Beware of Lockout: Owners Envy NBA Cap

Much like the long labor dispute in baseball, NBA owners and players paid a significant price before reaching a bargaining agreement.

The difference is that the NBA agreement--capping salaries and giving players a specific percentage of revenue--has created a measure of cost certainty for owners and--from the owners’ perspective--the foundation for a working partnership with the players.

It has also created a measure of envy among baseball owners, who began gathering in Carlsbad on Tuesday for a quarterly business meeting and who two-plus years ago emerged from their own labor dispute without a coveted cap or meaningful restraint on salaries.

“Our current agreement is an abject failure,” San Diego Padre President Larry Lucchino said. “Revenue sharing [among clubs] is inadequate, the luxury cap [designed to stem payroll growth] is a joke and the competitive imbalance has been exacerbated.”

Baseball’s bargaining agreement--reached in November 1996 after the 1994 World Series was canceled and the ’94 and 1995 seasons were shortened because of the dispute with the players’ union--doesn’t expire until after the 2001 season.

Given management’s escalating concerns over widening disparities in revenue, payrolls and competitive balance, the sense is that owners will go to the wall in the next negotiation--Armageddon in pursuit of a cap or similar restraint.

But the owners are cautiously avoiding inflammatory rhetoric amid the ongoing recovery from the last dispute, the improved relationship and aura of peace with the union, and the momentum evolving from the celebrated summer of 1998.

Nevertheless, many are more convinced than ever that the system has to be changed, that the problems can’t be ignored, that the momentum could be dangerously misleading.

“Baseball as an industry is in worse shape economically than when we tried to achieve a cap before,” said Peter Magowan, the San Francisco Giants’ managing general partner. “I refer to the overall losses, the widening competitive gap and the correlation between spending and winning.”

The oft-chronicled disparities have been compounded by a winter of madcap spending. Almost $1 billion has been lavished on free agents and other available players. Six have been signed to multiyear contracts eclipsing the $12.5-million record for average annual value.

The 1999 payroll scale will stretch from the Dodgers, at about $85 million, to the Montreal Expos, at less than $10 million. The 1998 revenue scale stretched from the New York Yankees, at about $175 million, to the Expos, at about $35 million. Only three teams that spent less than $48 million on payroll had a winning record, and only one that spent more, the Baltimore Orioles, had a losing record.

Now, Magowan said, 18 teams will go to spring training without a realistic chance to make the playoffs. Those flagging hopes, coupled with rising ticket prices as clubs “desperately attempt” to cover payrolls, are serious warning signs that “tend to betray the media’s glorious portrait of 1998.” So is the fact that as many teams (14) suffered decreases in attendance as had increases, he added, putting it all in the category of “crushing problems that need to be addressed.”

The NBA agreement caps salaries for the first time in professional sports. It also specifies that 55% of basketball-related revenue be spent on salaries starting in the fourth year of the six-year agreement.

Stan Kasten, president of the Atlanta Braves and Hawks, calls that the pivotal aspect because it “creates a connection between the amount of money that comes in and goes out, leading to an economically sound equilibrium.”

“The advantage of a percentage system is that it gives both sides stronger incentive to grow the game,” he said. “I may hate you, but I’m going to work with you to grow revenue. Any system is better than no system, and I obviously think the basketball system--old or new--is better than what exists in baseball.”

Jerry Colangelo, who also bridges both sports as managing partner of the Arizona Diamondbacks and Phoenix Suns, said that the NBA agreement doesn’t automatically create cost certainty but “should provide stability through better allocation” and should be a system from which baseball can possibly borrow.

Colangelo said baseball’s gap needs to be closed through a functioning system that puts a payroll and salary “limitation at the top and improved revenue sharing on the side.”

As it is now, he said, too many of the revenue recipients are continuing to cut payrolls and pocketing the welfare to make a profit rather than using the revenue on players, as was intended. In addition, the luxury tax has not been a deterrent to the top spenders and expires after this season anyway.

“I think there’s a lot we can learn from the NBA agreement,” Lucchino said. “Some form of revenue sharing with the players is the sensible way to go. The partnership they’ve established is something for which we should be striving.”

Partnership? Arn Tellem, one of basketball’s most powerful agents who also represents some of baseball’s top players, said there has never been a partnership in the NBA and never will be until players share in the selection of a commissioner, franchise appreciation and equity ownership. Tellem strongly opposed the settlement and said there was nothing in it that would help baseball or be accepted by the baseball union.

“Baseball has a true free-agent market and basketball doesn’t,” he said. “The will of the baseball union, players and agents is so strong that [any limitation on a free market] will never happen. Baseball’s owners are intelligent enough to know that this kind of proposal will never fly.”

Perhaps, but baseball owners hope the union will realize that the willingness of the NBA union to accept a cap and percentage system doesn’t equate to calling on Jack Kervorkian, although that may be a tough sell.

“I’m not optimistic about changing the union’s historical view of a free market,” Magowan said.

Indeed, the union’s philosophy--as expressed again by the great liberator, Marvin Miller, when he responded to the NBA agreement in an interview with The Times--is that it should be in the business of constructing floors, not ceilings. He and others close to the baseball union believe the NBA union handed over the free market in a shocking capitulation and are convinced that baseball players must be prepared to withstand a long lockout rather than make that same sacrifice by accepting a cap.

Donald Fehr, executive director of the players’ union, wouldn’t discuss that aspect but, agreeing with Tellem, said the NBA settlement carried no substantive impact or direct application to any future baseball negotiations.

But make no mistake: at some point baseball’s owners will be coming at the union even harder than the last time. The NBA agreement underscores that.

“It’s worrisome that [the NBA agreement] was only achieved after a long lockout, but it was a good settlement for owners and a fair settlement for players,” Magowan said. “It still rewards seniority, but it gives owners a better opportunity economically. I mean, the owners were simply not going to play under the old rules, and the players responded in the best interest of the industry. It’s a positive development for other sports. Hopefully, that will be apparent to our union.”

Time will tell. A very long time if Fehr and associates are expected to don a cap.