National Basketball Association

How The Next CBA Will Impact The NBA's Future

Published Jun. 30, 2017 6:28 p.m. ET

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As detailed on The Crossover, sources familiar with negotiations between the NBA and NBPA indicate that the two sides are close to a new collective bargaining agreement. The new CBA would begin in the 2017–18 NBA season and last through the 2023–24 NBA season (it is expected that either side would have the ability to out of the agreement in 2022). Still, enthusiasm for a new CBA should be tempered slightly by the reality that there is no deal until there is a deal. Both sides still have work to do in order to finalize an agreement. If they are unable to finalize an agreement, either can opt out of their current CBA by Dec. 15, 2016. Such a move would set the NBA and NBPA on a path towards a labor dispute that could imperil the 2017–18 NBA season. Yet assuming progress continues, anticipated terms in a CBA shed light on how the league could be run very differently in the near future. Here are a few key terms to watch for:

1. Percentage shares of BRI likely to remain the same, but BRI may be configured differently.

Sources familiar with the negotiations indicate that the NBA and NBPA have agreed in principle to retain the existing distribution of “basketball related income,” better known as BRI. BRI includes many, but not all, types of revenue generated by the NBA. For example, BRI incorporates portions of revenue generated by NBA broadcasts, apparel, arena signage and other properties (for an excellent overview of BRI, check out Larry Coon’s NBA Salary Cap FAQ). NBA players receive between 49% and 51% of BRI. The NBPA’s willingness to maintain this distribution is instrumental for the league and owners. It likely paves the way for agreement on other topics.

While the two sides have agreed in principle to retain the same percentage distribution of BRI, expect some changes in how BRI is calculated. As technology changes, the NBA will generate greater revenue from different revenue sources and less from others. Consider, for example, that an increasing share of sports fans watch games by streaming them online. That trend, in turn, impacts viewership of conventional TV broadcasts of games. Consequently, online viewership of games alters how revenue, including revenue from TV broadcasts of NBA games, is generated. An adjusted BRI calculation can properly reflect how revenue is impacted by ongoing and potential technology changes, as well as changes to consumer preferences that influence NBA revenue sources.

2. Age eligibility rule expected to remain the same.

Only a couple of months after he became commissioner in February 2014, NBA commissioner Adam Silver told a packed audience at the MIT Sloan Sports Analytics Conference that raising the league’s age eligibility rule was one of his top priorities. Under Article X of the CBA, U.S. players are not eligible for the NBA draft until they are 19 years old. In addition, one NBA season must have elapsed from when those players graduated high school or would have graduated high school. In contrast, international players—some of whom turn pro in other basketball leagues as young as age 14 or 15—must only be 19 years old, without any link to high school graduation.

Silver has talked passionately about raising the eligibility rule to 20 years old. Silver’s rationales are logical. He would like to see players more physically developed and with more polished basketball skills when they enter the league. NBA teams would also benefit by having more time to evaluate young players—especially when that development is at expense of others, be they university basketball programs or foreign pro teams. Players who are 20 might also be more familiar to NBA fans than when those same players were 19. It would thus be easier for the league and its teams to market and promote those same players one year later in their lives.

While those are compelling reasons, there are many critics of the NBA’s age eligibility rule. The most common criticism is that a bright-line, no-exception age rule is unfair to young men who are clearly good enough to enter the NBA at a young age. From the 1976 to 2005 NBA drafts, any player could attempt to “jump” from high school to the NBA. A number of NBA stars did just that. Three of the NBA’s greatest 50 players of all-time, in fact, went straight from high school to the NBA: LeBron James, Kevin Garnett and Kobe Bryant. A number of other very good to great NBA players, such as Tracy McGrady, Tyson Chandler and Al Jefferson, likewise made this jump. While some have bemoaned, “For every LeBron James, there are many failed prep-to-pro players,” the data doesn’t support that view.

Whether or not the eligibility rule is morally fair, it obtains some degree of protection from antitrust scrutiny by virtue of its inclusion in the CBA. This would be particularly true in any federal case heard in New York (where both the NBA and NBPA are headquartered) and the U.S. Court of Appeals for the Second Circuit, which has appellate jurisdiction over federal cases tried in New York. Such protection stems from the NFL defeating an age eligibility rule lawsuit brought in New York by former Ohio State running back Maurice Clarett in 2003 (disclaimer: I was on Clarett’s legal team). The Clarett case would be controlling precedent for any NBA eligibility case brought in New York. If, however, an NBA eligibility case were to be litigated in a different federal jurisdiction, at least in theory it might prove more successful. The plaintiffs would contend that their eligibility to play in the NBA primarily impacts those who, by virtue of the eligibility rule, are neither in the NBA or NBPA members and thus the rule should not be exempt from antitrust scrutiny. In that scenario, the Clarett decision would only be persuasive authority, rather than controlling precedent.

