Jeffrey Mishkin Speaks Out

[Way Of The Ray <wayray@ix.netcom.com>]

Mishkin is the NBA's Executive Vice President and Legal Officer.


          December 6, 1998

          BACKTALK

          Lockout View From the Other Side



          By JEFFREY A. MISHKIN

              Until this season, the National Basketball
              Association had never in its 52-year history lost a
          single game because of a labor dispute. As of today,
          the N.B.A. lockout enters its 159th day and
          approximately 35 percent of the 1998-99 season has
          already been canceled. The absence of any progress at
          the bargaining table is now threatening the entire
          season.

          Yet, according to an article last week by Andrew
          Zimbalist -- a professor at Smith College who is a paid
          advocate for the players union and an active, vocal
          member of its bargaining team -- the N.B.A. is doing
          just fine financially and neither Zimbalist nor the
          union he speaks for is able to discern any reason why
          the N.B.A. would want a new collective bargaining
          agreement that fairly shares revenues between owners
          and players.

          Perhaps Zimbalist is unaware -- he certainly does not
          mention it in his article -- that in 1995 the owners
          and players agreed that if player salaries reached 51.8
          percent of a revenue base known as basketball-related
          income by the 1997-98 season, that would signal the
          financial danger point for the N.B.A. and would entitle
          the league to terminate the existing collective
          bargaining agreement and open negotiations for a new
          agreement. In fact, by 1997-98, player salaries had
          soared to a staggering 57 percent of basketball-related
          income (each 1 percent increase represents about $20
          million), leading to the current labor crisis.

          It is of course common for so-called experts to sell
          their opinions. It is quite a different matter,
          however, when a zealous partisan attempts to hide his
          lack of objectivity behind an academic title and
          proceeds to misrepresent the facts on a wholesale
          basis. That is precisely what Zimbalist has done. His
          article is rife with false and misleading assertions.

          There is his claim that basketball-related income --
          the category of revenue the league shares with the
          players -- "excludes several important revenue sources"
          such as "naming rights . . . licensing and sponsorship
          income (around $300 million per year), 60 percent of
          both arena signs and luxury box income and parts of
          related party income." Those are not the facts.

          Basketball-related income, which last year totaled over
          $1.7 billion, includes all revenue sources except those
          the parties have agreed to exclude. Naming rights are
          not included because, as an arbitrator found, both
          parties intended to exclude them. Sponsorship income is
          included. Player-identified licensing revenue is shared
          50-50 under a separate licensing agreement, and
          nonplayer licensing revenue, which is excluded by
          agreement of the parties, last year represented only
          $58 million, not $300 million. Income from arena
          signage and luxury suites related to basketball events
          is fully included.

          Zimbalist is even less accurate in his assertions about
          league revenues and player costs. The actual difference
          between basketball-related income and player costs in
          1994-95 was $600 million, not $371 million. Thus, from
          1994-95 through 1997-98, the compounded annual growth
          rate of the spread between revenues and player costs
          was 8 percent, not the 27.3 percent asserted by
          Zimbalist. Entirely omitted by Zimbalist is the fact
          that beginning in 1994-95, the average annual growth
          rate of N.B.A. revenues has been 10 percent, while the
          average annual growth rate of player costs has been 16
          percent. The result is that leaguewide net operating
          income has fallen dramatically, from $190 million in
          1994-95 to a loss of $30 million in 1997-98.

          But Zimbalist outdoes himself in his wildly unrealistic
          "projections" for future N.B.A. profitability. He
          assumes, with absolutely no foundation, that N.B.A.
          revenues and salaries will each grow by 12 percent
          annually over the next five years. He neglects to
          mention that player salaries in the N.B.A. have grown
          much faster than revenues in every year since 1993-94
          and that the union's proposals would insure the
          continuation of that trend. His assumption that
          non-player costs will grow at only 5 percent, a
          percentage apparently selected for no other reason than
          its suitability to the conclusion he wishes to draw, is
          equally unrealistic given that increases in those costs
          have been averaging over 10 percent.

          Zimbalist compounds these omissions with an
          apples-to-oranges comparison of a projected profit
          margin for the N.B.A. that is based on earnings before
          deducting taxes, interest and depreciation, with a
          national average profit margin for manufacturers (not
          entertainment or media companies) based on earnings
          after deducting taxes, interest, and depreciation. This
          is dishonest advocacy of the worst kind.

          There are myriad other inaccuracies that also deserve
          mention. The current owners of the New Jersey Nets
          recently sold 80 percent of the team for $120 million,
          not for $150 million. Commissioner David Stern makes an
          impressive salary, but it is not $9 million and, in any
          event, he has declined to accept any salary since Aug.
          1. Deputy Commissioner Russ Granik does not earn
          anything approaching $4 million.

          As to Zimbalist's musings on the subject of competitive
          balance on the court, perhaps he possesses basketball
          qualifications he has chosen not to reveal. Otherwise,
          he would seem to be far out of his league in making
          pronouncements as to what he thinks will "weaken the
          game."

          Finally, Zimbalist accuses the N.B.A. of "exhorting the
          rank and file to turn on the union leadership" and says
          we are "wrongheaded and unproductive" in our
          negotiating stance. That is the kind of angry rhetoric
          we expect from an adversary at the bargaining table.
          Yet, Zimbalist's intemperate language poorly serves the
          players, who deserve to know far more than he is
          telling them.

          Every proposal advanced by the N.B.A. guarantees that
          player salaries (which last year amounted to $1 billion
          shared by 400 players) will continue to increase, but
          simply at a somewhat slower rate. Within the past 15
          years, the average annual player salary has risen from
          $250,000 to more than $2.5 million, and we have
          promised that the average salary will soon exceed $3
          million. While the economic health of the league
          requires some limitation on salaries at the top of the
          scale, the proposals made by the N.B.A. insure that
          every player in the league will reap enormous financial
          rewards.

          We do agree with Zimbalist in one respect. He says that
          the lockout will end only through the process of
          "honest, open bargaining." Regrettably, his article
          does nothing to contribute to that goal.

          Jeffrey A. Mishkin is the executive vice president and
          chief legal officer of the N.B.A.




                Copyright 1998 The New York Times Company