SBJ/January 29 - February 4, 2001/Opinion

NBA players doing just fine at the pay window, thank you

If all goes according to plan, after the Super Bowl U.S. sports fans will focus renewed attention on the NBA. It will come none too soon for most NBA arenas where empty seats have been more visible than usual this season. NBA television ratings on Turner are averaging only a 1.2 Nielsen rating, down 14 percent from last year.

Yet there are also signs of success. The NBA is approaching the midpoint in its present collective-bargaining agreement, whose negotiation delayed by three months the start of the 1998-99 season. When the accord was reached in early January 1999, many commentators claimed that union chief Billy Hunter had sold the players short. The critics pointed to new caps on individual player salaries and the hardened team cap via the introduction of the escrow and luxury payroll taxes.

If results matter, then it is time for the detractors to do some reassessing. Consider the evidence.

When the owners locked the players out in 1998, they said such a decisive measure was necessary because the salary share in BRI (basketball related income, consisting of all team revenue except naming rights, 60 percent of signage and luxury suite income, certain property income and a part of related party income) had risen to the unacceptably high level of 57 percent during the 1997-98 season. Two years earlier it had been at 53 percent.

Based on extended rosters (roughly 420 players), the National Basketball Players' Association (NBPA) estimates that average salaries, which were a lofty $2.37 million in 1997-98, rose to $2.64 million in 1998-99, $3.27 million in 1999-2000 and $3.93 million this season. That is, over the last three years average salaries have grown by 65.8 percent, or by 18.4 percent per year — and that despite the subtraction of Michael Jordan and his $34 million salary with the Bulls in 1997-98.

NBA revenue has also continued to grow, but at a slower pace. Consequently, the salary share in BRI has risen: from 57 percent in 1997-98 to 59 percent in 1998-99, 62 percent in 1999-2000 and an estimated 64 percent in 2000-01. Not bad results for a labor contract that some called a sellout.

Next year, however, is the first year of the new escrow tax. Here is how it works. The players place 10 percent of their total salaries and benefits into an escrow fund. For every dollar that the players' total remuneration exceeds 55 percent of BRI, a dollar is taken out of the escrow fund and given to ownership until the escrow fund is exhausted. Thus, if the player share of BRI is between 55 percent and 60.5 percent, the owners collectively will be reimbursed to bring their net payments to players down to 55 percent. If, however, the player share exceeds 60.5 percent prior to the escrow reimbursement, there is no further reduction from player income.

The owners have a second line of defense — the luxury tax. If an individual team payroll exceeds 60.5 percent of team BRI, the owner pays a 100 percent tax on the overage. These two mechanisms, many thought, would contain players' net salaries and benefits within 55 percent of BRI.

Early returns suggest otherwise. Based on long-term contracts currently in place and other provisions in the collective-bargaining agreement, the NBPA estimates that the average salary will increase to $4.5 million next year. Given projected leaguewide revenues, the players' pre-escrow share in 2001-02 will come to 67 percent of BRI. Players will then have to surrender the entire sum in escrow and their post-escrow share will be 61.5 percent — 4.5 percentage points above the players' 57 percent prior to the lockout.

And there is other, significant good news for the players. Largely as a result of the poor contract agreed to by Simon Gourdine in 1995 that eliminated a middle-range exception to the salary cap, player salaries became increasingly bifurcated. The growing salary gap created a problem for union solidarity.

The 1998 collective-bargaining agreement, by reintroducing middle-range exceptions, has gone a long way to narrowing the divide in player salaries and toward recreating a middle class. The median salary increased from $1.4 million in 1997-98 to $2 million in 1999-2000, representing a 19.4 percent annual growth. With the median salary growth rate exceeding that of the average salary and with the sharp increases in minimum salary, the middle class of players is back. The number of players with salaries below $1 million was reduced from 151 in 1997-98 to just 95 in 1999-2000. This bodes well for ongoing union strength.

So, the players are happy and the owners have stopped complaining. Now, it only remains to make the fans happy again.

Andrew Zimbalist teaches economics at Smith College. He has worked as a consultant to the National Basketball Players' Association.

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