Despite Silver enunciating an increased age rule as a top priority, one person familiar with the ongoing bargaining between the NBA and NBPA tells SI.com that the topic is simply not a priority for either side. Both sides, moreover, are reasonably comfortable with the existing rule.

The continuation of the existing NBA eligibility rule will lead to additional lines of criticism. There are, for instance, some basketball fans who insist that the NBA’s 19-year-old eligibility rule is damaging to college basketball since it leads to “one-and-dones.” Other critics charge that the rule is inconsistent with the educational mission of universities. After all, players who intend to spend only one year (really, just a semester and a half) at a university before entering the NBA draft appear to view their university experience as a de facto minor league experience.

While those critiques may be factually true, they are irrelevant for purposes of the NBA and NBPA: it is not the job of the league or its union to advance the interests of college basketball or university education. Both sides are likely just as comfortable with 19-year-old players gaining experience playing professionally abroad as they are those same players spending a year in a D1 men’s basketball program. 19-year-old players spending the year on pro team in another country is not unprecedented. Denver Nuggets point guard Emmanuel Mudiay, for example, played for the Guangdong Southern Tigers in 2014–15 and New York Knicks point guard Brandon Jennings played for Lottomatica Roma in 2008–09. Some general managers and NBA scouts, in fact, have opined that players’ performances in other pro leagues are often more predictive of NBA success than performances in college basketball, whose teams tend to feature a style of play quite different from that found in the NBA.

3. Two-way contracts and 17-player NBA rosters.

Per The Vertical's Adrian Wojnarowski, one of the more intriguing changes expected in the next CBA are “two-way contracts.” A two-way contract is one where a player is paid at a different rate depending on whether he is assigned to the major league level or the minor league level. Two-way contracts are permitted in the NHL and are useful cost-control mechanisms for NHL teams. For example, a two-way contract player on the New York Rangers might earn paychecks based on $800,000 a year in salary. But if the Rangers demote that same player to the Hartford Wolf Pack, the Rangers’ affiliated team in the American Hockey League, the lower-tier of the player’s two-way salary would kick in and he would be paid at a lower rate, such as paychecks based on $250,000 a year in salary. Obviously, the two-way structure provides powerful financial incentives to players to play well and earn—and keep—a roster spot at the highest level.

It is unclear how pervasive two-way contracts would be in the NBA, but Wojnarowksi reports that the league intends to permit teams to have 17-player rosters (up from the 15-player limit) and permit the last two roster spots to be used on two-way contract players. Players on two-way contracts would then be paid differently if they are on an NBA team or the D-League affiliate of that NBA team. The 17-player rosters would mean many more NBA players: If all 30 teams used 17-player rosters, there would be two new jobs for each team or 60 new jobs total.

While increased roster sizes should create incentives for end-of-bench players to remain in the U.S. rather than seek to play professionally abroad, two-way contracts might only have a modest impact on player retention. There is currently a wide disparity between the lowest pay in the NBA (a pay rate based on an annual salary of $543,471) and the highest pay in the D-League (a pay rate based on an annual salary of $26,000). These numbers, of course, could be altered in the next CBA. But if such a massive disparity remains, a player choosing between a two-way deal with an NBA team/D-League team versus a six-figure deal with a pro team in Italy, Spain, Israel, China or another location might be reluctant to accept the two-way deal. He would need to be very confident about making the NBA roster or accept the possibility of earning much less in the D-League than he would by playing abroad.

4. After the labor deal is reached, will Seattle be awarded an expansion NBA franchise?

It has been 14 years since the NBA last expanded. In 2002, the NBA approved the creation of the New Orleans Hornets (which, 11 years later, became the Pelicans) and the league grew from 29 to 30 teams. The time could be right for another NBA expansion.

Consider the dynamics at work. As explained above, the league and its players are poised to have labor peace for at least the next six years. This allows the NBA and NBPA to concentrate their energies on business development rather than on labor talks and antitrust lawsuits. Moreover, the leaders of the two sides, Silver and NBPA executive director Michele Roberts, are skilled and pragmatic leaders who work well together. They are also poised to remain in charge of their organizations for many years to come.

