The NBA Impasse: Who Are the Real Victims?

We’ve been down this road before.  We recently witnessed the showdown between the NFL owners and players haggle over a labor deal, both sides seeking a collective bargaining agreement that would allocate the billions of dollars the industry generates annually to their respective advantages.  NFL fans waited anxiously as the season approached with hopes and expectations that the parties would reach an agreement that would not delay the season.  The NBA impasse is much of the same.  Unlike the NFL outcome however, NBA fans will miss at least part of the season with the NBA’s recent announcement that its season is cancelled through December 15.[1]

The cancellation is the result of the NBA Commissioner Stern’s recent ultimatum of which the players wanted no part:  Take 50-50 split of the basketball-related income (BRI) or expect it to drop to 53-47 in favor of the owners.[2]  Due ‘to a rise in BRI from $3.643 billion in 2009-10 to $3.817 billion last season’ the players’ income share rose from $2.076 billion to $2.176 billion, granting them 57 percent of BRI under the collective bargaining agreement that expired on June 30, 2011.[3]  Rather than continue under the old collective bargaining agreement while negotiating a new labor deal, the owners initiated a lockout on July 1, presumably designed to place pressure on the NBA players to accept the NBA owners’ collective bargaining terms.

The owners want more of the BRI to compensate small market teams that are struggling financially to survive in current economic times with smaller customer bases that do not generate the type of revenue that large market teams like those in New York or Boston generate.[4]  The Commissioner’s ultimatum reflects the NBA owners’ decision to pass the operating costs of those smaller market teams to the players rather than to engage in revenue sharing to ensure economic stability of the league overall.[5]

The players’ response to the ultimatum was a ‘unanimous decision from nearly 50 players to reject the NBA’s latest collective bargaining proposal.[6]  So, after four months of negotiations, the players de-certified the union to file ‘two separate antitrust lawsuits against the NBA in Minnesota and the Northern District of California in an effort to prove that the lockout is illegal.[7]‘  Generally, the collaboration of multi-businesses operating in the same market to contract terms that fix prices is anticompetitive conduct in violation of the antitrust laws.  Such contracts constitute illegal restraints of trade; and, in civil cases, businesses collectively engaging in such conduct are subject to treble damages.

Collectively, the NBA owners’ teams classify as multi-businesses engaging in collusive activity when they set wage prices within the basketball market.  Yet, their collusive activities  to set wages rates, salary cap rates, and other related employee benefits are shielded from the antitrust laws by a non-statutory exemption provided they engage in such activity in the form of a collective bargaining agreement with the National Basketball Players Association (NBPA).  The shield is a judicially created non-statutory exemption established by the Supreme Court of United States,[8] which expanded the shields’ reach in 1996, in Brown v. Pro Football, a case in which the Court found that an NFL collective bargaining agreement that set the ‘maximum wage they would pay to a certain class of employees did not violate the antitrust laws.’[9]   The court in its opinion clarified that its finding was limited, but it also emphasized that a contrary holding would require it  ‘to answer a host of important practical questions about how collective bargaining over wages, hours and working conditions is to proceed ‘ the very result that the implicit [ i.e., non-statutory] labor exemption seeks to avoid.’[10]  The policy underlying the exemption is directed towards supporting collective bargaining over the antitrust laws provided that the collective bargaining was executed through good faith negotiations. [11]

Hence, the NBA owners’ lockout, like that of the NFL, escapes antitrust scrutiny provided a union exists with which the owners can collectively bargain.  In fact, the National Labor Relations Act permits such collusion involving labor relations among multi-employers provided it occurs within the context of a ‘collective relationship,’ which in the case of the NBA labor dispute means the existence of a relationship between the members of the NPBA and the NBA owners.[12]   That collective relationship ceased to exist however once the players disbanded the union.  Hence, the players’ decision to de-certify the union could possibly expose the owners to  antitrust violations in which they would be subject to treble damages in civil litigation.[13]

Both sides have taken their respective legal postures; and each side is ‘hundreds of millions of dollars apart on a labor deal.’[14]  In August 2011, NBA owners, in a preemptive move to protect their lockout, filed a complaint with the National Labor Relations Board alleging that ‘the Players Association has failed to bargain in good faith by virtue of its unlawful threats to commence a sham ‘decertification.”[15]  In addition, the NBA owners filed a lawsuit in federal court seeking to establish that their lockout was not an antitrust violation.[16]  As articulated by Law Professor Gabe Feldman, the owners’ ‘lockout is their main economic weapon . . . to pre-empt the players’ attempt to lift the lockout’ through filing an antitrust lawsuit.

