Labor Relations in Basketball: the Lockout of 1998-99
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The Basketball Lockout Labor relations in basketball: the lockout of 199899 The lockout resulted in the owners losing about $1 billion and the players forfeiting roughly half that amount in foregone salaries; the salary explosion was contained, but whether caps can effectively limit salaries in the future remains to be seen P aul D . ntil 1998, the National Basketball Asso- also with the people they represented. The clash of Staudohar ciation (NBA) and its players were unique personalities and attitudes, so familiar from other Uin one major respect: while other major sports, came at last to haunt basketball negotiations. team sports—baseball, football, and hockey—were plagued with work stoppages, basketball had none.1 Indeed, the sport was often cited as an example of Background good labor-management relations. What made the The National Basketball Players Association (NBPA) record even more remarkable is that basketball is was formed in 1954. The association was relatively the quintessential big-money game. There are weak and ineffective, until attorney Lawrence ample riches to divide up between owners and play- Fleisher was hired to direct it in 1962. By 1967, the ers. Ticket prices to NBA games are the highest in first comprehensive collective bargaining agreement sports, and the league has enjoyed strong financial in sports had been negotiated. Over the years, union support from television. The minimum cost of stag- relations with league commissioners were adversarial, ing an event is far smaller in basketball than in other but characterized by a good measure of trust, re- team sports that have larger rosters.2 The combina- spect, and creative problemsolving. tion of high revenues and relatively low overhead The positive relations led to what may be the most costs brought NBA salaries to the lofty average of innovative collective bargaining agreement ever in $2.6 million, the highest in sports. sports. In 1983, the Players Association and the league The tranquility ended when the 1998–99 sea- negotiated a contract that included (1) the inaugural son was truncated by a 202-day lockout. This ar- sports salary cap (devised by Gary Bettman, current ticle examines the background of basketball labor National Hockey League commissioner, who was then relations, why the lockout occurred, its key issues, an NBA executive), (2) a revenue guarantee of 53 per- the dynamics of the bargaining process, and the cent for the players, and (3) a pioneering drug control eventual settlement. The saga of the league and its program that has been emulated in other sports and union is particularly interesting in that what was industries. A 1988 agreement refined these provisions. generally regarded as a successful structure for di- Following that agreement, Fleisher retired and was Paul D. Staudohar is viding up revenues became unglued. Besides the replaced by Charles Grantham. a professor of business administra- structural model and contested issues, an impor- Grantham’s goal in the 1994 negotiations was to tion at California tant aspect of the dispute was the negotiators and eliminate three provisions from the previous contract: State University, their relationships, not only with each other, but the salary cap, college draft, and right of first refusal Hayward, California. Monthly Labor Review April 1999 3 The Basketball Lockout (wherein a team can retain a free-agent player by matching a revised so as to withdraw certain limits on free agency. There- salary offer from another club). Unsuccessful at the bargain- fore, the players voted decisively against decertification. Then ing table, the union saw its players play the 1994–95 season the players and owners ratified the collective bargaining agree- without a replacement contract, but it filed an antitrust suit to ment, the lockout was lifted, and the 1995–96 season proceeded seek the elimination of the three provisions. In July 1994, U.S. without a hitch. District Court Judge Kevin Duffy ruled against the players. Victory for both sides came at a price, however. For one The court cited the so-called labor exemption, holding that it thing, the agents got their noses into the bargaining tent, a fac- conferred immunity from antitrust law on the owners, as long tor that would complicate negotiations in 1998–99. There was as there was a collective bargaining agreement between the also a lingering rift within the union. Gourdine was replaced two parties.3 by Billy Hunter, who would lead the players in 1998. Perhaps Thus thwarted in its legal end run, the union returned to most disturbing was that the lockout had been an effective tac- the bargaining table. But negotiations were interrupted by tic for the league, suggesting its further use down the road. Grantham’s abrupt resignation, which was prompted by divi- A lockout is management’s