Everyone Loses in the NBA Lockout (For Now) – October 2011 Master Negotiator

Empty arena - Peter Barron Stark CompaniesWhat happens when you put the following people into one room: David Stern (The Commissioner of the NBA), Billy Hunter (Union Executive Director), a selected group of NBA team owners, and last, a group of players who happen to be some of the highest paid people in America? You end up with a room full of egos so big that they don’t have the capacity to negotiate to a win-win outcome.

This group of individuals has met many times in hopes of coming to some type of outcome that both sides could agree on. Most recently, negotiations broke down after a 3 day marathon session, complete with a mediator who had successfully helped the NFL and MSL come to win-win outcomes. At this point, there have been no new dates set for both sides to come together and meet again.

What are the sticking points? The sides remain divided over three main issues: the division of revenues, the structure of the salary cap system and the length of the players’ contracts. First, let’s discuss the revenue split. Under the current contract, the players have 57 percent of the split in an environment where NBA owners have lost around $300 million. The owners have insisted a 50-50 split under the new contracts before they even begin discussing the salary cap. Prior to the last negotiations breaking down, the players seemed to be entertaining a 50-53 percent sliding scale, depending on revenues. The owners don’t seem to be budging and are trying to get back about 700 million dollars they have lost. The owners currently claim that 22 out of 30 NBA franchises lose money each year. To help the NBA franchises be more profitable, the owners are trying to negotiate shorter contract lengths while, naturally, the players want longer contract lengths. Ultimately, the owners need to run their teams more like a business that consistently makes a profit.

So why do we say that everyone loses in this situation? It has long been our belief that, in a short period of time, people seldom gain back what they lost during a strike. It will take years for the players and the owners to re-coup the loses they are currently experiencing. One challenge the NBA has is that some teams make a ton of money, some teams lose a ton of money. The teams that lose a ton of money each year may actually be financially ahead by not playing ball. This makes it even harder for the owners to come to a quick agreement on a winnable outcome. So who is losing right now?

First, let’s start with the little guy: Every usher, every ticket taker, every janitor, every security person, every waitress at nearby restaurants, and every retiree who relies on this work for their income is losing right now in a big way. Most likely, some business owners have asked their management and full time employees to take pay cuts to help them make ends meet during such a difficult time. Considering the fact that the purchasing of tickets, products and food, spurs an increase in employment, this lockout is not helping the U.S. economy get back on its feet.

Second, the players: Every day that goes by, more games will be cancelled. In the 1998-1999 lockout, it took until February 5th 1999 to play an NBA game. It is our prediction that it will be late December or early January before the teams are back on the court. If that does not happen, the season may even be abolished. The season was supposed to begin on November 1st. All games have been cancelled until November 14th, costing the players over 170 million dollars in salaries. More game cancellations will be announced shortly. Why can’t both sides find a common ground? Both sides say ‘there are principles involved.’ When you combine principles with huge egos, you mix a volatile cocktail that dictates everyone is going to lose.

Third, the owners: The owners of the more profitable franchises are losing substantial amounts of money by not playing ball. These are the owners who want to be at the table and work out an outcome. They are not only losing fan income, they are losing millions in television and sponsorship revenue each day the teams are not back on the court. Here is the twist. Some of the teams in the NBA that are not doing as well financially, either with fan, sponsorship or television revenue, might be losing less money not playing ball under the old contract. These owners may be the only ones that will win by not coming to an early agreement.

Fourth, the fans: If you think about it, fans are the most important asset in this negotiation and they are the only ones who are not represented at the table. We are trying to divide up 2 billion dollars among 400 players who have a job that, when you think about it, is not a necessity. If the fans stopped paying for the tickets and attending the games, the rest of the negotiation becomes a moot point. For most fans, and especially season ticket holders, attending the games is not about the money they spend on tickets. It is about the fan experience and being a part of something special about which most NBA fans feel tremendous pride.

So there it is, just about everyone is losing. Do we have any recommendations for a group of egos this strong and big? Use the tactic of selling people on the problem, not the solution. The solution is to come to a win-win outcome both sides may not be happy with, but can live with. That tactic has not worked. If they can’t come to a resolution, and all past behavior demonstrates they either don’t have the capacity or willingness, then what happens for both sides? It is only when the problem becomes big enough in each side’s mind, that we have a potential for a resolution. This negotiation is to be continued…

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