NBA Labor Talks Unravel

The NBA was set to lock out its players Friday after labor negotiations collapsed, threatening the upcoming basketball season.

NBA owners are set to lock out their players as a labor agreement expires at midnight, the players union said, threatening the 2011-2012 season. Matt Futterman has the latest.

Owners and players met in New York Thursday for a last-ditch negotiating session as the contract was set to expire at midnight, but failed to reach a resolution on key sticking points —including salary cap parameters and revenue splits.

NBA Commissioner David Stern and players union head Billy Hunter said the two sides remained far apart in their fight over how to divide about $4 billion in league revenue. The owners say they are losing money and want a bigger share. The players say they are willing to make concessions on salaries but don't want to give up as much as the owners are asking.

"There's such a gap in terms of the numbers of where we are and where they are," Mr. Hunter said as he exited Thursday's meeting. Moments later, Mr. Stern said: "We have a huge philosophical divide."

Both sides said they plan to continue negotiating during a lockout, so a compromise could still salvage the 2011-2012 season before games start in the fall. More immediately, a lockout prevents trades and signing of free agents, and players can't use team workout facilities.

A prolonged lockout would also hit media companies. It would leave hundreds of hours to fill on Walt Disney Co.'s ESPN and ABC networks and Time Warner Inc.'s TNT. Roughly a billion dollars in ad spending would be up for grabs.

A National Basketball Association lockout would be the second major sports work stoppage in North America; the National Football League is also in the midst of a labor dispute.

Underlying both disputes is worry among sports-team owners that they have reached a limit in how much they can squeeze out of fans at games. Public subsidies which provided more than $10 billion in funding for new stadiums and arenas during the past 20 years have all but dried up, shifting capital costs almost entirely onto the teams' balance sheets.

At the NBA, the league says 22 of its 30 teams are losing money, and projects overall losses of about $300 million for this past season. Owners say the problem is spiraling player salaries, and that revenue—largely in the form of ticket sales and TV deals—isn't keeping up. Owners want to tighten the league's existing salary cap and share a smaller portion of revenue with the players.

Associated Press

NBA Commissioner David Stern.

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Associated Press

Union chief Billy Hunter.

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The cap for the 2010-11 season was $58 million per team, but there are multiple exceptions that allow teams to exceed it. The players say owners should focus on changing the way the owners share revenue among themselves.

Owners also want to share less of the league's revenue with the players, moving closer to a 50-50 split. Under the expiring agreement, players collected 57%.

Currently, teams share revenue in two ways. They divide the national television and sponsorship contracts. In addition, teams pay a so-called "luxury tax" on payrolls that exceed the salary cap; the goal is to help lessen the disparity between rich and poor teams.

Wealthier teams, with bigger ticket sales and more-lucrative TV deals, are better able to pay that tax than smaller, poorer rivals. The union says the owners could remedy some of the individual teams' financial shortfalls by sharing more revenue among themselves.

The NBA's television partners say that they are optimistic about the league reaching a resolution before the season begins.

"We are certainly making contingency plans for TNT, nothing that we'll share today," said David Levy, president of sales, distribution and sports for Turner Broadcasting System, Inc. Turner airs NBA games on its cable channel TNT. In addition, its TBS, Inc. unit operates NBA's digital businesses, including the league website, as well as the NBA's television network. "Hopefully, both sides come to a favorable resolution," Mr. Levy added.

"We certainly hope the parties will find a resolution and there is no interruption of play," an ESPN spokeswoman said in an email.

The lockout comes as the NBA is finishing a season that saw a big increase in its audience. Regular-season NBA games on ABC averaged 5.1 million viewers, up 38% from the prior season, according to Nielsen Co. On TNT, an average of 2.5 million people watched regular-season games, up 42% from a year earlier.

TV ad revenue associated with NBA is around $1 billion per season, according to Anthony DiClemente, a media analyst at Barclays Capital. But a shorter delay could make for a much smaller effect, some TV-sports executives said, saying that ad spending is heavily weighted to the latter portion of the NBA season.

Ad buyers have for months been scrambling to figure out how they could replace the billions of dollars of commercial time that would be thrown into the air should an NFL lockout occur. The audiences for regular-season NFL games averaged 18 million viewers this past TV season. Very few programs could provide a replacement that big for advertisers' dollars, ad buyers say.

An NBA lockout would involve less money and would be something that advertisers could take more in stride, moving money to college basketball or hockey, says David Campanelli, a vice president at Horizon Media Inc., an independent ad buying firm whose clients that buy commercial time during NBA games include Geico, Capital One and Corona Imports.

Sports Labor Disputes

Take a look back

—Matthew Futterman and
Lauren A.E. Schuker and Emily Steel contributed to this article.

Write to Scott Cacciola at scott.cacciola@wsj.com and Sam Schechner at sam.schechner@wsj.com

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