Players union to audit five NBA teams

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National Basketball Players Association executive director Michele Roberts and NBA commissioner Adam Silver have exchanged barbs, trying to stake out their positions before a 2017 work stoppage.

Roberts has particularly raised the rhetoric.

Now, in addition to just talking a big game, she’s also doing something to help the union’s cause.

NBPA statement, via Kevin Draper of Deadspin:

For many years, the CBA has also included a provision that allows the union to engage its own independent firm to audit five teams of its choosing. This audit process can be initiated following the audit of the League and every franchise conducted at the end of every season by PwC. A similar protocol is followed in both hockey and football. To date, this option was used sparingly by the NBPA. Starting this year, the union will exercise this option and conduct the five-team audit annually.

Draper:

When asked which teams the union plans to audit, the union says, “We will not choose the five teams until after the BRI audit is completed.”

Even with the union demurring, you can bet that the Knicks will be one of the five, and that more generally the union will target teams that earn the most revenue and have a host of complicated related party issues. An informed guess would be that the Knicks, Nets, Mavericks, Nuggets, and Lakers will be audited, with the Rockets, Bulls, and Warriors candidates as well.

I’m astounded the union hadn’t regularly conducted these audits. Billy Hunter, y’all.

Now that the NBPA is exercising this right, who knows what it will find?

A key issue that Draper explores in great depth is related parties. Players and owners share Basketball Related Income (approximately) 50-50, and the Collective Bargaining Agreement specifies what does and does not count toward BRI. Money that would normally fall under BRI but does not go directly to an NBA team counts toward BRI if it goes to a related party. What’s a related party? According to the CBA, it’s a company owned or controlled by the same person/entity that controls the related NBA team.

Simply, this prevents owners from setting up shell corporations that make all the money while the actual NBA team cries poverty.

But this doesn’t completely close the loophole. What about when NBA owners have only partial stake in a company that would otherwise be considered a third party?

Draper:

In Brooklyn, for example, Russian billionaire Mikhail Prokhorov owns 80% of the Nets, while real estate developer Bruce Ratner owns 20%. Meanwhile, Ratner owns 55% of the Barclays Center, where the Nets play, and Prokhorov owns 45%. While both entities are entirely owned by the same two men, by the NBA’s definition, the Nets and Barclays Center are not related parties. If they were to engage in any revenue-shifting shenanigans, the players would be helpless to collect their money. They would prefer the Nets and Barclays Center to be considered related parties.

What type of shenanigans? Draper cites Andrew Zimbalist in the The Economics of Sports:

Suppose you are an owner negotiating an arena lease and are given a choice: pay $2 million in rent and receive 50 percent of a projected $4 million in signage income or pay no rent and receive no signage. It might seem that this is a choice between equals, but since the CBA gives 40 percent of signage income to the players, the owner would do better with the second option of no rent/no signage. Lease agreements offer manifold opportunities for such juggling, especially when the arena and team are owned by the same person or entity.

To some extent, the players might just have to live with the definition of related party they agreed to in this CBA. But the CBA also includes barter in BRI, and many of the potential issues Draper raises seem to qualify.

Perhaps, these audits reveal money the players think they’re entitled to. The CBA outlines an arbitration process, which has a three-year statute of limitations on issues brought forward.

It’s three years from the date of the act being questioned or three years from when it “became known or reasonably should have become known” by the side initiating arbitration. If the NBPA audits uncover anything now from more than three years ago, this is where the union’s lack of audits could really hurt it. It seems easy for the NBA to argue the union reasonably should have known of any problems if it had conducted more audits previously.

At minimum, expect the players to fight for a wider definition of related party in the next CBA.

If you’re interested in how this labor battle is unfolding, definitely read Draper’s piece in full, including his analysis of the potential for the Knicks and Madison Square Garden Company to syphon major money from the players.