How NBA owners could unilaterally impose their draconian salary cap — and get away with it

I had always assumed the only way American sports leagues could institute salary cap systems, without running into anti-trust problems, was through collective bargaining. That assumption, like many of my assumptions, may have been wrong.

The 30 National Basketball Association franchises control the competitive market for top flight professional basketball in America, which includes the market bidding for the services of top flight basketball players. Therefore any collective agreement among them that would tend to suppress competition among them for those players is automatically suspect under existing federal anti-trust laws.

So how do such clear anti-competitive schemes like salary caps survive anti-trust scrutiny?  Until now, I thought they survived only because they were collectively bargained.

In Powell v NFL, the federal courts created a “nonstatutory labor exemption” that permitted rival sports franchise owners to limit competition among themselves for the acquisition of player services if the players agreed to those limitations through collective bargaining.  Essentially, the courts must have reasoned, the Sherman Act was passed to protect the players. If the players want to waive those protections, why should we stop them from doing so?

However, I have come to learn that the NBA could theoretically impose their salary cap restrictions without the players collective approval.

Here’s how.  Its been made clear by the courts that collective agreements among sports franchises are not automatically considered anti-trust violations, even if they stifle competition. Courts have recognized that sports franchises must engage in collusive behavior (like scheduling, uniform restrictions, etc) in order to produce an entertainment product that will attract more consumer entertainment dollars.  In other words, the courts allow sports leagues to engage in certain internally anti-competitive practices because those practices promote competition in another external market (the overall entertainment market).

So, federal courts apply a “rule of reason” test to collective agreements between rival sports franchises.  I knew that, but I didn’t think something as patently restrictive as a salary cap system could survive such a test.  That’s where I may have went wrong.

In case after case, the NBA owners have argued that a salary cap is necessary to competitive balance among the franchises. (See, NBA v. Williams “[S]alary cap provisions survive scrutiny under the Rule of Reason because the efficiencies these provisions afford in the way of competitive athletic balance among NBA teams outweigh their effect on competition for the services of players[.]”).  That argument itself does not surprise me. What surprises me is that at least one federal district court appears to have bought the argument.

But then I thought about the matter a little.  From what I can tell, most fans agree with this “competitive balance” argument.  And if one court has already concurred on the very question, why wouldn’t another court?

What does this mean for the future?

Here’s what all of that potentially means for the future of the NBA’s labor lockout.

The owners may continue to feign good faith negotiations with the players’ union for the foreseeable future.  But the courts have said “good faith” does not require one inch of compromise.  So, if the owners do not budge, there will come a point in time where they may declare an “impasse” has been reached in the negotiations.  At that point the NBA may attempt to unilaterally impose their new salary cap, on the grounds that such action is permitted under the Williams ruling. (“It is also settled law that employers may implement terms and conditions of employment after good-faith bargaining to an impasse[.]”)

At that point the players will undoubtedly bring an anti-trust claim against the owners.  Should they do so, the case will turn on two questions: (1) Was there a true impasse?; and if so, (2) Are the newly implemented salary cap conditions reasonably necessary to promote competitive balance in the NBA?

Now, I would vigorously argue “no” to question two, and I would cite specific numerical evidence to back my argument.  The NBA has had a salary cap in place since the 1980s. Yet there is no sign that the league has become any more competitively balanced than it was prior to the imposition of that cap. Indeed, the evidence points in the exact opposite direction. (I found that the period between the merger and the imposition of the original salary cap was the most competitively balanced in NBA history — since then competition among the franchises has become increasingly more unbalanced).

As I have written in the past, by certain statistical standards, the NBA is the most non-competitive sports league in America. (measured by the percentage of teams finishing with wins that are at least within the square root of half their scheduled games).  By the aforementioned standard the NBA is less competitive than baseball, despite the fact that the NBA has had a salary cap in place for three decades, while baseball has never had any salary cap.

