This seems reasonable to me.
I only cut and paste the first half of the article. Just too long, so click on the link for the 2nd half of it. He suggests the pacers make $700,000 per home game, while teams like Lakers Knicks....make $2M
One man's way to avert NBA's looming lockout scenario
Posted Jun 20 2011 12:03PM
We're at the 58th minute of the 11th hour.
This is the beginning of the last week that can truly avert an lockout by NBA team owners. They will meet with the players' union Tuesday in New York, a meeting that David Stern indicated last Friday would be make or break. The sides have met three times in full session in the last two weeks, along with a couple of smaller sessions between the lawyers, and Stern and Billy Hunter speak on the phone all the time. Yet here we are, 11 days from a lockout that everyone says will be disastrous for the sport, while everyone seems powerless to stop it from happening.
It doesn't have to be this way.
There's a middle ground.
It will require sacrifice from both sides. It will require trust from both sides. It will require acknowledging that the other side's position has some merit and is worth considering. But it is there.
It will be difficult. Rich men are capable of doing just about anything to remain rich. This new generation of NBA owners, many of whom are leveraged up to their ears and who have tens of millions of annual debt service to pay before they pay a single coach or player their gargantuan salaries, has among its ranks those who are fully ready to sacrifice all of next season if it means a sea change in the league's financial system. The new generation didn't pay $1 million for his franchise (like the late Abe Pollin, who bought the Baltimore Bullets in 1964), or $6 million (the late Bill Davidson, who bought the Pistons in 1974). Having been in the game for decades, the old guard was more likely to be willing to cut a deal.
Today's NBA is filled with owners who paid through the nose for their teams, and have years of red ink in front of them before they ever see a return on their investment.
The list includes Joe Lacob and Peter Guber (Golden State, purchased in 2010 for $450 million), Robert Sarver (Phoenix, 2005, $400 million), Dan Gilbert (Cleveland, 2005, $375 million), Wyc Grousbeck and Steve Pagluica (Boston, 2002, $360 million), Ted Leonsis (Washington, 2010, $300 million -- an estimated price that does not include another $250 million in debt on Verizon Center and the Wizards that Leonsis also has to assume) and Mikhail Prokhorov (New Jersey, 2009, $200 million for 80 percent of the team and 45 percent of the new Barclays Center in Brooklyn in which the Nets will play beginning in 2013).
Add to that NBA owners who also own NHL teams -- a group including Leonsis (Capitals), Stan Kroenke (Nuggets, Colorado Avalanche) and Philip Anschutz (part-owner of the Lakers and owner of the NHL's Kings) and who survived the cancellation of the 2004-05 season in that sport after a lockout lasting nearly a year -- and you have a strong cross-section of owners who are emboldened to do whatever it takes to create a system that ensures profitability. That's something you have heard from Stern and deputy commissioner Adam Silver over and over again during the past 18 months.
"The old guys, they'd made a lot of money already," said a longtime and former senior executive of an NBA team who's been involved in previous collective bargaining sessions with the players. (Like just about everyone quoted in this piece, he obviously cannot be named.).
"Now you have guys saying 'I'm losing money, and I have to find a way to make this team that I bought for $350 million worth $500 million.' "
Players, of course, don't want their paychecks to finance profit certainty when no other business has that kind of arrangement with its workers.
"We've continued to try our best to be respectful and reasonable with, not only our ability to listen to what the NBA owners are asking or demanding from us, but we've also tried to express the fact that we're more than willing to negotiate," National Basketball Players Association president Derek Fisher said during The Finals. "And that we've expressed and actually committed to being willing to make some adjustments, and tweak some things, make some quote-unquote compromises in order to try and get this deal done without the event of a lockout. At the same time, we have a responsibility as a Players Association to prepare our guys for that possibility."
Until Friday, when owners made what they deemed a "signficant" concession and agreed to table a proposal that would have changed the existing NBA structure that allows teams to guarantee part or all of a player's contract -- the union argued that it's hardly a concession to agree to something that's already in the CBA -- there had been almost no major movement between the sides. The issues that have been impeding progress for 18 months continue to be daunting.
Three issues are at the heart of the impasse:
• The owners continue to seek a hard salary cap along the lines of those in football and hockey, eliminating most of the exceptions that currently exist.
A hard cap would cut hundreds of millions of dollars in player contracts, including those of star players. The league's most recent proposal to the players, a 10-year contract, would phase in a hard cap after three seasons and lock it in for the remaining seven years.
• Owners also want to reduce the players' take of Basketball Related Income (BRI) from its current 57-43 split in favor of the players to a split that favors them.
