14 Months and Counting…Negotiating a Deal Before the CBA Opt-Out Notice Deadline

The NBA has faced interruptions in its playing schedule due to labor disagreements four times in its history. The upcoming 2015-2016 season is safe. The current NBA Collective Bargaining Agreement became effective on December 8, 2011. It is effective through June 30, 2021 if the parties do nothing. However, there is an “opt out” provision contained in Article XXXIX, Section 2. The opt-out allows either side to terminate the agreement after the 2016-2017 season.[1]

The earliest either party may terminate the agreement is June 30, 2017. So why discuss the CBA now? Because in order to opt out, written notice must be served on the other party by December 15, 2016. If notice is served, contractual relationships and future investments become uncertain and uncertainty is bad for business.

Part One of this article will look at the timeframe relevant to CBA negotiations; Part Two will examine the specific CBA language governing the termination of the current agreement.

The players’ union (NBPA) Executive Director Michele Roberts has publicly said she would like to avoid a work stoppage by completing CBA negotiations by the end of this season (by Spring 2016). See www.RealGM.comMichele Roberts Describes New CBA Deal Timeline As ‘Aspiration’” (September 5, 2015). Two of the main issues are expected to be the split of “basketball related income” (BRI) and making up for the 6 years between 2008-2014 that the salary cap hovered around $58 million.

Likewise, team owners were concerned in the 2011 CBA with achieving a sustainable business model and competitive balance. Owners have already tried to deal with the salary cap that will increase to approximately $89 million in 2016-17 and $108 million in 2017-18. This past March owners made an offer to the NBPA to “smooth over” the salary cap issue. The union rejected the proposal to breakup the cap increase over several seasons choosing instead to allow the increase to come in all at once after the upcoming season. This was an early attempt by owners to anticipate the effect of the league’s new 9-year, $24 billion dollar television/media deal that takes effect in the 2016-17 season. See Jeffrey Zillgitt, “NBA, union have too much to lose to op out of CBA” USA Today (August 5, 2015) (www.usatoday.com/story/sports/nba/2015/08/05/nba-nbpa-collective-bargaining-cba-lucrative-tv-deal-big-player-contracts/31125779); Will Green “NBA and NBPA to start 2017 CBA negotiations in August” SI Wire (June 10, 2015) (www.si.com/nba/2015/06/10/nba-nbpa-collective-bargaining-agreement-negotiations-august).

The parties will have 7 more months after this season ends before the written notice of termination must be served. In other words, to resolve issues arising under the CBA and to avoid the possibility of a work stoppage, the parties have a window presently of 14 months. In my experience over the last 20 years negotiating contracts (albeit not NBA CBA’s), and as a review of the history of CBA negotiations in the NBA demonstrates, 14 months is not a long time to resolve issues as complicated as those that will be presented in this round of talks. Roberts would like to see it done in half that time, in the next 7 months. How ambitious is that timeline?

Let’s compare the chronology of events that occurred under the 2005 CBA. That Agreement was a 6-year deal with an option that the owners could exercise to extend it through the 2011-12 season. The owners announced in 2009 they would not exercise their right under the contract option to extend the CBA into the 2011-12 season. This meant the CBA would expire at the end of June 2011. Since the parties had not agreed on a new CBA by then there was a delay in starting the 2011-12 season while the parties tried to agree on a new deal. Current NBA Commissioner Adam Silver was Deputy Commissioner and Chief Operating Officer under then-Commissioner David Stern. Silver was one of the main negotiators on behalf of the League and team owners the last time around and the actual signatory on the CBA.

Team owners imposed a “lock-out”[2] beginning on July 1, 2011 which lasted until December 8, 2011. A succinct summary of those events can be found at NBA.com Labor Central “NBA lockout timeline” (September 9, 2011). Prior to that time the NBA had not had a protracted labor dispute since the summer of 1998, when a lockout extended into February of 1999 and forced the league to play a 50-game season. See “Players union files claim against owners” http//sports.espn.go.com/nba/news/story?id=6584220 (May 24, 2011).

The time from the beginning of CBA negotiations until the lockout was August 2009-June 2011. The time for the current negotiations between the NBA and NBPA would be August 2015-June 2017. To understand how the 2011 CBA was reached, and the relevance that process might have to the upcoming CBA discussions, it is useful to look at the history of those negotiations.

