Michelle Roberts and the NBA: Showdown Looming?

There is a marked change in the rhetoric that new NBPA President Michelle Roberts has used in discussing the Union’s interests going forward.  The implication of her tone is that the players have been pushed around too much and the NBA will have to give something back after arguably routing the NBPA during the 2011 lockout.  How much of Roberts’ assertions are legitimate and how much is posturing?  Hard to say but let’s take a look at some of her most interesting statements from her recent ESPN interview and see.  Before we dive in, I do realize that it isn’t totally fair to take snippets without full context.  Let’s understand that this exercise can’t capture tone or the entire conversation.  Nevertheless, it was clear that Roberts wanted to fire some shots and wanted them to be heard, so let’s break it down:

-With respect to the 50/50 revenue split between owners and players:  “Why don’t we have the owners play half the games?  There would be no money if not for the players.  Let’s call it what it is.  There.  Would.  Be.  No.  Money.  Thirty more owners can come in, and nothing will change.  These guys [the players] go?  The game will change.  So let’s stop pretending.”

Roberts touches on a number of issues.  The first is that the NBA exists because of the players.  Obviously, the players are the product.  Without LeBron James, Kevin Durant and others, the NBA would exist but interest would not be the same.  On the other hand, the general public doesn’t particularly care about the average player or even pretty good players.  For example, Tyson Chandler is a very good player but his presence is worth little to nothing in terms of public interest.  Yes, it helps interest in the Mavs that Chandler makes a team better but whether the center is Chandler, Sam Dalembert, or Evan Eschmeyer won’t affect the ultimate financial health of the NBA.  On the other hand, the vast majority of the players, no matter how good, probably get more out of playing in the NBA in salary than they give back in interest from fans.

The question of whether owners are interchangeable is more complicated.  Well, it’s not more complicated as much as it is a response that begs more questions.  In theory, the identity of owners doesn’t matter.  As long as there are people willing to buy and fund franchises, no one cares if the owner is Mark Cuban or someone else who happens to have a ton of money.  But that isn’t really the question.  Do players root for Rajon Rondo or do they root for the Celtics?  If a new basketball league popped up and had a team called the Boston Reveres (and they had all the same players as the Celtics), would the public watch that team more so than the Celtics?  If it is so easy to find billionaires, why don’t the players just start over with a new league and ask for better terms than they have with the NBA?  The NBA’s history has some value.  Consider the NCAA by comparison.  When there was no age-limit and the best basketball players were jumping straight to the NBA, the NCAA was not suffering for lack of interest and the big colleges still had their huge followings.  The NCAA isn’t exactly analogous to what is discussed above but it illustrates the value of historical fandom and its make it sound like Roberts has somewhat overstated her case.

Roberts is very smart (she was a U.S. Attorney and is known as a world class litigator in the private sector).  She knows that the players, for the most part, need the NBA and don’t have the capital, history, or patience to go down the road of a new league.   Still, she is fighting a public relations battle and wants the public (and her constituents) to consider that league has overreached and that revenues and need to be re-allocated.

-On the salary cap:  “I don’t know of any space other than the world of sports where there’s this notion that we artificially deflate what someone’s able to make, just because [of a salary cap].  It’s incredibly un-American.  My DNA is offended by it.”

Obviously, Roberts is not actually offended by the cap.  But the rhetoric is there to make the point that whatever reason there was for a salary cap in the 1980s to save the NBA, is gone.  The NBA is healthier now than ever and the cap just gives the NBA price controls, which enhances franchise values at the expense of players who would make much more on the open and unrestricted market.  As for not being aware of other “spaces” of control, I trust that Roberts and her DNA are well aware that the government has put in price controls on items, regularly restricts information that can be put out to the public with respect to publicly traded companies (which affects value), not to mention the world of anti-trust law (to the extent that the government uses such laws to limit extremes of the free market).

The rookie wage scale:  I can’t understand why the [NBPA] would be interested in suppressing salaries at the top if we know that as salaries at the top have grown, so have salaries at the bottom.  If that’s the case, I contend that there is no reason in the world why the union should embrace salary caps or any effort to place a barrier on the amount of money that marquee players can make.”

Roberts pegs herself here as the most free market soul but history has taught us that the rookie wage issues aren’t so clear.  A brief history lesson on rookie wages:

-Before 1995-96, there was no rookie wage scale.  High draft picks with lots of ballyhoo, were able to negotiate huge deals based upon their youth, the dire need of the teams that drafted them to sign them, and the fact that the younger a free agent is, the more likely he is to improve (as opposed to the decline rate of the older free agents).  The issue reached a head after the 1994 Draft.  The Bucks took Glenn Robinson first overall and Robinson demanded $100 million contract (which would’ve made him the highest paid player in the NBA).  Bucks owner Herb Kohl fought back in the public, leaking the demand and joking to the press:  “I was thinking of saying to Mr. Robinson, ‘I’ll tell you what: I’ll take your contract and you can have the franchise.’”  Ultimately, Robinson got a 10-year $68 million deal.  The NBA freaked out when it realized that  a rookie, never having played a minute in the NBA could have such leverage.  Some veterans were also not super thrilled that Robinson could come in and demand much more than Karl Malone or Charles Barkley.

