TV Windfall Makes for a Happy NBA Now, But Sets Stage for Future Labor Showdown

Howard Beck@@HowardBeckNBA Senior WriterOctober 7, 2014

AP Images

NEW YORK — It's not hard to identify the winners when the NBA unveils a $24 billion television rights deal. In short: everyone.   

Team owners will collect $70 million apiece in 2016-17, more than doubling their current take, according to an NBA source.   

General managers will enjoy spectacular payroll flexibility as the salary cap leaps to an estimated $84 million in 2016-17.   

Players, in the aggregate, could enjoy a 33 percent increase in salaries in the next two years.

LeBron James could soon become the NBA's first $34 million player.

It will be a glorious time for everyone—Owners! Players! Mascots! T-shirt gun operators!until the clock strikes midnight on July 1, 2017, and the party comes to a screeching halt. (Cue record-scratch sound effect.)

Who's ready for another lockout?

"I hope guys are preparing," Deron Williams, the Brooklyn Nets star and union representative, told reporters on Monday.

He wasn't the only one making the logical leap from Massive NBA Windfall to Inevitable Labor War.

In Cleveland, James warned that owners could no longer claim hundreds of millions in losses, as they did to justify the 2011 lockout.

Poised to perhaps receive the biggest salary in league history with the NBA's new TV deal, LeBron James noted that NBA owners will no longer be able to claim they are losing money.
Poised to perhaps receive the biggest salary in league history with the NBA's new TV deal, LeBron James noted that NBA owners will no longer be able to claim they are losing money.Tony Dejak/Associated Press/Associated Press/Associated Press

"That will not fly with us this time," James said, ominously.

The current collective bargaining agreement actually runs through 2021, but either side can opt out in 2017, and the players are almost certain to do so, for obvious reasons:

• The union made massive financial concessions in 2011, giving up $300 million a year.

 The new TV deal, as James indicated, removes the NBA's rationale for those concessions.

"I think it's a pretty good bet, based on both of those things," that the players will opt out, Michele Roberts, the union's new executive director, told Bleacher Report in a recent interview. She added, "It would be silly for anyone to assume" otherwise.

Roberts made that prediction before the new TV deal was completed, but both sides have long known that the huge revenue spike was coming and that it would prompt a reassessment of the labor deal.

Indeed, Roberts said, "The minute I was told I was selected to be the executive director (in July), I started preparing for the opt-out."

The players had their percentage of basketball revenues slashed in 2011, from a guaranteed 57 percent to a range of 49 to 51 percent. Contracts were shortened. Annual raises were reduced. And the NBA adopted a highly punitive luxury-tax system that acts as a virtual hard cap on most teams.

So if the players indeed opt out in 2017a decision that must be made by Dec. 15, 2016their incentives will be obvious.

And yet the decision is so much more complicated than any of that.

Although the players' share of revenue has gone down, their actual earnings are about to spike dramatically, thanks to the new infusion of TV dollars. The average salary, currently $5.5 million, could leap to about $7.3 million in 2016, according to team executives.

Michele Roberts took over the NBA players union with the understanding that her constituents were likely to re-open the CBA in 2017.
Michele Roberts took over the NBA players union with the understanding that her constituents were likely to re-open the CBA in 2017.David Dow/Getty Images

Superstars, whose "max" contracts are tied to the cap, are in for a mind-boggling payday.

Based on one team's estimates, James could earn $28 million as a free agent in 2016a 36 percent leap from his current salary. Assuming a four-year deal with maximum raises, James would earn an NBA-record $34 million in the final season, the most any player has earned in the max-contract era.

Michael Jordan made a record $33 million in 1997-98, the season before the NBA capped individual salaries.

And the riches could be spread far and wide, as the salary cap surges from $63 million this season to a projected $84.4 million in 2016-17. Every team in the league could be under the cap in two years (even the spend-happy Nets), creating a cash surplus thatunder the NBA's systemmust be spent on players.

Journeymen making $3 million today might make $6 million in the new, cash-rich environment. The rebounding specialist making $6 million now could soon become an eight-figure playera status once reserved for All-Stars and near-stars.

Welcome to the NBA's version of inflation.

"The big issue is too much money and not enough good players," said one Eastern Conference executive.

