1. Falkenstein Ruminations: While the playoff chase whirls in our faces, the background story people are talking about relates to the economic and labor health of the game. Revenues are projected as down for the next few seasons and David Stern, for the first time, is telling teams to expect the salary cap and the luxury tax threshold lower over each of the next three seasons. As a consequence, all eyes are on whether the NBA will seek to renegotiate the key terms of the collective bargaining agreement, which expires in 2011. Both David Falk and Bill Simmons have recently virtually guaranteed an NBA lockout in 2011. Falk was the first to stir the waters and he identifies several problems with the state of the current NBA. Falk’s re-emergence interested me on two levels. First, where has he been the last ten years? Second, do his current complaints have any merit?
Who Is David Falk?
Starting with the first question requires a quickie overview of Falk. Falk is an interesting character. He was once the premier agent in the NBA, controlling Michael Jordan, Patrick Ewing, Reggie Miller, Alonzo Mourning, and a ton of other high profile players. Falk also used his influence to help rally the NBA players against hard salary caps in 1995 (he attempted to decertify the union and strip the NBA of antitrust protections) and again in the 1998 lockout (his players rallied against any form of hard cap). While those attempts were not successful, Falk was clearly a major player in the NBA. In a 1996 New York Times article, an anonymous agent described Falk’s power: ”If he just had Michael, he would be considered a marketing genius, which he is. But David represents so many players that he is a major force. He pretty much gets what he asks for.”
In the 2000s, however, Falk’s influence waned. It isn’t clear if this was a result of Falk’s decision to step back from active representation, the fact that the hard salary cap from the 1998 negotiations limited the usefulness of agents (whose maximum possible payments were predetermined by the CBA), or something else entirely. In any case, Falk has been pretty much out of the limelight. He still represents Elton Brand, Jeff Green, Mike Bibby, Corey Maggette, and few other lower rung players but that’s about all he’s got now.
Like Scott Boras now, Falk was been called many things over the years, from genius to egomaniac to just an agent doing his job. My feelings for Falk lie in the middle. Clearly, he is one the first modern super agents and his attempts to shake up the player’s union could have come at the behest of his clients and were not motivated by his own personal goals. Still, you always wonder how Falk, or any agent with various clients who lie in all different parts of the food chain, could argue that long term labor strife and shooting for no salary cap makes sense. Isn’t there a conflict here? Sure, Jordan and Mourning wanted a chance to make $25 million a year but his other clients (for example, Calbert Cheaney, Walter McCarty, or David Wingate) derive no benefit from this type of war to break the bank for the big stars while the little fish watch the finite salary potential elapse in the meantime. It would not be fair to insinuate that Falk or the other agents who supported this war did not confer with all clients on their positions but certainly the potential for conflict was there.
Acknowledging that we can’t really ever know what Falk’s motivations where and whether he really was throwing his more marginal clients (and similarly situated players) under the bus in previous negotiations. With that proviso, we’ll take Falk at his word and see if his public quotes reveal anything. In that same 1996 New York Times article, Falk described his philosophy on this issue: “If you lived on a block with $300,000 houses and you sold yours for $2.5 million, your neighbors would thank you. But in my business they don’t. That used to make me angry. Now I’m just amused.”
This is a correct assertion in theory. Higher salaries for the stars can raise everyone’s salary. But what if you represent every house on the block and there is only one $2.5 million buyer on the marke? Sure house prices go up in theory but the market is not quite the same and everyone who didn’t get the big scale feels like they were screwed (and they might’ve been depending upon how the agent handled the sales).
So, let’s try again. Do you have a better analogy? In a 1996 Sporting News article, Falk told a similar story on salary scale: “The salary structure should be close to what it is in Hollywood, where Jim Carrey makes $16 million a film and the second star makes $2 million. That’s what I believe as an economics major and as a neo-capitalist.”
This is a bit better but, again, the essential question of how revenue is distributed exists. I can’t condemn Falk for being greedy or for screwing his non-star players. There is absolutely nothing wrong with challenging the NBA and trying to land big stars another level of financial success. Still, the potential conflict can’t be glibly dismissed and definitely colored some of Falk’s arguments back in the 1990s and may affect how we view his current assertions.
Falk’s Current Issues
So what is Falk’s current position on the NBA financial system? Working off a recent New York Times article where Falk was interviewed, he revisited the 1998 labor negotiations: “The players lost 40 percent of their salaries, and they got a worse deal in January.” But Falk has had an epiphany: “The players, he said, must recognize that the owners have the ultimate leverage. Many are billionaires for whom owning an N.B.A. team is merely a pricey hobby. Some of them are losing “enormous amounts of money” and would rather shut down the league for a year or two than continue with the current system.”
So what would Falk suggest? He has two concrete suggestions:
-Falk would eliminate the salary cap for only the star players and would eliminate the mid-level exception or any other devices that allow a more even distribution of payroll for players.
