Stern Finds New Owners Paying Too Much Won’t Concede Anything in NBA Deal

National Basketball Association players say team owners, who contend they lost a combined $300 million last season, don’t seem motivated to end a lockout that threatens cancellation of the 2011-12 season.

The players might be right, depending on which owners they’re talking about, say management negotiators from 1998-99, when another lockout caused the cancellation of regular-season games for the first time in league history and resulted in a truncated 50-game season.

The more recent buyers of NBA teams in some cases paid almost 20 times their predecessors -- and in one case 500 times -- taking on debt when the growth in franchise values is slowing. Quicken Loans Inc. founder Dan Gilbert, former AOL Inc. (AOL) Vice Chairman Ted Leonsis and banking executive Robert Sarver paid at least $375 million for their franchises, all of which were acquired in the past seven years.

A group led by Joe Lacob, managing partner at the San Francisco Bay area-based venture capital firm Kleiner Perkins Caufield & Byers, last year paid a record $450 million for the Golden State Warriors, whose previous owner, Chris Cohan, got the team for about $119 million in 1995.

The resolve of owners looking to recoup their investment is problematic for NBA Commissioner David Stern, who is negotiating on behalf of a group that doesn’t agree on how much of the league’s $4 billion in annual revenue should go to the players, says Steve Mills, 52, who represented the New York Knicks during the 1998-99 collective bargaining talks.

“Back then, you had a bunch of owners who paid anywhere from $20 million to $50 million for franchises that were worth $200 million and up,” Mills said in a telephone interview. “Now you’re sitting in a room with a lot of guys that came in at $300 million and up, and they don’t see a path of selling their franchise for $500 million.”

Resale Value

Owners in 1999 tolerated annual losses because so many were debt free and the values of their franchises were skyrocketing, Mills said. That allowed Stern to win widespread support for his contract offer to players, something he hasn’t been able to achieve this time.

Billy Hunter, chief negotiator for the players, says the intractable faction is an indication of Stern’s diminished clout among a group of hawkish owners that includes Charlotte’s Michael Jordan, who contends that small-revenue clubs need significant concessions if they’re to compete with the likes of the Knicks, Los Angeles Lakers and Miami Heat.

“He may not have the sway he once had,” Hunter, 69, said in an interview, referring to Stern.

Sell Your Team

Mike Bass, an NBA spokesman, said in a telephone interview that the commissioner’s influence and standing with owners hasn’t waned.

“Like so many of Billy’s musings, recollections and assertions, which he puts out there for perceived negotiating advantage, this one is inaccurate,” Bass said, adding that Stern wouldn’t respond to Hunter’s comments.

Jordan during the last lockout told owner Abe Pollin to sell his team if he couldn’t make money. The five-time Most Valuable Player was nearing the end of his hall of fame playing career at the time.

Now he and other dissenting owners stage conference calls outside of Stern’s purview to plot what’s best for them, said a person with knowledge of the calls who was granted anonymity because the commissioner has imposed a labor-related gag order on league and team employees, just like in 1998-99.

Stern, 69, has fined three owners, including Jordan, for talking about matters pertaining to collective bargaining. Leonsis was docked $100,000 in September for telling a group of local business leaders that a strict salary cap was coming to the NBA. The Miami Heat’s Micky Arison, the billionaire chairman of Carnival Corp. (CCL), the biggest cruise-line operator, was fined $500,000 this month for telling a frustrated fan via Twitter that he was “barking at the wrong owner,” a comment Hunter says illustrates a fractured management side.

Pollin’s Investment

Owners who played a significant role in negotiating the 1999 settlement were Pollin, who paid $1.1 million in 1964 for the Baltimore Bullets, now the Wizards; Gordon Gund, who bought the Cleveland Cavaliers in 1983 for $20 million; and Jerry Colangelo, whose investment group paid $44.5 million for the Phoenix Suns in 1987.

