Why the NBA Players Keep Losing to the Owners

The following is a guest post by David Berri, a Professor of Economics at Southern Utah University. He is also the lead author of Stumbling on Wins, the general manager of the sports-economics blog Wages of Wins, and is a frequent contributor to the Freakonomics blog.

Why the NBA Players Keep Losing to the Owners

By David Berri

Photo: djbelc01

In the past couple weeks I have written about labor negotiations in the NBA and the recent labor agreement in Major League Baseball.  Now that we have agreements in both sports, thanks to the new NBA deal, I would like to address why the two unions involved in these negotiations have historically achieved such different outcomes.

Let’s begin with how the outcomes are different. In the NBA we see:

  • a cap on the salary that can be paid to an individual player.
  • a cap on the payroll of an individual team.
  • and a cap on the pay to all players. 

Furthermore, this latter cap has been reduced from around 57 percent to about 51 percent of Basketball Related Income (or BRI) by the latest agreement. In sum, salaries in the NBA are clearly restricted, and the latest agreement increases these restrictions.

In contrast, baseball players do not have a cap. And that means:

  • an individual can make as much as any team is willing to spend. 
  • teams like the New York Yankees can spend more than five times as much as the Kansas City Royals.  
  • there is no cap on how much the players can collectively earn.

So how come the baseball players negotiated such a sweeter deal? And why can’t the NBA players’ union stop the owners from using players’ money to solve the owners’ problems? One possible explanation can be found in the NFL. Though the NFL is the most successful professional sports league in North America, the players have generally done poorly in negotiations with owners. NFL players not only face a very hard payroll cap, their contracts are not even guaranteed. (See our podcast, “Billionaires vs. Millionaires” for more).  Mike Leeds and Peter von Allmen – in their textbook on economics and sports – offer a simple explanation for what we see in football.

Some NFL players are clearly stars who are likely to play for many years (i.e. Tom Brady). The majority of players, though, are not stars, and face fairly short careers, 3.5 years on average in the NFL. Consequently, the non-stars are not willing to hold out for a much better deal, since their window is so short, and whatever extra benefits gained would likely not accrue to them as much as to the select star players.  In other words, NFL players never have much leverage in negotiations because most players are not willing to shorten their careers further by withholding their services.

Baseball players, however, have historically been willing to hang together and walk off the job. And one example might illustrate why baseball players are different. In 2002 (the last time baseball had a difficult labor negotiation) David Ortiz was 27 years old and had yet to hit more than 20 home-runs or log more than 500 at-bats in a single season. In other words, he was not considered a star. The next season though, Ortiz hit 31 home-runs for the Boston Red Sox and finished 5th in the balloting for MVP in the American League. Across the next four seasons, Ortiz always finished in the top four for MVP and always appeared in the All-Star game. In sum, Ortiz was transformed from a player who was not considered an integral part of the Twins to a star for the Boston Red Sox.

The Ortiz experience illustrates a key difference between football and baseball. In the NFL, if you haven’t made it by the time you’re in your late-twenties, chances are you’re not going to become a breakout star earning All-Pro money. But in baseball, that Ortiz story is more likely to happen. Therefore, even your average players are more inclined to reject any plan to restrict earning power – especially the earning power of stars. Also, baseball players have on average a bigger window of playing time than do football players. The average career for a major leaguer is 5.6 years. NBA players face an average career of 4.8 years, right in the middle of the two. 

So is basketball more like football or baseball? It appears it is much more like football. As noted in Stumbling on Wins, NBA players peak around their mid-20s.  So by the time an NBA player is 27, he is generally past his peak. And if he is not a star at that point, just like in football, it is highly unlikely he is ever going to be a star. 

In other words, most of the players on the executive committee of the union– like Derek Fisher, Maurice Evans, Keyon Dooling, Roger Mason, James Jones, Matt Bonner, Etan Thomas, and Theo Ratliff (i.e. everyone on the committee not named Chris Paul) – know that no matter what they do, they will never be an MVP candidate. So when the owners ask the players to agree to a deal that restricts the earning power of stars, most members of the union have a tough time sacrificing (i.e. holding out) for a deal that leaves star pay unrestricted. Consequently, the NBA is the only sport with a cap on individual salaries. So while LeBron James is probably worth more than $30 million to his team, the cap on individual salaries holds his pay to less than $20 million.

In sum, the NBA owners are able to divide and conquer the players. Since the players in the NBA have different career prospects, they are unable to stay unified. So it is not surprising that over the past 30 years the players’ union in the NBA has agreed to a payroll cap, a cap on individual salaries, and with this last agreement, a clear cut in pay. And because the NBA will remain a league where most players will never be stars, we can expect NBA players in the future to keep losing when it comes to negotiations with the owners.

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  1. Mike B says:

    Might be interesting to see what happens if the demand from international leagues increases to the point where the NBA can no longer hold onto its stars due to all the salary caps. I know right now international leagues can’t match the purchasing power of the NBA, but basketball is probably the #2 globally popular sport behind association football and as Europe and Asia increasingly have money to throw around it could help lift the value of NBA stars.

    I also find it interesting that team owners themselves would want all these caps because it basically removes their ability to buy a championship like is possible in baseball (*cough*Marlins*cough*). The luxury tax system means that owners can either sit back and bring in a good stream of appearance fees as the Washington Generals, or go all in and become an unstoppable force like the New York Yankees. The risk of a “parity” situation is that if returns aren’t linear you could spend a moderate amount of money and through the luck of the draw still loose money just because your team isn’t quite good enough. In an unbalanced league you can either compete or pinch pennys and both options can be more consistently profitable.

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  2. David says:

    Well, are NBA players losing or are star NBA players losing?

    Presumably, the non-star NBA players are getting enough of what they want to conclude they are, if not exactly winning, at least not losing.

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    • RiKi says:

      My sentiments exactly.

      The NBA players aren’t losing. The union represents all players and as the article points out, the majority of the players receive little-to-no benefit for holding out. The top tier of players are losing but they’re not representative.

      There’s a snide 1% and OWS comment in here somewhere.

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  3. Nanno says:

    Aah, poor LeBron… only $20 million a year. That’s even less than the best paid football (called soccer in the US) star, Samuel Eto’o, who earns € 20 million a year.

    I’m guessing he doesn’t make any money from endorsements or interest.

    Thanks for the clear comparison though, makes a lot more sense to me now.

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  4. John B says:

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  5. John Pula says:

    What about the nature of the sports in question? In football, stars are mostly in the point-scoring positions– quarterbacks, wide receivers, and the like. There are exceptions, like Brian Urlacher, but they are few.

    In baseball, anybody (save the pitcher, who rarely bats) can score points. And since the pitcher is the first line of defense, he too has a sort of stardom attached. The same holds true for basketball– anyone can take a shot.

    Perhaps the “support” players in football are what is holding the negotiations back. While I am heartened to see the post earlier this week on quantifying offensive lineman performance, I think that they will always play second fiddle to a Tom Brady, even though he couldn’t do his job without them. (Full disclosure: I used to play center in college)

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  6. Stace says:

    I would like to see the NHL have similar analysis. They have also had two significant interruptions in the last couple decades in the name of labor unrest.

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  7. Chris says:

    It’s a valid point that baseball players peak later than other sports. But David Ortiz is clearly a bad example since he tested positive for PEDs in 2003.

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