-Falk wants to raise the age limit for college players to 20 or 21.Does any of this make any sense? Certainly. Falk’s first suggestion, only pay the stars huge bucks, makes sense and is entirely consistent with what he was arguing in the 1990s. Indeed, most mid-level exception deals end up being disasters for the teams and I’ve always been of the philosophy that management should err on the side of not giving non-stars long term deals. We do not know from what angle Falk is offering this suggestion, as a detached NBA observer, an agent, a unionist, or something else. Nor is it clear from this article how exactly “superstar” would be defined. Does every team get one big shot contract? Or is there some other way to figure this out.
While we are admittedly laying assumption on top of assumption, let’s assume Falk is making his arguments as a detached observer with no dog in the fight so that we can at least make some conclusions on this idea. The notion that revenue is primarily created by the stars and thus they are entitled to the bulk of pay is not unsound in theory. Is it healthy for the NBA to have large(r) discrepancies in income between the stars and everyone else? I don’t know the answer to that question but it’s an interesting theory. Not matter the answer to the economic question, I suspect in practice it might be tougher to implement.
There is no way either the union or the NBA would like this idea. If you recall the 1998 labor strife, the main issue was that the owners wanted cost certainty and felt that the huge contracts going to the young stars would kill the league. Indeed, it was Kevin Garnett’s huge salary demands as a third-year pro in 1997 that particularly spooked the NBA. While the CBA could distinguish between young pros who might become superstars and the established stars for Falk’s purposes, there is absolutely no way the NBA would consent giving blank checks to any stars. This might seem wrong to pure capitalists but the NBA is self-contained business and Stern has always demanded a degree of cost certainty from the players and will never give up that point, particularly with so many teams reportedly losing money. As for the union’s end, I can’t see its members being willing to a radical redistribution of salary either. Yes, the stars are entitled to the big bucks but any system that gives the stars more money at the expense of the rank and file is probably a non-starter from a political point of view to most of the union members.
Let’s turn to Falk’s second idea, raising the age-limit for eligibility to 19 or 20. Falk’s theory is that age-limit helps the NBA develop assets to sell to the public. Indeed, he told the Times that: “[t]he single biggest factor contributing to the success of the N.B.A. over the last almost 30 years has been the NCAA tournament.” A higher age-limit is something both the NBA and union would both benefit from on some level. The NBA would have to pay the stars like LeBron a little bit further down the road and the existing union members would be able to stay in the league a bit longer. Stern is already on the record as supporting raising the limit a bit. I think the union, despite its own self-interest, has problems swallowing a higher age-limit, if only because a large number of its members were ready to start making money at age 20 and probably wouldn’t want to squeeze future generations.
Having noted the parties likely positions on this issue, I think Falk is pretty much wrong on this one. He reasoned that: “[Eevery guy in that era, from ’79 to about ’95, who came in the N.B.A., all the fans knew on a first-name basis. It got to the point, when Duke won twice in the ’90s, people said they knew how Grant Hill wore his socks.” While it is true the college stardom can help get fans excited for pro careers, ultimately, the proof is in the pudding for all pros. Sure, Magic Johnson and Larry Bird were popular college players but if they were busts as pros, no one would’ve remembered the 1979 NCAA title game as legendary (it was actually a pretty sloppy game if you see it now). Rather, it is interesting because it traces the Bird-Magic rivalry back to a primordial stage.
The other big star of the 1980s and 1990s, Michael Jordan, was a great college player but his popularity came from what he did as a pro. There are tons of college stars who remained for four years whose stardom did not translate to professional stardom. There are also scores of players who became popular despite barely being in college (Shawn Kemp) or going to schools we never heard of (Stockton, Malone, Pippen). You can rattle off a list of the stars from the 1980s and early 1990s and the stardom as a pro depended largely on pro accomplishments.
There wasn’t a bigger college star than Christian Laettner and this did provide him some initial attention in the NBA but when it was clear that Laettner was nothing more than a solid pro, he faded from the limelight. Similarly, Danny Ferry, Danny Manning, and Pervis Ellison did not become stars as pros, despite accomplished college careers. On the other hand, David Robinson disappeared from the basketball for two years after college and was an immediate star when he played great as a rookie. Nor can we say that LeBron James or Kobe Bryant are any less stars because they skipped college. College success can give a player a buzz when he first gets into the NBA but ultimate stardom comes from what he does when he gets to the NBA. While Falk’s idea here is interesting it seems to me to be clearly incorrect.
So, what do we make of Falk’s recent viewpoints. Ultimately, Falk concludes that the NBA will win any labor war: “[t]he owners have the economic wherewithal to shut the thing down for two years, whatever it takes, to get a system that will work long term. The players do not have the economic wherewithal to sit out one year.” What Falk doesn’t mention is that this fact was just as true in the 1990s, when the NBA wasn’t not going to enter into an agreement without some cost caps. The question will only be what kind of give backs the union can live with.