BRI. The owners have stopped insisting on a rock-solid cap and weakening contract guarantees. But the two sides have not bridged the gap on the escrow cutoff. The union is proposing 53%, and the owners are demanding 47%, a difference of $230m.
Both sides are bracing for a long lockout. A majority of owners would rather stop play than lose money on every game. “The owners are more prepared”, says Maury Brown, the president of the Business of Sports Network. “Losses [are] painful initially. [But] changes in the revenue split could be worth billions over the life of the agreement.”
The players are looking abroad. Around 60 have already signed with foreign teams, including Deron Williams (who will earn $5m for Turkey’s Besiktas) and Tony Parker(pictured, who will return to his native France and make $2,000 a month from Asvel, a team he partly owns). Kobe Bryant, one of the game’s biggest stars, grew up in Italy and speaks fluent Italian, and is negotiating with Virtus Bologna. If the lockout drags on, the union could also decertify and file an antitrust suit against the owners. That would take years to resolve in the courts.
The best hope for a quick deal would probably be a change of heart from a few key owners. Regardless of whether the current system favours players overall, it certainly favours teams in big markets over those in small ones. Both baseball and American football have addressed such disparities through revenue-sharing systems, which redistribute money from rich clubs to poor ones. Some $400m passes through baseball’s revenue-sharing scheme annually. In contrast, basketball only has the luxury tax, which moved around $60m last year.
The big-market teams are loath to give part of their income to competitors. However, they also stand the most to lose from the lockout: according to Forbes, the Knicks earned nearly $750,000 a game last year. If clubs like New York or Los Angeles decide they would rather share their profits than lose them altogether for the duration of the lockout, the owners could probably make enough concessions to strike a deal. Otherwise, American professional basketball fans will be watching games in Europe and China for some time to come.
Pundits routinely admonish both sides of American sports labour disputes to do whatever it takes to reach agreement, lest they alienate fans for a generation. But the historical record does not support such lecturing. Baseball and hockey cancelled games in 1994 and 2004-05, and the NBA itself did so in 1998-99. All of them have subsequently seen their revenues soar. Until fans start punishing leagues more harshly for work stoppages, owners and players will remain willing to cancel games in order to increase their share of the pie.
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