 The following quotes are selected from excerpts of “NBA lockout timeline” cited above:

 June 21, 2005: The NBA and players union agree on a new six-year collective bargaining agreement. Some of the elements of the deal include:

  • An age minimum of 19, with the stipulation that American players be one year removed from high school. International players are eligible for the draft if they are at least 19 in the calendar year of the draft. Contracts for first-round draft picks are also revamped, shifting from three years guaranteed with a team option for a fourth year to two years guaranteed with a team option on the third and fourth years.
  • The luxury tax in effect every season. Previously, the luxury tax was in effect only in seasons where league-wide salaries exceed 61.1 percent of basketball-related income (“BRI”).
  • Maximum contracts are reduced — from seven years for free agents re-signing with their current team and six years for signing with a new team — to six and five years, respectively.
  • Formation of the NBA D-League

February 27, 2009: The AP reports the NBA lines up $200 million to be distributed in loans to 12 teams that have expressed interest in the funds as they face financial hardship during tough economic times.

March 20, 2009: 
After rumblings that the players and owners will reopen talks on reaching a new CBA, [NBA Commissioner] David Stern reveals that he and [NBPA Executive Director] G. William “Billy” Hunter have agreed to begin “substantive discussions.”

August 5, 2009: In New York, the NBA officially notifies the players union during a 3 ½-hour meeting between a group of 10 owners and reps from the players union that it will not exercise an option to extend the CBA into the 2011-12 season. It is categorized as an introductory meeting. No proposals for a new CBA are made.

January 29, 2010: 
The union receives a proposal from the NBA and its owners that calls for drastic financial change, including a “hard” salary cap which would eliminate some exceptions that teams over the cap can use to sign players if they are willing to pay a luxury tax. The proposal suggests cutting player contracts to a maximum of four years and decreasing the players’ share of basketball-related income from 57 percent to under 50 percent.

February 12-14, 2010: The NBA’s proposal is rejected by the union.Stern asserts that the NBA is projecting league-wide losses of about $400 million for the season and that a new financial model is needed.

July 2, 2010: The players union submits its first counter-proposal to the owners. The proposal includes leaving the current soft cap with exceptions and the luxury tax in place in addition to pushing for a better revenue-sharing model among the teams.

August 12, 2010: Big name players like Carmelo Anthony, LeBron James and Dwyane Wade are in attendance when the players’ union meets with owners in New York.

October 21, 2010: Stern reveals that the NBA wants to drastically slash players’ salaries as the league anticipates roughly $350 million in losses for the season with the league looking for a swing of $750 to $800 million in its favor. Commissioner also says that eliminating teams could be up for discussion as the league tries to stabilize its financial situation.

May 24, 2011: 
The players union files a lawsuit with the National Labor Relations Board to try to prevent a lockout. The union claimed the league was engaging in unfair practices including not bargaining in good faith, demanding huge financial takeaways from prior contracts without offering concessions in return, bypassing the Union to deal directly with players and threatening an unlawful lockout.

June 30, 2011 (midnight):

The league announces that it will lock out the players when the CBA expires at midnight. Lockout begins at 12:01 a.m. on July 1st.

July 12, 2011: 
NBA.com reports that, because the players were paid less than 57 percent of basketball-related income that was called for in the CBA, $160 million from escrow funds will be returned to the players.[3]

July 13, 2011: The players union sends a memo to the players supporting their plans to play basketball overseas.

July 29, 2011: With the NBA’s foreseeable future in jeopardy, FIBA grants players the option to play overseas.

August 1, 2011: The NBA also files unfair labor charges against the players union.

 August 31, 2011: 
Sides meet for six hours in New York in the second joint meeting since the lockout began.

September 7, 2011: Meetings continue with another six-hour session.

September 8, 2011: Sides meet for a second consecutive day

September 12, 2011: 
Charlotte Bobcats owner Michael Jordan is fined $100,000 for public comments made about the labor dispute.

September 13, 2011: 
Talks resume for the third time in two weeks with the additional attendance of the owners’ labor relations committee and the union’s executive committee. Both sides continue to disagree on changes to the salary cap structure.

September 21, 2011: 
Small groups from both sides meet in New York for a few hours and plan to continue talks the next day.

September 22, 2011: 
After another unsuccessful meeting between the heads of the NBA and players union, the threat of training camps and some exhibition games being cancelled becomes more of a reality.

September 23, 2011:
The league announces that training camps are being postponed indefinitely and all preseason games scheduled for Oct. 9-15 will be cancelled.