Carmelo Anthony's new $124 million contract with the Knicks may prove a relative bargain compared to the max salaries others get under the league's rising salary cap.
Carmelo Anthony's new $124 million contract with the Knicks may prove a relative bargain compared to the max salaries others get under the league's rising salary cap.USA TODAY Sports

Conversely, some of the beefier deals signed this summere.g. Carmelo Anthony's $124 million contract, Eric Bledsoe's $70 million contractmay soon look like bargains in a cash-flooded system.

Another perk from the new TV deal: Players are now guaranteed to earn their maximum share, 51 percent, starting in 2016 and for the duration of the CBA.

That 51 percent, by the way, could represent more than $3.1 billion—far exceeding the $2.1 billion the players drew in 2010-11, when they were earning 57 percent. (This is the "smaller share of a larger pie" argument that NBA officials invoked during the lockout. The point being, players did not actually take a pay cut when you account for revenue growth.)

The league will receive $2.1 billion in 2016-17, the first year of the new deal with Disney (ESPN/ABC) and Turner (whose holdings include Bleacher Report), according to a league memo sent to teams, and the payments will steadily increase over the nine-year deal, to $3.1 billion in 2024-25.

Player salaries will almost certainly continue to rise as the TV payouts do. So why opt out?

In part, players and agents are driven by a desire to win back some of the rights and dollars they surrendered in 2011. The recent $2 billion sale of the Los Angeles Clippers only emboldened players in their belief that they deserve a larger share of the pie.

A more fundamental problem: Not every class of player will benefit from the coming cash surge.

Max contracts rise in proportion to the cap. But rookie salaries are locked in for the duration of the CBA, without regard to cap increases. So are minimum salaries. So is the mid-level exception—the primary tool used by over-the-cap teams to sign quality players.

With the salary cap set to explode when the league's new TV deal begins, Kevin Durant is likely to receive an abundance of exorbitant offers in the summer of 2016.
With the salary cap set to explode when the league's new TV deal begins, Kevin Durant is likely to receive an abundance of exorbitant offers in the summer of 2016.Richard Rowe/Getty Images

To be clear, all of those salary levels will rise moderately in the years to come, based on predetermined formulas. But their growth will be miniscule compared to the growth in the cap, meaning they will be devalued on a relative basis.

The non-taxpayer mid-level exception, for instance, rises by roughly $150,000 per year, so it will continue to lose value in comparison to the growing pool of dollars. A mid-level slot worth $5.3 million is far more valuable under a $63 million cap than it will be under, say, a $90 million cap.

The NBA's middle class should benefit, however, from the surge in cap room in 2016 and perhaps 2017, or until teams fill up their payrolls again.

The other complaint of players and agents is that the system adopted in 2011 is simply too restrictive, thanks to a luxury-tax system that penalizes the league's biggest spenders. The teams that do pay the tax surrender other rights: use of the full mid-level exception and the bi-annual exception, and the ability to acquire players in sign-and-trade deals.

In a booming business, are those restrictions still justifiable? The players would obviously say no.

Would the union reopen the CBA in pursuit of a richer rookie scale, higher minimum salaries, longer contracts and fewer restrictions on payrolls? Almost certainly.

Mark Lennihan/Associated Press

The owners have less incentive to reopen the deal, given the new TV riches and skyrocketing franchise values. They got nearly everything they wanted in the last CBA. But they could always push further—to reduce the players' share back to 50 percent, or 49 percent, or 48. They could pursue a hard cap (again) and a higher minimum player age.

"I think we have a very fair deal," commissioner Adam Silver said Monday, when asked about a potential labor stoppage. "I don't want to speak for the union, and I'm not prepared to make a judgment yet from our owners' standpoint. ...But it's my hope that even if we have to do some tinkering or make some adjustments, we can avoid any sort of work stoppage (in 2017)."

Monday was a happy day for NBA officials and owners and their broadcast partners. They packed a hotel ballroom in Midtown Manhattan for the (live, televised) announcement. It was all smiles and mutual back-patting.

But in professional sports, more money just means there's more to fight over. Another NBA labor battle is coming. The only real question is: How long will this one last?

All financial figures and estimates were obtained firsthand.

Howard Beck covers the NBA for Bleacher Report. Follow him on Twitter, @HowardBeck.

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