It was fairly typical of our age. A bitter economic struggle with intense implications for the future of the industry concluded with a fiscal bloodbathonly to be upstaged by the opportunity for bathos, melodrama, and hyperbole.
The buzzer-beating settlement two weeks ago brought an end to the NBA lockout and let the players walk away from a badly handled labor dispute with a shred of dignity and a little more money. The deal will now allow a fragment of the season to be salvaged along with a fragment of the fans’ interest in the game.
But then as the parties got set to try to pick up the pieces, Michael Jordan’s announcement of the sequel to his first retirement redirected the wailing about the future of the game to new fits of anguish. Jordan was the game’s greatest star and his departure is certainly inopportune for the league. Like Magic Johnson and Larry Bird in the previous decade, he has powered the NBA to its recent heights. But contemporary America is also a place with an astounding power to find or create new ultimates, and the league will get its chance to stage new spectacles.
Still, the struggle dragged out much longer than it should have, not because of the greed of the contending parties, but because of the inability of the players to understand that economic battles are not like sports conteststhey are not won by will and determination.
It is now all over but the finger-pointing, and the general public reaction is likely to be divided among those who blame the greed of the players, those who blame the greed of the owners, and those who blame the greed of the players and owners. But, while there was plenty of greed to go around, the players’ negotiating committee cornered the market for ineptitude by allowing the costly dispute to drag on well past the point of ever having a prospect of winning anything worth the cost. Indeed, the settlement was reached only after rank-and-file members of the players’ union began to panic about where their leaders had taken them.
Billy Hunter, the executive director of the players’ association, tried to put the best face on it by declaring the finish a matter of both sides blinking. But if the players won anything in the long struggle during the lockout, the victory was clearly Pyrrhic.
This is where the amateurism came in. Professionals in negotiations understand that such things are not about right and wrong or winning and losing. Negotiating any kind of a deal is an amoral practice in which the best practitioners shelve their emotions and focus on what is possible given the realities of the situation.
Estimates of salary losses for the players run to over $500 million. This is a huge price for what may have been won at the bargaining table. Put simply, at that price, a bad deal in October beats a good deal in January, particularly for the one-third of this year’s players who won’t be around to enjoy whatever may have been gained for years four, five, and six of the agreement.
The trouble is that the players never understood how weak their position was. The owners had objectives in negotiations and were prepared to take a hit to achieve those objectives. Moreover, they had the advantage of being able to afford a long view. Whereas a player must look upon his career as a depreciating asset, the owners have appreciating assets, which can gain in value as the money-making value of the team rises.
The simplest way of understanding the negotiating imbalance is to look at the contrast between players and owners. The owners got to be owners by getting wealth doing something else; they do not rely on basketball for their wealth. Few of the players would be wealthy without basketball, and their peak earning spans are so short that the loss of even one year’s salary can represent a severe blow to what the players will get in their lifetimes.
An understanding, however, of the economics of the situation goes beyond that. Much has been made of the amount of revenue that owners lost as the games were not played. Yet, the pain that was inflicted on the owners was much less severe than that inflicted on the players. It is true that the owners are giving up most of their revenues, but they are also shedding almost all of their costs.
The key question is a matter of fixed costswhat it costs teams to function even when they’re not playing. When the teams don’t play, they give up revenue, but they are also relieved of game-related expensesplayer salaries, travel costs, facility operating costs. What remain are the fixed costs, which include front-office expenses, coaches’ salaries, and arena leases.
As a consequence, the fixed cost losses of not playing may be relatively small for the owners. Fixed costs were probably on the order of $15 to $20 million a year for each team against an annual budget of about $70 million. In addition, teams continued to receive revenue under their national television contract with NBC, which would have partially offset their costs.
The sweetheart nature of many of the deals that teams have made for arenas around the country has also served as a big taxpayer subsidy for the owners in the dispute. In a normal industrial shutdown, owners would be concerned about having a big, expensive plant sitting idle and accruing interest while a labor dispute was going on. But many owners have managed to shift that risk to the taxpayers with low-cost or no-cost leases that limit the price of idleness.
Moreover, the owners had more to gain from the lockout. The owners said all along that their main goal was to get some level of predictability about cost of operations in the future. In spite of efforts to cap salaries, some particularly extravagant star contracts had continued to push the league pay scale ever higher. By limiting future salary growth, the owners gain something beyond their actual year-to-year profits. As long as the likely prospect existed that salaries would continue to grow out of control, the value of an NBA franchise would remain depressedalthough this is certainly a relative term. The certainty that an agreement would provide probably adds millions to the value of each teamenough to justify the whole sorry exercise.
This is not to say that the owners were “right” in the disputemerely that the notion of right and wrong is beside the point. Even if the owners’ position was “unfair,” the players were simply wrong in their assessment of their ability to successfully resist it.
For the record, the moral position of the owners is fairly tenuous. They contribute nothing to the game except their ability to manage its finances. That they needed to resort to a lockout to control their own inability to control payrolls seriously undermines their own justification. But that is beside the point.
Ultimately, the players had only one strong strategy available to themone that they identified early on as a last resort but chose not to resort to. The nexus of the dispute was the owners’ desire to limit salariessomething that can only be done in the context of collective bargaining agreement. Any kind of unilateral agreement or collusion among the owners to limit pay scales would violate antitrust regulations. If the players wished to stop the owners from imposing upon them a scheme to limit their salaries, they could have dissolved the union, which would have forestalled any strategy the owners might devise to restrict pay.
The downsides to this approach for the players were twofold. First, it would also erase all the terms of employment that the union had negotiated over the years, including minimum salaries and many important benefits. The result of such a move probably would have meant the stars got even more money while the journeymen got less. Second, decertification of the union probably would also have resulted in protracted litigation before any clear outcome was achieved.
Thus, dissolving the union would certainly have been a problematical solution at best. However, the unwillingness of the players to put the decertification threat on the table only enhanced the leverage of the owners as dissolution of the union is probably the only strategy they truly feared.
Ultimately, any labor action involving the stopping of work is predicated on the notion of believing that one side can take it longer than the other side and is willing to endure considerable pain to achieve its goals. The players certainly showed a willingness to endure pain. But, the pain was asymmetric; they did not have the capacity to cause anything like the pain they were enduring.
In the end, the players underestimated the resolve of the owners. They shouldn’t have. After all, the NBA wasn’t shut down because of some unexpected impasse in negotiations. The NBA shut down because the owners, in a premeditated, calculated move, locked the players out.
That’s why it was lockout and not a strike.