The NBA is also more popular now than ever. This is partly evidenced by the 9-year, $24 billion TV deal the league negotiated with ESPN and Turner Sports in 2014. Further, the NBA is the most global of the four major U.S. sports leagues—an important point when considering the growing number of basketball fans in other parts of the world. It is fair to say that the NBA has the greatest potential of any major U.S. sports league to substantially increase its fan base in the next five to 10 years.

Given these factors, it is reasonable to assume that the league and its owners could demand an enormous expansion fee from a would-be ownership group. That fee would then be shared among the existing 30 ownership groups. What would the fee be? It is hard to estimate with any precision, but among the relevant data points are the last expansion fee (the Hornets expansion fee netted NBA owners $300 million), recent prices for NBA franchise purchases (in 2014, the Los Angeles Clippers sold for $2 billion, the Atlanta Hawks sold for $850 million and the Milwaukee Bucks sold for $550 million) and market size of a potential expansion city.

Market size of a potential expansion city leads to discussion of the city of Seattle, which saw its beloved SuperSonics move to Oklahoma City in 2008 and which lost out on obtaining the Sacramento Kings in 2013. Seattle is the most glaring omission from the list of U.S. cities with an NBA team. Most analysts rank Seattle as one of the 15 largest media markets in the U.S and one with a fast growing population. Seattle is also a prosperous city. It has a relatively affluent population that possesses the kind of disposable income that makes buying tickets to NBA games feasible. In fact, Bloomberg ranks Seattle as the 4th richest city in the U.S. Seattle, of course, also has a built-in diehard fan base from its SuperSonics days. If there was ever a city that was as a “safe bet” to thrive with an NBA team, it is the city of Seattle.

The main reason why Seattle is without an NBA team is its absence of a state-of-the-art NBA arena. From 1967 to 2008, the SuperSonics played in the KeyArena, which was opened in 1962 as a multi-functional facility to host the World’s Fair. The KeyArna is a capable facility and has been updated, but is not on par with newer arenas that serve as venues for NBA teams. This is important to the NBA, as the league has long placed a value on arenas that have superior technology and excellent viewing angles, among other contemporary features. Despite substantial effort and support, the city of Seattle, to date, has been unable to approve the construction of a new arena. As is found in many municipalities, the willingness of Seattle’s political leaders to approve the use of tax dollars to finance the construction of sports facility has been a major point of contention.

That may now change. According to Chris Daniels (KING 5 News), an investment team led by billionaire Chris Hansen, who has long sought to bring NBA and NHL teams to Seattle, is offering to build a state-of-the-art arena in Seattle that would forgo public financing. An NBA team, as well as an NHL team if one were to move to Seattle, could use Hansen’s proposed arena.

Will the NBA listen to Hansen? It remains to be seen. The NBA constitution indicates that expansion is appropriate when “the interests of the Association would best be served by expanding the number of Members in the Association.” Expansion would require a three-quarters majority of ownership groups, meaning at least 23 of the 30 of NBA teams would need to approve expansion. If Hansen is willing to build an arena, it stands to reason that he would be willing to pay a hefty expansion fee as well.

To be clear, there are no immediate plans for NBA expansion. But that could quickly change. At any time, Silver could convene a committee of owners and league officials to study the feasibility and desirability of NBA expansion. If such a study proved supportive of expansion, the league would then assess potential cities for a franchise team to land. Seattle would be the most obvious choice, but other cities, such as Las Vegas—which in June was awarded an NHL franchise—St. Louis and Pittsburgh, might also surface as potential suitors. The league has also expressed interested in seeing the NBA in cities outside the U.S. As a result, Mexico City and London are at least in theory possibilities for landing an expansion franchise. The NBA might also prefer to expand by two teams in order to retain symmetry in the Western and Eastern conferences. For that reason, cities such as Pittsburgh or Louisville could become strong candidates for an NBA franchise if Seattle (or Las Vegas) were chosen as the city for a Western Conference franchise.

Still, expansion is a multi-year process. Any new NBA team would likely not start play until at least the 2019-20 season and that would require the process to begin swiftly and not encounter any major obstacles. The 2020–21 or 2021–22 seasons seem like more plausible starting points at this stage. But the hope is there and if Hansen’s plan checks out, the NBA would have good reason to bring the league back to a worthy fan base.

Michael McCann, SI's legal analyst, provides legal and business analysis for The Crossover. He is a Massachusetts attorney and the founding director of the Sports and Entertainment Law Institute at the University of New Hampshire School of Law.

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