NBA Labor Issues

Following up on Nick’s post one week ago regarding the labor unrest in two other NA pro sports leagues, there is an article on TSN.ca regarding the NBA’s current labor negotiations.

The league has submitted a proposal to the Players Association that would dramatically reduce the amount of money that is given to the players. Currently the players receive 57 percent of overall league revenues, and the proposal calls for players to receive less than 45 percent.

The league proposal also calls for players to take a big pay cut calling for a 33 percent cut in rookie salaries, a cut in the minimum salary by 20 percent, and the veteran maximum deal being less than 60 million over the life of the contract with most of that money being non-guaranteed. According to the source of the article, the proposal is designed to move the NBA from a soft salary cap to a hard salary cap.

I find it hard to believe that the Players Association would accept this big paycut and this situation will be interesting to examine in the coming months. What I also see here is not only the owners trying to keep more money from themselves, but also the NBA attempting to improve the competitive balance of its league. Fort and Quirk (1995) in their classic JEL paper say that the only league policy to improve competitive balance is an enforceable, hard salary cap. Research in competitive balance also shows that the NBA has the worst competitive balance among the four professional leagues in North America. This proposal I believe is a strategic attempt by the NBA to also attempt to improve the competitive balance of the league that would result in higher league revenues (which the owners would then pocket more than in the current collective bargaining agreement).  If the league is unsuccessful in its attempt to enforce the hard cap, which Fort and Quirk say is a big problem for the league, the owners still pocket more money.  Sounds like a win-win situation to me.

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