Monday, November 07, 2011

NBA Brinksmanship

By Mike Dorf

Just under a year ago, I wrote a column comparing the brinksmanship of the Yankees and Derek Jeter to the brinksmanship on the Korean peninsula.  In addition to providing me with the opportunity to compare Hal Steinbrenner to Kim Jung-Il, the column laid out the standard sorts of considerations that game theory makes relevant when dealing with a rational bargainer (Jeter and the Yankees) as well as when dealing with an irrational bargainer (Kim Jung-Il).  The issue more or less recurred over the summer when Tea Party Republicans took the global economy hostage rather than agree either to an unfunded raise in the debt ceiling or to one that included any tax increases.  There, as with North Korea, the irrational bargainer -- or the party that is able to persuade the other side that he or it is irrational -- has a substantial advantage when negotiating with a self-avowedly rational bargainer.  That's why the Republicans "won" the summer showdown and why we should also expect that if, as now appears likely, the "supercommittee" cannot reach agreement, the Republicans will win the next showdown.

For now, though, I'll put aside those negotiations to talk briefly about what's happening in the NBA.  For those of you who have not been closely following the situation, the collective bargaining agreement between the league and the players expired after last season and they have been unable to reach a new agreement.  After A LOT of discussion, the sides appear to be very close on the question of what percentage of revenues should go to players.  Answer: something in the neighborhood of 50%.  There are other significant issues, like whether the salary cap will be flexible (as it was under the last CBA) or "hard."  Clearly there are important differences, but it's very hard to imagine that the players will do better to reject than accept the owners' latest offer -- with a take-it-or-leave-it-by-Wednesday ultimatum, as each passing day means more foregone revenue.  Even a slightly better deal three months from now, which is probably about what it would take for the players to decertify their union and get a deal through judicial action, would not be worth it.

So does that mean the players will take the deal now on offer?  If I had to bet, I'd say no.  But why not?  Part of the answer may be that the players are being misled by their own agents into thinking that they would do better to hold out.  Or maybe the players rightly see a better deal out there and I've got it wrong.  Jeff Kessler, the union's lawyer, has been talking as though he believes that the players can do better and Kessler is a sober, rational negotiator, albeit a tough one.

But let's suppose that the most sober analysis says that taking the deal on the table now would maximize revenue available for players over the lifetime of the new CBA.  Would it still be completely irrational for the players to reject it?  I don't think so.  For one thing, holding out, even against their own interest, could signal to the owners that the players are a bit crazy, and that they would do the same thing when the new CBA expires.  So seen in that perspective, the relevant time horizon to make up the lost revenue is not the lifetime of the new CBA but infinity (discounted to present value).

In addition, there is undoubtedly an element of pride at stake here.  Of course it's in some sense preposterous for NBA players or their supporters to complain about exploitation (much less slavery).  But Bryant Gumbel's accusation that David Stern wants to run a "plantation" did not come from nowhere, nor is the racial dynamic of mostly white owners and mostly African American players irrelevant to whether the players ultimately take the deal now on offer.  Knowing that the players' pride is at stake, the owners should have been negotiating in a way that signaled maximum respect, even if taking a firm economic line.  And because that's not directly known to people outside of the negotiating room, perceptions may matter more than reality.

Bottom Line: If I had to bet, I'd say no games before the middle of January, if then.

NB:  Jeff Kessler, discussed above, is a partner at Dewey & LeBoeuf, where I sometimes consult.  I've met him and am impressed but don't know him well.  I haven't talked to him or anyone at D&L about the current NBA/NBAPA negotiations.  Needless to say, the views expressed above are mine alone.