For that reason, I believe the NBA salary cap has done nothing to increase competitive balance, and I don’t really think it was ever intended to do so. I think it was always intended as a mechanism to artificially control player costs amongst a group of businessmen that have never had a clue how to properly price player services. “Save us from ourselves” should be their battle cry.

But, based on comments I received after I first made the above argument, mine is clearly a minority position.  Thus, if the NBA unilaterally imposed a new, more restrictive, salary cap, the cap could very well pass anti-trust muster based on the NBA’s “competitive balance” argument.  Its bullshit, in my opinion, but it might work.

So they might try it. But if that’s their battle plan, God help us as fans, because such a plan could not be put into effect until the negotiations have reached a clear point of impasse. And for those not fluent in French, “impasse” means “a long fucking time from now”.

Of course, “a long fucking time” appears to be exactly what the owners are willing to invest in this labor struggle. Clearly, the owners want massive cost restructuring and are willing to go to any limits to get it. Reports suggest the NBA owners battle plan is modeled the one used by the NHL owners a few years ago (which itself was modeled after similar plans used by Bill Sherman when he was trying to get to the Atlantic Ocean on foot and the guy who famously explained that he had to burn the village down in order to save it.)  If those reports are true, we will not likely see real pro basketball played in America for a long fucking time.

4 Responses to “How NBA owners could unilaterally impose their draconian salary cap — and get away with it”

  1. Chicago Tim Says:

    Not until February, I would guess, and perhaps not for another year.

    The last NBA lockout ended when the players crumbled and gave the owners everything in time for a shortened season. I’m not sure the players will do that this time, since they have been preparing for a long lockout. But I wish they were at least threatening to start their own league.

    • Jerbil Says:

      The players could take the attitude that the lockout needn’t have happened if the owners were reasonable. So, no summer league?; we’ll organize some substitute of our own. Regular season probably won’t start on time, let’s start setting up a temporary pro league especially for the guys who need income right away. As time wears on keep upping the ante…

      Only a couple of problems: Where do the players get the kind of organizational geniuses needed to pull something like that off? How do they get the support of the top players, who stand to lose the most?

  2. jbrett Says:

    NBA-TV is running a lot of ‘classic’ games, since they don’t have anything else. It’s interesting to watch them with your historical evaluations in mind–and it may be all I get for God knows how long.

  3. Shem in Honolulu Says:

    TyWill33,

    You’re right that the salary cap hasn’t improved competitive balance in the NBA. You are also right that there is greater parity in terms of team records in MLB than the NBA. However, while those facts are true, the spirit of your point is dead wrong. The reason the salary cap hasn’t improved competitive balance in the NBA is because it has no teeth, allowing…and even forcing teams that desire to be competitive to go exceed the cap. Since the cap is so incredibly soft and since big market teams can afford to pay very high payrolls and still make money, those teams have a huge competitive advantange. This forces teams without the luxury of huge revenues to make a choice: exceed the cap and lose money in order to win, or simply suck (which has its own financial consequences. So in effect, the soft cap makes competitive balance worse. Meanwhile a hard cap, such as the one in the NFL would not allow big market teams to pay more than small market teams and therefore no such trade off between losing money and winning needs to be made and with equal spending abilities, the competitive playing field is dramatically more equitable (though some cities will always have amenity advantages).

    By the way, the NFL’s salary cap accomplishes this very nicely as evidenced by the fact that there are fewer dynasties and the fans in every NFL city have realistic hopes each season.

    Back to the parity in MLB: this is actually a false parity that you suggest. The lower disparity between wins and losses has far more to do with the nature of the game of baseball than with actual competitive balance. It is far more difficult to win a high percentage of your games in baseball (even with an all-star cast) than in basketball. This is because baseball is a far lower scoring game and there is far more variability in the factors that contribute to wins and losses. Soccor is very similar to baseball in this aspect.

    Meanwhile, basketball has far more scoring opportunities and far more points, thereby reducing the random variables that control wins and losses and making it so the better team wins a much higher percentage of the games.

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