Roughly every six years, the National Basketball Association (NBA) and the National Basketball Players Association (NBPA) come to the negotiating table to discuss a new collective bargaining agreement. This process can be swift and straightforward, as it has been in most years, or it can be contentious and drawn out, as it was in 1995, 1996, 1998, and 2011. Never has this process been more contentious and damaging to both sides than in 1998.
On March 23, 1998, the NBA’s twenty-nine team owners opened talks with the NBPA regarding their collective bargaining agreement. On June 22, after three months of unsuccessful negotiations, dialogue between the two sides ceased. Nine days later, on July 1, 1998, the owners locked out their players, effectively canceling the upcoming 1998-1999 NBA season until the two sides reached an agreement. This officially marked the start of the 1998 NBA Lockout, which resulted in the cancellation of all regular season games in October, November, and December, and a shortened, fifty-game season once the lockout ended and play resumed in January, the first time in NBA history that games were canceled as a result of a labor dispute.
Though the lockout officially began in July of 1998, tensions started building well before that. Years prior, while re-signing superstar Larry Bird, the Boston Celtics were among the first to teams to utilize a salary cap loophole, later termed “The Larry Bird exception,” that allowed a team to use an unlimited amount of money to re-sign its own player. The tipping point came in the summer of 1997, when the Minnesota Timberwolves re-signed emerging superstar Kevin Garnett to a six-year, $126 million contract in free agency. This particular application of the Larry Bird exception caused an uproar from team owners, some of whom had been losing money as a result of this uncapped salary exception, which drove salaries up across the board. In addition, many smaller market teams found it hard to compete, as they could not afford to retain their own superstars once they became free agents.
Prior to the NBA seasons in both 1995 and 1996, two minor lockouts broke out, lasting just two months and three hours, respectively. Unlike the 1998 lockout, both of these lockouts were resolved before the start of the NBA season, and resulted in no canceled games and no salaries lost (Wise 1998).
Results
After many months and multiple failed attempts by NBA Commissioner David Stern and NBPA Executive Director Billy Hunter to reach an agreement, Stern publically announced on December 23, 1998 that it might be best to cancel the rest of the season if the two sides were still unable to come to an agreement by January 7, 1999. This deadline put significant pressure on the NBPA to agree to a deal if the players wanted to make any income from the 1998-1999 season. Just three days before Stern’s deadline, Hunter and the NBPA proposed a resolution during a meeting on January 4, which Stern and the NBA promptly turned down.
Ultimately, Stern’s strategy worked, and the two sides reached a new collective bargaining agreement on January 6, just one day before Stern’s deadline. While the agreement did not contain a hard cap on team salaries, it set a progressive maximum salary cap for individual players, increasing from $9 million per year to $14 million per year, as a player’s NBA tenure increased. This agreement did not eliminate the Larry Bird exception, however, it instituted a luxury tax, which allowed teams to continue spending more than the salary cap to re-sign their own player, but taxed them for doing so. Outside of salary cap issues, the new collective bargaining agreement contained a structure for rookie salaries based on their draft position. Additionally, league minimum salaries were raised from $242,000 to $287,500 per year for rookies, from $272,250 to $350,000 for second year players, and to $1 million for veterans of ten years or more. Finally, the agreement led to a stricter drug policy, prohibiting performance enhancing drugs and marijuana, to preserve the integrity of the game and enhance the league’s image, which had been on the decline (Staudohar, 1999).
Analysis
Divide and Conquer: An Effective Strategy
Throughout the negotiations, the small group of owners presented a unified position of solidarity and consistent messaging. By contrast, the much larger coalition of players, influenced by individual personalities and divergent interests, often broke ranks and took different positions, at times publically advocating for different solutions and undercutting the authority of their lead negotiator.
For example, superstar players and their agents favored unlimited salaries, while the average players were more concerned with increases to the league’s minimum salary requirements and annual pay raise limits. These conflicts naturally led to internal division within within the NBPA, which represented over 400 players and had a nineteen-member negotiating committee, led by NBPA Executive Director Billy Hunter and NBPA President Patrick Ewing.
Towards the end of negotiations, for example, Shaquille O’Neal of the Los Angeles Lakers was an outspoken proponent of taking any deal, and is said to have influenced Billy Hunter into agreeing to the collective bargaining agreement on that near-final day (Revisiting the NBA's 1998 Lockout, 2011). In doing so, O’Neal personally sacrificed millions of dollars, as he was becoming a free agent the following year and the new rules would limit what he could command.
The owners were only 29 in total and left all the negotiating to long-time NBA Commissioner David Stern. Stern, an attorney and former general counsel to the NBA, was a professional negotiator with deep experience in all aspects of the collective bargaining agreement. Indeed, Stern exploited the inherent disparities among the large group of players by transmitting certain of the owners’ proposals directly to the players. This direct appeal drove a wedge between various player factions, some of whom disagreed with the official union position.