BRI, again, is most revenue that comes into an NBA team's coffers: money from ticket sales of all games, including exhibition and playoff games; national television rights fees from ABC/ESPN and TNT; sales from concessions -- including "pouring rights" deals with individual beverage sponsors -- and parking; temporary arena signage and club fees. Half of revenues from arena naming rights deals and 40 percent of revenues from "fixed" signage inside and outside arenas and from luxury suite sales. Money raised internationally by an NBA team is currently not included in BRI.
The initial proposal the NBA made during All-Star Weekend in 2010 would have reduced player contracts in length and eliminated guarantees, to the point where owners would recoup $700 million off the top of revenues before the rest was split with the players, creating a system that would have essentially given owners 61 percent of revenues, with players getting the remaining 39 percent. Stern said on Friday that both sides have come off of those initial positions, but the owners still want a major BRI shift in their favor and are holding firm.
• Owners also want to eliminate exceptions to the cap that allow teams to exceed the cap to re-sign their own players (this is the so-called "Larry Bird" exception), or to add players via the mid-level exception or veteran player's exception.
The mid-level is tied to the average salary in the NBA (this past year, the exception began at $5.765 million) and can increase up to 8 percent per year up to five years. Eliminating most, if not all, of these exceptions would take hundreds of millions more from players.
The players want to preserve much of the current system, while acknowledging that there have to be tweaks to the system -- "adjustments," as the union likes to say -- that don't fundamentally change the system. They want to keep the Bird and Early Bird exceptions and the minimum and veteran player exceptions, for example, and while they are willing to talk about the numbers of the BRI split, they have been at 57 percent since the end of the 1999 lockout and aren't crazy about going backwards.
It all sounds impossible. But it isn't. Call me crazy (you're crazy) and a cockeyed optimist (you're a cockeyed optimist), but there is room for a deal that addresses the owners' financial losses and the players' concerns.
For there to be compromise -- and, ultimately, a deal -- though, each side has to recognize some essential truths about the other.
Owners have to understand how serious the union is about preserving what its predecesors have earned over the past three decades. The composition of the union's executive committee is worker bee: the Knicks' Roger Mason, Jr., the Wizards' Mo Evans, the Spurs' Matt Bonner, the Lakers' Theo Ratliff, the Bucks' Keyon Dooling, the Heat's James Jones and the Hawks' Etan Thomas. Chris Paul is the only superstar on the committee. This group represents the will of the rank and file, and the rank and file is never going to get max contracts. They get paid through exceptions like the mid-level and veteran's minimum, and they are determined to protect them.
Owners must also respect the role that players play in not only raising franchise valuations, but their financial portfolio as a whole.
An example: Last week, Ohio Gov. John Kasich said he would approve the use of racetrack slot machines at casinos in the state that are being developed by Gilbert, along with approving tax breaks for Gilbert and his partners. Voters approved the construction of four casinos in 2009 by referendum in a 53-47 vote, a decision that will lead to a financial windfall for Gilbert over the next few years. In 2009, LeBron James was in Cleveland, the Cavs were one of the NBA's best and most visible teams and Gilbert was never more popular, having bought the team four years earlier. To say James' presence in town at the time wasn't a factor in the vote is folly (even Gilbert acknowledged, at least tangentially, that having the casinos would be good for the Cavs).
The union, on the other hand, has to acknowledge that there are several teams that are deep in the red that need some reform to the current system. (Is the number of teams that lost money in 2009 really 22, as the league asserts? Probably not. That number "sounds a little high," according to the longtime former team exec. Another source that deals directly with owners on a regular basis believes the actual number of teams losing significant amounts of money is more like eight or nine, and likely includes teams like the Pacers, Nets, Wolves and Kings. Another 10 to 12 teams, the source believes, could be losing as much as $5 million a year, but could also break even or make a little money depending on their team's fortunes. Add three to seven home playoff games, and those teams are probably OK. And then there are the six or seven teams that are really making money -- the Knicks, Lakers, Celtics, Bulls, Rockets and Heat. Maybe the Spurs.)
There are losses. Real ones. We just came out of the worst worldwide economic recession since the Great Depression, and it affected everyone -- including rich guys. The Maloofs lost a lot of money with the Kings, but their losses at their Palms casino in Las Vegas -- which is no longer going to be theirs, by the way -- were even greater. And while some franchises sold for a lot, there are teams like the Bobcats, which went for $275 million to Michael Jordan after Robert Johnson had bought them in 2003 for $300 million. The league also had to take the unprecedented step of buying the Hornets last year when majority owner George Shinn couldn't reach a deal with minority owner Gary Chouest.