September 27, 2011: 
Sides take part in another small-groups meeting

 September 28, 2011: The NBA and players union hold another meeting and the calendar is again a looming counterpart in the labor negotiations. According to a report, if little to no progress is made during talks planned for the weekend, Stern says the 2011-12 season is in serious jeopardy. On the players’ side, the union is requesting a collective of star players including LeBron James, Kobe Bryant and Kevin Durant to attend the Friday meeting.

 September 30, 2011: With star players such as Dwyane Wade, LeBron James, Carmelo Anthony and Paul Pierce on hand, the union and owners resume labor discussions.  According to reports, a tense exchange occurred between Wade and Stern after Wade, frustrated with the proceedings, felt he was disrespected by the Commissioner. In one bit of progress, the league says it is committed to quadruple revenue sharing that would go to smaller-market teams in the third year of a new revenue sharing plan the league is working on.

October 1, 2011: The longest meeting between both sides since the lockout began July 1 takes place as the NBA and union talk for seven hours. The majority of the session is devoted to the salary cap structure, which the players insist on keeping the same while owners push for a number of changes. The players voiced their wishes for the next cap, including the midlevel and Larry Bird exceptions remaining in the deal.

October 3, 2011: On the day training camps were to have officially opened, Silver stressed that compromise would be needed on both sides to get a deal done.

October 4, 2011:
 The sides meet for about four hours and fail to reach agreement on the split of basketball-related revenue. The NBA announces the cancellation of the entire 114-game preseason schedule. Stern says that if a deal on a new collective bargaining agreement, at least in principle, is not reached by Oct. 10 (Monday), then the first two weeks of the season will be lost. The regular season is scheduled to begin Nov. 1.  Stern and Silver said owners offered players a 50-50 split of basketball-related income. That’s below the 57 percent that players were guaranteed under the previous collective bargaining agreement, but more than the 47 percent union officials said the owners previously proposed to them.

October 10, 2011: 
Both sides reconvened for a little over seven hours but were unable to come to terms, resulting in the first two weeks of the NBA season being canceled. Stern said . . .the longer it takes to come to an agreement, the more owners will try to recoup monetary losses incurred through canceled games.

October 12, 2011:
 The players union and NBA agree to meet early next week with a federal mediator as the sides continue to try to hammer out a new collective bargaining agreement. Similar mediations were successful in helping both the NFL and Major League Soccer reach deals on their own CBA’s.

October 17, 2011: Federal mediator George Cohen meets individually with both sides in preparation for a joint session scheduled for the following day.

October 18, 2011:
 NBA players and owners spend 16 hours meeting with Cohen and plan to return the next day at 10 a.m. to continue the talks. They didn’t emerge with the deal Stern wanted, but things went well enough that the owners decide to alter their plans of proceeding with their Board of Governors meeting the following day after previously saying they weren’t available. Following recommendation from Cohen, both sides left the meeting without commenting.

October 19, 2011:
 After a 16-hour marathon meeting, the sides meet for more than eight hours and agreed to continue talks on the next day.

October 20, 2011:
 NBA labor talks turned nasty and broke off when three days of meetings failed to yield a deal to end a 112-day lockout, raising the likelihood that even more games will be canceled. After 30 hours of negotiations before a federal mediator, the sides remained divided over two main issues — the division of revenues and the structure of the salary cap system. (emphasis added)

October 26-27, 2011:
 Sides negotiate for more than 15 hours making incremental progress on the “system” issues.

October 27, 2011:
 After negotiating for more than seven hours, sides agree to reconvene the next day.

October 28, 2011:
 After seemingly making progress the day before, talks crashed, with BRI the main culprit. With talks stalled, Stern canceled all games through Nov. 30th.

November 5, 2011:
 After meeting separately during the morning, the two sides met for 8-1/2 hours, with federal mediator George Cohen returning to help find a compromise. The NBA proposed a new offer to the players, and set a deadline of Nov. 9 at the close of business for the players to accept.

November 8, 2011:
 43 players, including Carmelo Anthony and Blake Griffin and representatives from 29 teams and, met for about three hours Tuesday afternoon to discuss the owners’ latest proposal. In a post-meeting news conference, they rejected the proposal and said the union wanted more negotiations before the 5 p.m. Wednesday (Nov. 9) deadline imposed by Stern. The union indicated there were system issues that needed to be modified if players were going to accept a split in a so-called “band” of from 49 to 51 percent of basketball-related revenue (BRI), which is the “50-50” deal offered by owners. At this point, the union and NBA have spent 22 sessions and 148 hours trying to agree on a new collective bargaining agreement.