Pollin’s estate sold the Wizards last year to Leonsis for $551 million. Gordon Gund sold the Cavs in 2005 to Gilbert, 49, for $375 million, while Colangelo got $401 million for the Suns in 2004 from Sarver.

“The determination of ownership to make significant changes is stronger than I’ve ever seen it,” Russ Granik, 63, Stern’s former lieutenant, said in a telephone interview.

Nobody Wanted Cancellation

In 1999, when the sides quibbled over things like individual player salary limits and the mechanics of a cap on team payrolls, a large number of owners were ready to cancel the season, said Granik, who retired as the NBA’s deputy commissioner in 2006.

“But nobody really wanted it,” said Granik, vice chairman of New York-based Galatioto Sports Partners, which represented Colangelo in his sale of the Suns. “Now there’s a large number -- approaching half -- that are perfectly content if they don’t play.” Granik didn’t say how he knows that almost half of the owners are content to cancel the season.

Stern’s offer includes a 50-50 revenue split with players, who got 57 percent last season. Jordan is among the owners who have told Stern the offer is too generous for low-revenue teams to compete, a person with direct knowledge of the negotiations said.

Owners also want concessions on what both sides have termed system issues, things like the length of player contracts, a tax designed to curb higher-spending clubs and reworked exceptions to the salary cap.

Jordan an Owner

Jordan, 48, bought the Bobcats last year for $175 million. Forbes says the money-losing team is worth $281 million, ranking 25th in the 30-team NBA.

Gilbert, who lost two-time Most Valuable Player LeBron James to the Heat, the San Antonio Spurs’ Peter Holt, chairman of the league’s labor relations committee, and Paul Allen, the billionaire owner of the Portland Trail Blazers, are among the hard-line owners who are stewards of smaller-market, lower- revenue teams. League negotiators chose Allen to deliver the ultimatum that talks would end if the players didn’t accept a 50-50 split.

Holt during an interview at the NBA Finals in June said small-market teams need more help to compete.

Bobcats spokesman B.J. Evans and Cavaliers spokesman Tad Carper said their team owners wouldn’t comment. Leonsis didn’t respond to an e-mail seeking comment through team spokesmen. Tom James, spokesman for the Spurs, referred questions for Holt to the NBA. The league said he wouldn’t comment on labor matters.

TV Deal

The owners pushing for the tightest contract conditions were emboldened in February, when the Lakers announced a 20-year television agreement with Time Warner Cable Inc. (TWC) that the Los Angeles Times said may be worth $3 billion. While more revenue means a higher salary cap, the Lakers’ TV money does little to help the Cavaliers.

Owners are, separate from their contract talks with players, negotiating a plan for increased revenue sharing that will shift more money to small-market teams. The owners of those clubs say that anything but a tightly regulated system will lead to players signing with big-revenue teams such as New York, Los Angeles and Miami, which prior to last season teamed James with fellow All-Stars Chris Bosh and Dwyane Wade.

“There are too many weaker teams that can’t escape where they are,” says Stan Kasten, 59, the NBA’s Executive of the Year in 1985 and 1986 with the Atlanta Hawks. If Stern strikes an agreement, he’ll get the majority votes needed to easily ratify it, Kasten said. No talks are scheduled.

‘Firm Control’

“Even though there are owners who aren’t happy, who feel the deal is too generous, David is still firmly in control,” Kasten said.

The players last week sued the league, alleging owners conspired to force acceptance of a massive reduction in compensation. The players hired David Boies, who represented the National Football League against its players during their lockout this year, which ended with a negotiated settlement.

Granik, who spent 30 years at the NBA, said his earliest negotiations always centered on how to improve things for the players.

“It has gotten to where the owners feel they have to make alterations,” Granik said. “Times change.”

To contact the reporter on this story: Scott Soshnick in New York at ssoshnick@bloomberg.net

To contact the editor responsible for this story: Michael Sillup at msillup@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.