Both sides faced economic pressure and self-destructive publicity and resentment from the media and fans. The controlled and well-organized effort by the owners, however, created a more focused negotiating dynamic that led to less internal dissention and ultimately a better result.
The owners’ more disciplined approach was far more effective and prevailed in the end, achieving a result much closer to their original objectives. The owners obtained many more concessions from the players, who often argued amongst themselves, thus presenting a weaker front to the owners and a distraction from their ultimate goals.
Taking the Initiative and Creating Leverage
The owners took advantage of a clause in the 1995 collective bargaining agreement which allowed them to re-open the collective bargaining agreement after three years if the amount of basketball-related income devoted to players’ salaries exceeded 51.8 percent. The league claimed that the players received approximately 57 percent of the $1.7 billion in revenue in 1997 and that nearly half of its teams were losing money due to a proliferation of players’ salaries that had risen by 50 percent over the past five years due to salary cap exceptions. The owners argued for a hard salary cap that would eliminate the costly exceptions. The players rejected that proposal and pointed to the new $2.64 billion television contract to dispute the league’s economic hardship argument. When a series of negotiating sessions failed to reach an agreement, the NBA declared a lockout and put the players at a distinct financial and tactical disadvantage.
The owners had deeper pockets, other sources of income, and television contracts that paid current broadcast fees to the teams even if games were not played, which preserved their cash flow. This economic advantage gave the owners tremendous leverage over the players.
By contrast, the players typically were big spenders with little savings and no other source of income. In an attempt to garner public support for the locked-out players at a charity game, NBPA President Patrick Ewing remarked that the players, “make a lot of money, but they also spend a lot of money,” which resulted in little sympathy from a PR standpoint. Both sides were criticized in the media (Revisiting the NBA's 1998 Lockout, 2011). Sportswriter Tony Kornheiser called the lockout a labor dispute “between tall millionaires and short millionaires.”
Throughout the entire lockout, the owners were on offense. They were calling the shots while the players were reacting, or playing defense.
Setting the Table
The owners also employed another effective strategy, calculated overreaching, in order to arrive at a favorable compromise. Stern took the extreme position of a hard, exception-free cap on total team salaries, which the players, and their powerful agents, were sure to resist. In addition, the NBA sought to limit individual player salaries, eliminate the Larry Bird exception, lengthen the period of time before a player became a free agent, and other concessions to contain their costs. This gave Stern and the owners room to negotiate and the ability to give in on the hard team cap in exchange for concessions on the other terms. Again, the owners dictated the rules of engagement by declaring a lockout and creating an economic hardship to the players. They then set the terms of discussion by making so many demands, that accomplishing half of them would still be a major victory. Moreover, they could appear reasonable in the process.
The Ultimatum
Amidst mounting dissention within the players’ union and increasing desperation to resume play, on December 23, 1998, Stern issued a “final” proposal and threatened to cancel the rest of the season if a deal was not reached by January 7. The deadline worked. After the owners rejected an NBPA proposal on January 4th, the NBPA scheduled a meeting on January 6 where the players could vote on the League’s proposal. Unable to reach a consensus, the players voted to resume talks with ownership. On January 6, with just one day to spare, Stern and Hunter reached an agreement which was ratified by the players.
Although there was no hard cap on total team salaries and the Larry Bird exception remained, subject to a luxury tax, the new collective bargaining agreement was a clear victory for the owners, as individual player salaries were capped at $14 million per year, marking the first time in the history of American professional sports that player salaries were limited by agreement.
The game itself, however, suffered. Attendance, ticket sales, and television ratings declined for three straight seasons after the lockout, proving that this agreement was more damaging than it was beneficial to both sides.
Conclusion
Not only did this high-profile negotiation end up harming both sides involved, it also damaged relationships between the NBA and its players, as well as between the NBA and its fans. Both sides could have utilized strategies that could have resulted in a more favorable outcome for all. While effective in “defeating” the NBPA, the use heavy demands and an ultimatum by the NBA damaged relations with everyone involved.
Conversely, the NBPA, forced to be reactionary by the NBA’s offensive strategy, would have greatly benefitted from more unity. In such a large group, unity will always be hard to achieve, however, it is necessary if success is desired. First, the NBPA should have appointed fewer than 19 players to its negotiation committee, as that many voices at one table, even if they have the same general goal can only lead to disagreement, confusion, and isolation. The NBA executed this strategy perfectly, as the twenty-nine owners appointed David Stern to do any and all negotiating, and even imposed fines against any owner who deviated from the single voice strategy. Second, the players should have stayed quiet in the media. Their public comments often contradicted each other and led to perceived confusion, tension, and weakness on their side, as well as backlash from the fans.