NBA : Implications of the New Collective Bargaining Agreement

Hamlet AbayaCorrespondent IAugust 20, 2010

NEW YORK - JUNE 24:  NBA Commisioner David Stern speaks at the NBA Draft at Madison Square Garden on June 24, 2010 in New York, New York.  (Photo by Al Bello/Getty Images)
Al Bello/Getty Images

With a new collective bargaining agreement looming on the horizon, both team owners and players are going to be locked in a struggle for power.  Many teams have been losing revenue because of the economy, so the NBA and the National Basketball Players' Association (NBPA) will be locking horns to determine the details of the new CBA.  Undoubtedly, this summer was a very lucrative one for certain players. 

But that could all change as the balance of power shifts to the owners amidst a failing economy.  

The Current Situation

As it stands, the NBA salary cap is a soft cap that teams regularly go over.  Since the cap and the luxury tax threshold are highly dependent on league revenue from the previous season, they are usually a good barometer of how well the league is doing. 

But the failing U.S. economy has resulted in lower revenues and still relatively high costs.  During the past two years, many teams have dumped players and salaries, and accepted loans to stave off the negative effects of a depressed economy.

Although the players themselves probably have not experienced the brunt of the impact from a failing economy, the NBA's salary cap has fallen victim to it.  Based on early projections, the 2010-11 Salary cap will probably be set approximately at $56.1 million, down from $57.7 million in 2009-10 and further down from $58.68 million in 2008-09. 

But the luxury tax level, much more important to owners than to players, is another matter entirely.  The luxury tax threshold for the 2010-11 is projected to go down to $68 million, from $69.92 million in 2009-10 and $71.15 million in 2008-09.  What that means for teams is that for every dollar they go over the threshold, team owners have to pay the same amount in fines to a league 'pot', which will then be distributed to all the teams under the luxury tax line.  . 

A quick look at team salaries will show that there are at least eight and maybe more teams over the current projected luxury tax line.  So the Lakers, who have $94.75 million under their books, will have to pay $24.83 million extra to this pot. 

For teams losing money quickly, and in desperate need of reprieve, the CBA negotiations cannot come soon enough.  The changes will be drastic. They offer a more equitable share for owners and could possibly even level the playing field.

Possible Changes

The upcomiong CBA negotiations are in the unique position of occurring during widespread economic downturn. Ultimately, what that means is that both players and owners will come to the negotiating table with firm knowledge that they need to sacrifice to survive.

Of primary concern is players' salaries.  With ticket sales and general merchandising revenue much lower from years past, teams are now being burdened by ballooning salaries and shrinking revenue.  So in the league's first proposal to the NBPA, the league asked to reduce the percentage of basketball related income (BRI) that goes into players' salary from 50% to 40%.

Furthermore, the proposal seeks to significantly decrease the yearly salary and contract length for both veterans and rookies.  The proposal also asks that only half of a player's contract be guaranteed.  

But possibly one of the biggest changes that could occur is changing the salary cap from a soft cap to a hard cap, meaning that no team can overspend, and must limit their player salaries to fit the cap.

What It Could Mean?

It appears as though the astronomical contracts that were thrown at players this summer could possibly have just been smokescreens to momentarily appease the players.  With the initial suggestions that the league is proposing to the NBPA, there is almost no way that those huge contracts will stand.  Unless the players take a hard stance, they will be losing a lot of money. But the league will not stand down easily.

So although I do not foresee the NBPA laying down and accepting all of the league's demands, they will have to accept many of them.  The NBA's survival is dependent on teams being able to generate revenue and profit.  Changes are imminent.

But no matter what happens, the changes will probably be groundbreaking.  The institution of a hard cap, for example, would eliminate Larry Bird Rights and enforce harsher restrictions on signing players. Making contracts only partially guaranteed (much like the NFL) will allow teams to waive players with fewer restrictions and penalties.  Overall, it appears that the league will force player salaries down.

In the long run, it could be near impossible to see a situation like LeBron James, Chris Bosh, and Dwyane Wade landing on the same team.  But even their situation is tenuous as is. 

What will happen to all the lucrative contracts signed this summer and prior?  How will players react to demands to slash their salaries to mere fractions of what they were? 

Even though it is still a year or so away, the CBA and its possible effects will inevitably be on the minds of many players this year.  The CBA could undercut the players, ushering in a new era of sound financial decisions, and more reasonable player salaries.  Or it could be more of the same.

One thing is certain: as long as the economy stays down, the owners will have  leverage in negotiations, and possibly set precedent for a long time.