NBA Owners Get $3 Billion Win as Team Values Rise in Agreement

National Basketball Association owners may save about $3 billion over the next 10 years and see increased franchise values under the labor agreement that came as the sport’s lockout reached 149 days.

While NBA owners made concessions in the late stages of the negotiations, sports bankers and executives said the deal favors the league. A reduction in player salaries will reduce or eliminate combined annual losses of $300 million or more and may bring increased stability to teams in small-revenue markets.

“The owners have done well,” former Madison Square Garden executive Steve Mills, who represented the New York Knicks during labor talks in the 1998-99 lockout, said in a telephone interview. “More franchises have a significant opportunity to be profitable, at least break even. Stemming the losses is critical to appreciation of franchise values.”

The NBA will tip off a 66-game regular season -- shortened from 82 games -- on the Dec. 25 Christmas holiday if players and owners ratify the agreement by Dec. 9, when training camps would open.

Under terms of the proposed settlement, the players will receive 51.2 percent of basketball-related income during the 2011-12 season. Future splits range between 49 percent and 51 percent, depending on whether the league falls short of income projections or exceeds them, according to ESPN. Last season the league reported about $4.3 billion in revenue, with players earning 57 percent. Either side could opt out of the 10-year collective bargaining agreement after six years.

“The league went into this needing a victory,” said Paul Haagen, 61, a professor of sports and contract law at Duke University School of Law in Durham, North Carolina. “The league got a very substantial victory and I’m not quite sure what the players got. I don’t see that they came out with anything other than it wasn’t as bad as the owners’ most aggressive bargaining position.”

Antitrust Suit

The agreement, which would settle an antitrust lawsuit brought by 14 players in Minneapolis, was reached early on Nov. 26 after 15 hours of talks. If the deal is ratified, NBA Commissioner David Stern said the league also would begin its free-agency period on Dec. 9.

The deal will add $10 million to each team’s bottom line said Sal Galatioto, president of Galatioto Sports Partners LLC.

“It’s going to have a positive impact,” said Galatioto, 59, whose New York-based advisory firm represented Walt Disney Co. (DIS) in its sale of the Los Angeles Angels and TD Ameritrade Holding Corp. founder Tom Ricketts in his baseball-record $845 million purchase of the Chicago Cubs in 2009 from Tribune Co., which is controlled by real-estate magnate Sam Zell. “If you’re losing $30 million now it’s $20 million, but a break-even team is plus $10 million.”

Marc Ganis, president of Chicago-based industry consultant Sportscorp Ltd., said he doesn’t expect the deal to be unanimously agreed to by NBA owners because it doesn’t assure profitability.

Halfway There

“This deal isn’t going to be a windfall for small and mid- market clubs,” Ganis said in a telephone interview. “They wanted to move the NBA from being a $300 million-a-year loss industry to eventually a $300 million-a-year profit business. They only got halfway there.”

Players as a group would miss a total of two paychecks before the season starts with a triple-header of games, including an NBA Finals rematch between the defending champion Dallas Mavericks and the runner-up Miami Heat with their All- Star trio of LeBron James, Dwyane Wade and Chris Bosh.

The Knicks host the Boston Celtics, and the Chicago Bulls visit the Los Angeles Lakers in the other Dec. 25 games. The NBA season was to have started Nov. 1. Under the proposed schedule, each team would play conference opponents 48 times, and out-of- conference teams 16 times. Each team will have games on three consecutive nights at least once, some as many as three times. Clubs in the second round of the playoffs may have back-to-back games.

Richest Workers

Stan Kasten, a former president of the Atlanta Hawks, said while the new labor deal appears to favor owners, NBA players will still make about $5.1 million a season.

“They still are going to have the highest average salary of any group of workers ever in history, including all of sports,” said Kasten, 59. “It’s not going to go down.”

The deal reduces the length of player contracts, calls for smaller raises, and increases the financial penalties for teams that exceed a predetermined tax level. The CBA also retains a so-called “soft” salary cap, which gives teams exceptions allowing them to exceed the player payroll limit of $58 million, unlike the National Football League’s “hard” salary cap.

Free-Agent Activity

“There will now be more activity on free agency by other teams that traditionally weren’t players because there are going to be some limitations on the teams at the top,” Kasten said. “The goal was to have a league where you could have your smallest-market team become the best team, like we have in the NFL. I don’t know if they have gotten a system that will produce that, but there’s a heck of a lot more chance of that happening today than there was in the former deal.”

Michael Jordan of the Charlotte Bobcats was among a group of small-revenue team owners who contended they needed significant concessions if they were going to be able to compete with teams such as the Lakers, Heat and Knicks.

“It remains to be seen whether those teams got the parity they sought,” Richard H. Burton, professor of sports management at Syracuse University, said in a telephone interview. “If the small-market teams can’t make money, then they lost out, but we won’t know that for a few years.”

Rising Values

Burton, 54, who was the commissioner of the National Basketball League in Australia from 2003-2007, said the new deal overall should help franchise values increase.

Kasten agrees, though he said it may not be known for sure until another team is sold.

“The economics are better than they used to be and every team and every market has a better chance to be competitive,” Kasten said. “With the product being better and the economics being better, sooner or later -- probably sooner -- franchise values are going to be better.”

To contact the reporters on this story: Erik Matuszewski in New York at matuszewski@bloomberg.net Scott Soshnick in New York at ssoshnick@bloomberg.net; Mason Levinson in New York at mlevinson@bloomberg.net

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

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