-After some labor issues in the summer of 1995, the sides agreed on a rookie wage scale that allowed the draft picks to become free agents after three years.  In some ways, this was worse for the owners.  The good young players, who looked like they were really good or even might be really good, could hit the market and demand huge contracts and the team had to pay a lot and risk that the player wouldn’t improve or let the player go and get only three years of return on the draft pick.  A young Kevin Garnett nabbed a $125 million extension, which was unheard of at that time.  Even scarier to the owners was what to do with developing players where the jury was still out on in terms of value.  The Grizz threw $65 million at Bryant Reeves because he looked solid and the Warriors, who drafted Joe Smith number one in 1995 had the toughest decision.  Smith looked like a potential star but not a certain one.  After Smith’s second season in 1996-97, he was only 21 and had just put up 18.7 ppg, 8.5 rpg and looked really athletic (though advanced stats only gave him a decent 16.0 PER).  Smith wanted $100 million to re-sign and the Warriors balked, trading him to Philly, rather than paying potentially too much.  Smith was a very solid pro but not worth the cash (in fact his highest PER of his career of 17.2 came in his rookie season).

-The truth was young free agents had so much leverage that the NBA hated it.  As a result, in the nuclear lockout of 1998, David Stern demanded and was able to obtain, a hard rookie wage scale that lasted long enough to keep the rookies in check and to only pay them after several good years (an individual salary cap was also put into place that limited salaries to all players).

Heading back to the present, Roberts is asserting that unlimited salaries to rookies would raise the wages for all parties and what is good for some players (higher rookie salaries) is good for all (in the form of rising wages for all).  This, of course, does not follow.  In an uncapped world, this is certainly possible.  On the other hand, owners only have a finite amount to spend on payroll.  After dropping $100-200 million on some young guys, who is to say what is left over for the vets?  The answer depends on a lot of factors.  If the vets are guaranteed larger salaries than the rookies (as some are now), there is incentive for the vets to continue to suppress the rookie salaries.  Roberts may not want to back off on this issue but the interests of all players are not clearly aligned on this point.

-On the draft age limit:  “It doesn’t make sense to me that you’re suddenly eligible and ready to make money when you’re 20, but not when you’re 19, not when you’re 18.  I suspect that the association will agree that this is not going to be one that they will agree to easily.  There is no other profession that says that you’re old enough to die but not old enough to work.”

The age-limit is not a straight forward issue either.  Logically, it is silly to prevent all 18-year olds from coming into the NBA because some might not be ready.  But the interests of the parties are complicated.  The NBA wants an age-limit to avoid charges (regardless of merit) that they are courting immature youth and they also have a relationship with the NCAA which is a whole other ball of wax (are they friends/competitors, or a little bit of both?)  Putting the NCAA aside, public relations dictates the NBA’s stance (I doubt they really care if Jahlil Okafor or Emmanuel Mudiay spends one year in college or China before coming to the NBA).  As for the NBPA, incentives are also different.  The veterans are in the NBA and every new young kid who comes out earlier could take a veteran’s job.  Therefore, in a matter of pure self-interest, why would the NBPA members care about non-union players?  The only reason is policy based: namely that a lot of the pros remember when they were poor, exploited college kids and feel that it is wrong to prolong that time solely to benefit the NCAA.   Again, the youngsters could get the shaft from the NBA and the NBPA because incentives lie elsewhere, even if the policy seems wrong in a perfect world.

On owner profitability:  “I know that as a result of the last CBA, at least 1.3 billion dollars in revenue that would have otherwise been on the players’ side is now on the owners’ side.  I see the valuations of these teams going through the roof….How much more do you need to make money?”

A few things about ownership profitability: the fact that a team goes up in value and can be sold for higher amount, does not necessarily make the team a great investment.   Sports franchises are vanity purchases for the most part (unless they are bought way under market) and to assume that people will keep paying well over valuation to be part of the NBA is not necessarily true.  Another major economic downswing could quickly burst the franchise valuation bubble.  Still, the value of current NBA teams partially intertwined with the cost certainty in the new CBA.  If Roberts is able to pull out some of the cost controls, then it may have an effect on who wants to buy and how much he or she is willing to pay.

In all, Roberts is trying to alter the narrative and let the NBA know that: (a) the players feel snookered when they capitulated in 2011 and (b) she is not going to give in on any single issue for now.  I suspect that some of these extreme stances are total red herrings used to force the NBA to counter with more middle-ground proposals.  Ultimately, regardless of rhetoric, these sports labor negotiations are resolved in favor of the side that is more committed to the nuclear option.  For the players to prevail, they would have to be willing to sit out a very long time and/or start a new league.  The owners have shown a willingness to sit as long as it takes to get the terms they want.  At the same time, the players make nice (even if artificially depressed) salaries.  To sacrifice a year or two off of a pro career to make sure LeBron’s salary might go from $20 million per year to $30 or $40 million does not seem rational or appealing.   As smart as Roberts is, she will have a tough time convincing the middle class of NBA players (who can outvote the stars) to missing payments for that long.  I don’t really care who wins this negotiation between the players and owners (and I dread the prospect of more work stoppages).  Roberts will get some give backs from the NBA this time, albeit much less than she is publicly requesting now.

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