counterpart to a strike. It is a siveness among the players. Grantham was replaced by attor- preemptive measure designed to force a union to accede to ney Simon Gourdine, who, oddly enough, had served earlier management’s demands. Typically used before a season starts as deputy commissioner of the NBA, the number-two manage- or early in the season, a lockout seeks to forestall a players’ ment position in the league. Gourdine pushed for a conclu- strike later in the season, when more damage would be done to sion to the long-stalled negotiations, and a tentative agree- owners’ revenues. ment was reached. Lockouts have not been uncommon in sports. Football own- It is at this juncture that pivotal events occurred that af- ers retaliated with a lockout in 1968 after players boycotted fected not only the 1995 agreement, but the 1998–99 negotia- training camps over pension fund contributions. In 1970, an- tions as well. Players as a whole are not typically well versed other strike and lockout of football training camps occurred in in the intricacies of collective bargaining. But they are repre- a dispute over pensions, postseason compensation, and a griev- sented in their individual salary negotiations by attorney-agents. ance procedure. In 1976, baseball owners locked players out These agents realize that the provisions negotiated in a collec- of training camps over an impasse on free agency. Another tive bargaining agreement—on such areas as salary caps and baseball lockout took place in 1990, over a variety of issues.5 free agency—play a decisive role in determining the salary None of these lockouts caused the loss of any regular-season leverage players have in their individual negotiations. A group games. The only one to interrupt the season in any major sport of agents objected to the proposed agreement, because it would was in hockey in 1994–95, when 468 games were lost over a hinder salary growth. 103-day period. The hockey lockout, stemming largely from a Under the agents’ direction, a number of players sought to payroll tax proposal by the owners, was a disastrous affair, but have the union decertified. The rationale was that, with the in the end the owners secured substantial concessions from end of the collective bargaining relationship, the owners would the union. The hockey lockout provided a valuable lesson to no longer be exempt from antitrust immunity, and the players NBA management. could bring a successful lawsuit against the league. Accord- The 6-year basketball agreement reached in 1995 contained ingly, a petition was filed with the National Labor Relations a provision that allowed the owners to reopen negotiations af- Board to decertify the union, a tactic that had been pursued to ter 3 years if the percentage of basketball-related income de- advantage earlier by the National Football League (NFL) play- voted to player salaries exceeded 51.8 percent. When delays ers.4 A petition for decertification requires that at least 30 per- occurred over ratification of the agreement, a lockout was im- cent of the players indicate that they support an election to posed on July 11, 1996, concerning the distribution of $50 decertify the union, and this hurdle was easily cleared. A de- million in television income. This lockout lasted for less than certification election was set for September 1995. a day, however, before the agreement was finalized. The emerging battle was between the NBPA and the dissi- On March 23, 1998, the owners voted, 27–2, to reopen ne- dent players, but the league was concerned over the outcome gotiations on the 1995 agreement at the conclusion of the sea- as well. If the union was decertified, the league would be vul- son. The reason for this tack was that, during the 1997–98 nerable to antitrust litigation. Consequently, the NBA reacted in season, the players had secured about 57 percent of the $1.7 two ways. First, it declared a lockout on June 30, 1995, freez- billion in league revenue, well over the 51.8 percent required ing all dealings with players and raising the possibility of de- to reopen the bargaining. Also, the league claimed that nearly laying the start of the 1995–96 season. Second, it sought to half of its 29 teams were losing money. restructure the tentative collective bargaining agreement to Assuaging the owners’ concern over losses was a new 4- make it more attractive to the dissident players and their agents. year agreement between the league and the NBC and Turner Both of these tactics proved successful. The players were television networks for a total of $2.64 billion, raising each reluctant to lose any games, and the proposed contract was team’s annual income from $9 million to $22 million. The play- 4 Monthly Labor Review April 1999 ers perceived this added television money as invalidating claims enue.10 The salary cap was designed to contain salaries, but its that the league was making about economic hardship.