Did the Players Give Up Money to Make the NBA Better? Exploring the 2011 Collective Bargaining Agreement in the National Basketball Association

By Berri, David J. | International Journal of Sport Finance, May 2012 | Go to article overview

Did the Players Give Up Money to Make the NBA Better? Exploring the 2011 Collective Bargaining Agreement in the National Basketball Association


Berri, David J., International Journal of Sport Finance


Abstract

The NBA and its players union reached a new collective bargaining agreement in 2011. As a result of this agreement, the players will now be receiving less money. The NBA argued that a pay cut for the players was necessary to make the league better. More specifically, the NBA argued that if the players accepted less money, more teams could afford to field competitive teams. Therefore, competitive balance would improve, demand for the sport would increase, and ultimately the players would be better off. Although the NBA did get the players to accept less money, the empirical evidence-from published research-casts significant doubt on the story the NBA told its players.

Keywords: NBA, collective bargaining, competitive balance

Introduction

Strikes and lockouts have become commonplace in professional North American sports throughout the past 30 years. From 1981 to 2011, eight different labor disputes have interrupted a regular season in Major League Baseball (MLB), the National Football League (NFL), the National Hockey League (NHL), and the National Basketball Association (NBA).

As the following table indicates, each of these leagues has experienced two disputes since 1981. The nature of the events has also changed over time. The first four on the list involve players' strikes, or labor disputes where the workers walk off the job. The last four are labeled "lockouts," or labor disputes where the owners do not allow the workers to report.

Whether the dispute takes the form of a strike or lockout is important in terms of the negotiations between the parties. This point is explained below. For now, though, we want to note that these events happen in sports far more often than they happen in non-sports industries.

To put what we see in sports in perspective, let us consider the frequency of work stoppages in non-sports industries.1 The United States Department of Labor tells us that about 16 million workers are covered by a union contract.2 There are approximately 4,000 unionized athletes in MLB, the NFL, the NBA, and the NHL (Berri, Brook, & Schmidt, 2006). From 1981, these workers in sports were involved in eight labor disputes. If non-sports workers had the same number of disputes (given the number of people in the unions), we would have seen about 32,000 labor disputes since 1981. But the number of disputes that have occurred outside of sports is only 1,222.3 This means that workers in sports are about 26 times more likely to be involved in a labor dispute.

So why do these events happen so often in sports? The obvious answer is that a relatively small number of players and owners are arguing over relatively large sums of money. According to Forbes.com, the NBA in 2009-10 earned $3.8 billion in revenue.4 In 2009-10, the NBA's 30 franchises only employed 442 players on the court.

And these small groups of people have substantial bargaining power. NBA players are quite unique and hard to replace. Consequently, the players have monopoly power in the labor market.

Ownership, though, is not without power of its own. Although players can play in other markets, no league in the world can match the salaries paid by the NBA. And that means the owners have substantial monopsony power.

When a monopoly confronts a monopsony in the market place, the outcome-as standard labor theory teaches-can only be decided via bargaining. Often, as we have seen, that bargaining process results in the loss of games.

Financial Origins of the 2011 Labor Dispute

Historically, though, this has not been the outcome in the NBA. The NBA reached its first agreement with its players in 1970.5 A new agreement was then reached in 1973, 1976, 1980, 1983, 1988, 1994, and 1995. Unlike their counterparts in the NFL, NHL, and MLB, these agreements were all reached without a loss of regular season games.

In 1998, though, the NBA's history of relative labor peace ended. …

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