So while metrics like television ratings, NBA.com visits and ticket sales have gone up, they cannot be used alone to determe the game's financial health. The Pacers, I'm told, are losing $15 million annually. The Nets lost $10 million two years ago. Those are real dollars.
"This year is great, but it doesn't make up for the five (crummy) years we just had," said another longtime team executive who, also, cannot be named.
So, where's the middle ground?
Let's take 'em one at a time.
(Please: I'm not a lawyer and you're not interested in the minutae of a collective bargaining agreement. I'm not writing the whole thing here. Just broad strokes on the big items. I don't address the folly of trading expiring contracts, waiving the players you just traded for, and having them return to their original teams 30 days later, for example. And there's a lot of numbers talk that follows, not basketball talk. I'm sorry. But we can't ignore this any more.)
The BRI Split: Make it 50-50?
It's currently 57-43, players. The league started with a 61-39 proposal for the owners. Neither is tenable. So, once again, I argue for the simplest concept that any kindergardner can understand: 50-50.
The NBA generates around $4.3 billion annually. All of that $4.3 billion isn't included in BRI, so let's say for the sake of argument that the BRI number is $4 billion. Under the current system, the players get 57 percent of that, or $2.28 billion, with the owners getting the other $1.72 billion. Owners are proposing taking an additional $900 million off the top, and then splitting the rest 50-50, arguing that their 43 percent of BRI is reduced by interest payments, depreciation of assets, taxes and amortization (all known by the business acronym IBIDA), and is reduced further when their operating expenses are eaten up by paying their staffs, turning the lights on in their buildings, etc. -- while players' expenses are far less. That $900 million also gibes nicely with the approximately $1.1 billion the league claims it has lost since 2008, a figure strongly disputed by the union.
There's no reason the players should have to take almost a billion out of their pockets to pay for the impact of a global recession.
A 50-50 split of the $4 billion alone would mean $2 billion apiece for the players and owners, a net loss of $280 million in salaries for the players -- and, really, a net gain of $560 million for the owners, since they would pocket the $280 million from the players and, in turn, not have to pay that additional $280 million out. That is not an insignificant financial sacrifice, and it would be a legitimate sign of seriousness on the part of the union to do its part to help struggling franchises. Owners could not make a credible argument that the players haven't made a good-faith effort to pitch in during hard times. It would give them skin in the game.
Fifty-fifty would be a recognition of a true partnership between management and labor. Future revenue splits could be indexed to adjust every three years. If the league continues its surge and revenues rise, the split could adjust slightly toward the players to give them a chance to recoup some of their $280 million "investment" in the league. If revenues fell, the split would go slightly toward the owners, to help soften the blow. If the money stays flat, the split stays the same.
"Capital deserves some kind of return," said the current team executive. "And the owners' position is, for that much money put at risk, I deserve to have some kind of return on that at some point. But the players' position is that talent deserves to be compensated. And they're right. Nobody comes to see Jimmy Buss. Between those two principles, it's a split; how do we split the money, so that both sides can say I have a fair chance to achieve my goal. In between that are the people who make that work for both of them. And we are voiceless and faceless. And we're the ones who get fired."
The Salary Cap: Harder, Not Hard
It should be harder. Not hard. Big difference.
The league wants to reduce the gap in salaries between its top-spending and lowest-spending teams. The Lakers' payroll this season, including the $20 million in luxury tax the team paid, was approximately $110.38 million. The Kings paid $44.8 million, well below the salary cap limit of $58.044 million, and had to take the contract of the injured Marquis Daniels to reach the minimum team salary threshold. Within that $65 million gap is the difference between profitability and hemorraging red ink, but it's the team spending more that makes money, while the one that tries to save dollars that winds up losing millions. Thus, there's the desire for a new system in which the Kings have more of a chance to both make money and compete better.
The owners' initial proposal would have created a $45 million hard cap. There's no way that can work, even if it's phased in, as the league proposed in its most recent offer to the players. The question is how big a cap small-market and/or small-revenue teams would be willing to accept if there wasn't as big a gap between teams. Forget the luxury tax threshold, which is $70.3 million this season; a lot of teams become unprofitable once they get near the $58 million cap limit.
"They'll take a hard cap that's pretty high if the players could get off of some of their guarantees," opines the former team exec. "... the (salary) floor doesn't matter. If you're Indiana and the high end is $70 (million) and the floor is $50, your fans will go crazy if you only spend $50 million."