November 10, 2011:
 A 72-game season starting Dec. 15 is proposed for NBA players.

November 14, 2011:
 After spending the weekend mulling the NBA’s offer, players arrived in New York City and delivered a [response] to one more ultimatum from NBA Commissioner David Stern: See you in court. The players’ association rejected the league’s latest proposal for a new labor deal and began disbanding, paving the way for a lawsuit that throws the season in jeopardy. By filing a disclaimer of interest, the union ended its role as a collective-bargaining agent and the NBPA executive director became the executive director of a “trade association”. Outside counsel Jeffrey Kessler and David Boies[4] — who, ironically, represented NFL owners when they thwarted the football players’ de-certification push last spring — will become the key figures from the players’ side, taking over for Hunter and NBPA president Derek Fisher. (emphasis added)

November 15, 2011:
 The locked-out players, including Carmelo Anthony and Kevin Durant, file class-action antitrust lawsuits against the league in northern California and in Minneapolis. Boies said the NBA lockout violates antitrust laws by refusing to allow players to work. NBA.com’s Labor Central Players file pair of antitrust lawsuits against NBA” (November 15, 2011)

November 17, 2011:
 Stern and the team owners conduct a conference call to discuss and update each other on the failed negotiations and resulting upcoming litigation being pursued now by the players.

November 21, 2011: 
Boies and the players withdraw the California lawsuit to focus on the complaint filed in Minnesota[5] [where things probably would move faster because the docket is less congested].

November 23, 2011:
 Talks aimed at ending the NBA lockout resumed.

November 25-26, 2011:
 NBA owners and players reached a tentative agreement early Saturday to end the 149-day lockout. After a secret meeting earlier this week, the sides met for more than 15 hours Friday, working to try to save the season. This handshake deal, however, still must be ratified by both owners and players. Thirty more days are needed from the handshake agreement to tipoff, and before players can vote to approve a deal, they must drop their lawsuit against the league and recertify as a union. A simple majority vote of the 430-plus union membership is needed to approve — or disapprove — the settlement. At least 15 of 29 owners are needed to ratify. The league plans a 66-game season and aims to open camps Dec. 9.

December 8, 2011:
 Both the owners and players ratified a new 10-year collective bargaining agreement, enabling training camps and the free agency period for the 2011-12 season to begin on Fri., Dec. 9 at 2 p.m. ET. The agreement includes a 50-50 split of basketball-related income, a higher luxury tax with progressive tax rates and the retention of a soft salary cap system. The maximum length of player contracts will be five years (previously six) and maximum annual increases in salaries will be 7.5% for teams re-signing their own players and 4.5% for teams signing other teams’ free agents. Eligibility for the NBA draft remains at age 19 as it was under previous CBA.

  *   *   *   *   *

It was almost 23 months from the owners’ formal announcement on August 5, 2009 that they would not exercise the contract option to extend the CBA until the lock-out at midnight on June 30, 2011. Another 161 days (or just over 5 months) passed after the lock-out until the start of games in a shortened season. Therefore, from the formal announcement and start of CBA negotiations, through the work stoppage, and to the start of play, over 28 months passed. Considering that timeframe, August 2015 was not too early for the NBA and NBPA to begin the current CBA negotiations.

The timeline from the initiation of meetings in August 2015 to the deadline to serve notice that one party or the other will opt-out (December 15, 2016) is, as of this writing, a little over 14 months. From service of notice to the actual termination of the Agreement (June 30, 2017) is another 6-1/2 months. The total timeframe until a potential work stoppage is 20+ months with the clock ticking; This is 3 months less than the negotiation period that preceded the 2011 lock-out.

The NBA and NBPA are entering negotiations better positioned to strike a deal since the League is financially much stronger than it was in 2009. [6] It is unlikely the owners are going to want to see the stability attained as a result of the last CBA eroded. Dividing the monetary rights of the parties given the influx of new money is extremely complex. The audit provisions of the CBA will ensure that both sides are working with the same numbers. There will agreement about assuring the overall future profitability and financial security of the NBA business model. The disagreement will be over the details and the best way to achieve that goal.