Just a few days ago, the players did just that.  They filed two antitrust lawsuits.  Interestingly, it has been reported that at least one of the lawsuits does not allege collusive behavior, but exclusionary conduct involving an allegation of illegal boycotting by the NBA owners.[17]  The NBA owners’ decision to lockout the players along with their most recent ultimatum offer could be considered illegal boycotting if the court finds that the owners’ decision constitutes a concerted refusal to deal ‘ a form of exclusion that has collusive effects ‘ which the antitrust laws have traditionally characterized as ‘per se illegal.’  Even though illegal boycotting constitutes exclusionary, rather than collusive conduct, the players’ allegation of illegal boycotting still exposes the owners to antitrust scrutiny since the de-certification of the Players’ union removes the protective shield and potentially subjects them to treble damages.

Where do we go from here?  Sooner or later, the owners and the players willgo back to the bargaining table.  As one news report stated ‘[t]the NBA makes ridiculous amounts of money ‘ plenty of money to keep players and owners alike in a perpetual state of confusion over which Ferrari to drive today, which Amani suit to wear, and which reality television starlet to marry yet it cannot settle on a way to distribute the loot to keep everyone involved solvent.’[18]   Precisely because so much loot is involved, neither the owners nor the players really want prolonged litigation. Sooner or later, they will go back to the bargaining table, set aside their lawyers and their concomitant legal posturing.  In the meantime, the real victims of the NBA impasse are the fans, who are anxiously hoping that some part of the NBA season can be salvaged.


[1]  Jeff Zillgitt, NBA Cancels Games Through Dec. 15; Players File Suit,http://www.usatoday.com/sports/basketball/nba/story/2011-11-2015/NBA-cancels-some-December-games/51121650/1

[2]   Id.

[3]  Steve Aschburner, NBA, Union Finalize Audit of Revenues, Player Compensationhttp://www.nba.com/2011/news/07/22/bri-audit/index.html

[4] Tom Ziller, NBA Needs Stronger Revenue Sharing,http://www.aolnews.com/2010/01/28/nba-needs-stronger-revenue-sharing.

[5]    Peter S. Goodman, NBA Lockout as Metaphor:  Whatever Happened to Collective Interest? http://www.google.com/reader/view/#stream/feed/http://blogs.wsj (hereinafter Goodman,NBA Lockout as Metaphor).

 [6] Michael Lee, NBA Players File Two Antitrust Suits Against League; David Stern Calls Decision ‘A Sham,’http://www.washingtonpost.com/sports/wizards/nba-players-file-two-antitrust-suits-against-league/2011/11/15/gIQARURhPN_story.html (hereinafter Lee,NBA Players File Two Antitrust Suits)

[7]   Id.

[8]  Herbert Hovenkamp, Federal Antitrust Policy:  The Law of Competition and Its Practice, 713 (2nd ed. 1999); see also Local 189, Amalgamated Meat Cutters v. Jewel Tea Co., 381 U.S. 676 (1965)

[9]    Id. at 714-715.

[10]   Id.  at 715.

[11]   Matt Bodie, A Few Thoughts on the NBA Antitrust Strategy,http://www.google.com/reader/view/#stream/feed/http://blogs.wsj.

[12]     Id.              

[13]   Id.

[14]    Jeff Zillgitt, NBA Files Lawsuit; Stern Goes After Union Attorney,http://www.usatoday.com/sports/basketball/nba/2011-08-02-nba-lawsuit-players-union

[15] Id. 

[16]   Id. 

[17]  See Lee, NBA Players File Two Antitrust Lawsuits, supra note 6.

[18]    Goodman, NBA Lockout as Metaphor, supra note 5.