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Home > IPLJ > Vol. Volume X > No. 2 (2011)

 

Abstract

A frigid dawn had not yet begun to rise when a group of weary negotiators concluded an eleven-hour, eleventh-hour meeting high above the streets of midtown Manhattan. At 7:00 p.m. on January 6, 1999, six men gathered to decide the fate of what had become, essentially over the course of the previous decade, an immensely successful element of American popular culture – professional basketball. At approximately 5:30 a.m. on January 7, 1999, an agreement was finally reached between the representatives of the National Basketball Association (“the NBA” or “the league”) and of the National Basketball Players’ Association (“the NBPA” or “the union”), the union representing players in the NBA. The landmark agreement ended a six-month lockout and rescued the NBA from becoming the first professional sports league to cancel an entire season due to labor strife. The agreement curtailed strike-related losses at $1 billion in revenue for owners and more than $500 million in salaries for players, and permitted both parties to vie for the remaining $1 billion in estimated revenue still to be earned in the shortened season. Yet while the NBA’s settlement certainly offered immediate, short-term benefits, most notably the restoration of the 1999 NBA season, the consequences of that agreement – anticompetitive price-fixing of players’ salaries – set a dangerous precedent which reaches far beyond a single basketball season. In fact, the effects of the NBA’s agreement go so far as to undermine labor relations between all players’ unions and leagues, and the legal relationship as a whole between athletes and their teams in all professional sports. The agreed-upon contract came one day before NBA Commissioner David Stern’s self-imposed deadline, at which point he said he would recommend to the owners of the 29 NBA teams that the entire season, which would normally have begun in October, be cancelled. Stern’s pressure was heaped upon the public’s growing resentment of a 191-day labor dispute between “short millionaires” and “tall millionaires.” “You’ve got a bunch of pigs at the trough,” commented Allen Sanderson, an economist and professor of sports business at the University of Chicago, “and all they’re trying to do is nudge each other out of the way for the spoils.” Thus, while both parties had initially approached the bargaining sessions in June “like two locomotives . . . bearing down on each other [with] alarm bells . . . clanging,” by January, the negotiators for both sides came to the table looking to compromise and reach an agreement. In the end, the players’ union received an increase in minimum salary and two mid-level salary provisions, improving the salaries among both rookie and journeyman players. League officials projected an increase in the average player salary as a result of the agreement, from $2.6 million in 1998 to $3.4 million in 1999. The league, however, demanded and eventually received two staggering concessions. First, the NBA amended the existing team salary cap to eliminate many of the loopholes that had allowed crafty owners to sign desired players to long-term contracts of $100 million or more. The public saw these mega-contracts as excessively extravagant, while NBA owners watched their competitors sign players to contracts worth more than some entire franchises, and recognized the paradoxical need for better (read: more expensive) players for their own teams and, at the same time, self-restraint on the part of other teams and the league as a whole. The second concession won by the league was an unprecedented “individual” salary cap, which acted as a further barrier to escalating salaries by unconditionally limiting the amount any player may earn; the individual salary cap was devised to curb owners from the temptation of signing more players to large contracts, and evading the newly- revised team salary cap. The revised team salary cap obtained by the owners, referred to as a “soft” cap, restricted the amount of money a team could spend on its roster, the total sum of salaries of the players on a team, to no more than $30 million in 1999 and $34 million in 2000. Thus, if a team wanted to acquire a particular player, but did not have enough money remaining under the salary cap to accommodate the player’s salary, the team would be precluded from signing him. The new cap also limited the amount to which a team could re-sign its own players, and the amount other teams could offer to a player under free agency. A team’s own players could receive no more than a 12% annual salary increase, while free agents were only entitled to a 10% increase, an arrangement devised to provide an additional disincentive for players intending to pursue the open market of free agency. The legality of the salary cap as a restraint on players’ mobility has been challenged and upheld in court, and the Supreme Court recently reinforced professional sports leagues’ authority to implement similar measures. The second of the NBA’s demands was an “individual” salary cap, an unprecedented mechanism which limits the amount that any team may pay any particular player, irrespective of the player’s worth in an unrestricted market, or, conversely, how much money a team might otherwise be willing to offer that player. In contrast to the “soft” team salary cap, this type of restriction is a “hard” cap, as there are strictly no exceptions in which teams can offer to pay a player more than the stipulated figure. According to the cap, players with up to five years of experience in the NBA can earn no more than $9 million. Players who have been in the league between six and nine years can receive up to $11 million, while for players who have played for ten years or more, the maximum salary increases to $14 million. Although a “grandfather” clause permits those players currently earning more than $14 million to keep their existing salaries, the NBA has apparently implemented the type of salary restriction which the Supreme Court found invalid per se in Arizona v. Maricopa County Medical Society. In Arizona, the Court held that maximum price-fixing agreements, “no less than those to fix minimum prices, cripple the freedom of traders and thereby restrain their ability to sell in accordance with their own judgment.” In that case, the Supreme Court declared that such “invidious” price-fixing schemes, even where a maximum price is established, are illegal per se. This Note argues that both the team and individual salary caps are unlawfully anticompetitive, according to the tenets of antitrust law. This conclusion is reached through an examination of the legality of the two salary cap provisions, the team and the individual caps, particularly in light of antitrust law and any potential labor exemptions. Part I reviews the history of labor and antitrust law and the policies which they represent, as well as any potential exemptions geared to protect labor-related activities. Part I also contrasts sports unions and traditional unions, suggesting that the former possess critical, if subtle, differences from the latter, differences which require separate consideration of the two types of unions. Part II analyzes the legality of both the NBA’s team and individual salary caps, and the anticompetitive effects of each type of player restraint, under labor and antitrust law. In Part III, this Note argues that the revenue-sharing “luxury tax” system used by Major League Baseball, while not without its own problems, is a much less restrictive means of harnessing players’ salaries and achieving the competitive parity which all these measures are designed to accomplish. If the NBA’s new, individual salary cap is shielded from antitrust law, however, the provision will prove to be unfairly and unnecessarily anticompetitive, and reduce the quality of play in the NBA and the overall public enjoyment of the sport.

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