ENDNOTES:

[1] Other grounds for terminating the CBA will be reviewed in Part Two of this article

[2] Technically, since the owners did not exercise the option to extend the 2005 CBA, there was a “lock-out” since no valid CBA was in place at the end of June 2011 . The posture of the parties under the 2011 agreement is different in that rather than allowing the parties to extend the CBA, it does not terminate until 2021 unless one party or the other opts out effective June 2017. If the players opt out, there could be a “walk-out” in June 2017; if the owners opt out, there could be another “lock-out”.

[3] July 12, 2011:  “Escrow money withheld from all NBA players’ paychecks each season will be returned to them this offseason for the first time, providing a $160 million infusion of cash in the midst of the league’s labor lockout. The escrow funds — representing eight percent of each NBA player’s salary — are held back each season to ensure that the players’ share of basketball-related income does not exceed the contractually agreed-upon percentage, currently 57 percent. This year, for the first time since the system was introduced in the collective bargaining agreement that came out of the 1998-99 lockout, the cut to players will fall short, sources with the NBA and the National Basketball Players Association confirmed. When a final audit is completed later this month, the players will have been paid less than 57 percent of BRI and will be due the entire $160 million. It’s the first time the players will have the full escrow returned, a union spokesman said. That cash could ease or delay the point at which some players begin to feel financial hardship from the lockout. Based on the “average” NBA salary of $5.7 million, the escrow rebate would be worth $456,000. A minimum-salaried player ($473,604) would be due $37,888 while a $16 million superstar could expect $1.28 million coming back. A majority of NBA players are paid from November through April, while those on a 12-month payment plan receive checks through the summer for the just-completed season. A check for 8 percent of their annual salary could put off any money pinch they eventually feel. Traditionally, the annual July audit is the time when BRI is defined, along with the salary-cap and minimum payroll figures. The NBA imposed the fourth lockout in its history on July 1 after negotiations of a new collective bargaining agreement failed and the old deal expired June 30. Only one of the previous three — in 1998-99 — caused the league to cancel games; that 204-day lockout resulted in a shortened 50-game season. This time, the league’s owners — estimating losses by 22 of its 30 teams in 2010-11 for a combined $300 million — have been seeking a reduction in the 57(players)/43 (owners) split of BRI, along with changes in the definition of BRI. Also, the owners have proposed a hard salary cap — or, in a recent revision, “flex” salary cap — as opposed to the “soft” salary cap previously in use. The soft cap led to a disparity in payrolls from the Los Angeles Lakers’ $110 million in salary and luxury-tax obligations to the Sacramento Kings’ $45 million. The owners cite competitive balance, along with profitability across all 30 teams, as reasons for their targeted changes. The players have shifted the onus for profitability onto the owners, urging more aggressive sharing of revenues among the teams. They rejected a proposal from the owners that would have guaranteed them at least $2 billion in annual compensation over a 10-year deal — the 2010-11 figure is $2.17 billion — because it would have represented both a pay cut and an exclusion from much of the league’s anticipated growth over that time. Instead the players have offered a reduction in their cut of BRI to 54.3 percent, which they contend would reduce salaries by a total of $500 million over a five-year CBA. . .In the last lockout, the owners and players went 45 days — from June 22 to Aug. 6 — between negotiating sessions. That time frame is believed to have led to the eventual cancellation of 464 regular-season games, the 50-game schedule and the loss of the 1999 All-Star Game.” www.nba.com “$160 Million in Escrow Money to be Returned to Players” Steve Aschburner (July 12, 2011).

[4] Kessler recently represented Tom Brady/NFLPA in the “Deflate”gate case. Boies is probably best-known to the general public for representing democratic presidential candidate Al Gore in the “hanging chad” re-count case in 2000 Bush v. Gore. Both Kessler and Boies had represented professional athletes/unions and team owners in the past.

[5] The NFLPA had also filed a lawsuit in federal court in Minnesota to vacate Commissioner Goodell’s arbitration award in “Deflate”gate. State and Federal Courts in Minnesota (8th Circuit) have been forums friendly to professional athletic unions in past disputes along with courts in the 9th Circuit (California).

[6] But compare comments of Commissioner Silver that “a significant number of teams are continuing to lose money despite fairly robust revenue sharing when some teams are receiving $20 million checks from their partners”. Ken Berger “Summer League Buzz: Owners the ones to watch in CBA negotiations”, CBSSports.com (July 14, 2015) (www.cbssports.com/nba/writer/ken-berger/25241544/summer-league-buzz-owners-may-opt-out-of-collective-bargaining-agreement)

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