Sharing the Wealth - NBA Style

Yes, ANOTHER sports-related post. 

Cue the groans from the few readers that have not bailed out. I don't blame you. Just give me another shot tomorrow.

This piece isn't REALLY about sports, but rather how an organization's distribution of payroll factors in to contract negotiations, employee movement, and even competitiveness.  As basketball fans are aware, the National Basketball Association, (NBA, or the 'association'), is in the midst of an old-school management vs. worker labor impasse.  Well as 'old-school' as you can get when the put-upon workers average seven-figure salaries, and the owners who are mostly billionaires, sit on franchise values that seemingly rise every year.

But the owners want to further control and restrict the total compensation available to players. They in the past have managed this by negotiating a maximum total percentage of basketball-related revenue that can be paid out to the players in compensation.  The expired labor deal set that figure at 57% of total basketball revenue. Now there are lots of arguments and disputes around the details of the deal, (what exactly constitutes 'basketball revenue' chief among them), and there are more detailed parameters that control how much each team can spend, and even rules around maximum contract values for individual players. 

But while percentage of gross revenue paid out in player compensation is the big issue, for teams and players individual compensation is equally important. How the 'pie' is spread inside the league, amongst superstars, solid contributors, and new talent trying to prove themselves is also a critically important angle here, both for the NBA and likely for your organization as well.

The chart below from a piece on Business Insider shows the relative total allocation of league player payroll across salary levels. For example, if 10 players made $4 million, then $40 million would be dedicated to that salary slot. If total payroll was $1 billion, 4 percent of total payroll would go to $4-million players. The higher the bar, the more total league payroll is expended on all talent at that salary level.

Take a look at the changes in distribution of player payroll by salary level between 1998 (the last year the NBA had labor issues), and 2011:

Two things immediately jump out on the chart. One, in 1998 a much higher percentage of total player compensation was clustered at the lower ends of the salary scale, i.e. in players making $6M annually or less. By 2011, the 'spread' of payroll spend smoothed out quite dramatically, with more players (and payroll spend), moving up the salary chain, particularly in the $10M - $20M range. But almost as strikingly, there has been almost no growth in the extremely high compensation levels - on aggregate, more salary was expended in 1998 on players making above $20M annually than in 2011.

In the 1998 contract negotiations, the owners successfully put in place a system that 'capped' individual contracts in a manner by 2011 has kept current stars like LeBron James from reaching the compensation levels of past stars like Michael Jordan, (represented by the lone orange bar on the far right of the chart).

In the period of 1998-2011, the NBA owners were successful in controlling the extreme high end of the salary scale, but for that, saw salaries at the lower end, and more importantly the middle-range increase dramatically.  Over time, contracts awarded to 'solid but not spectacular' contributors have grown out of proportion to those players' contributions to the team's success (with exceptions of course).

One of the primary goals for the owners in this current negotiation is to try and get those mid-range, $6M - $14M or so contracts back under control, while still maintaining the grips on the superstar end of the market as well.

If indeed the NBA owners are in financial trouble, it isn't because the true superstars like LeBron and Kobe make exorbitant salaries, but rather due to the last 15 years of owners overpaying for average performers. Sure, you need quite a few of these 'average' performers to fill out a team, and assembling the right ones with complimentary skills and good attitudes is necessary to actually compete for and win championships, but paying superstar prices for average performance might win you a few games in the short term, but in the long run it will likely tick off the true stars, and might possibly bankrupt the team as well.

I guess that is the challenge for all HR and compensation pros, knowing you need superstar talent to win, and having to spend what it takes to get that superstar talent, while making sure you have enough of the pie left over for everyone else so they won't jump ship chasing a few dollars.

Finally - I promise, no more posts about sports for the rest of the week!

Please welcome our new VP of Marketing. Yes, that's really him

So let's pretend you are a dedicated marketing pro at a low-key but solid wholesale grocery distribution company in Tennessee and you have seen notice or heard through the company grapevine that the VP of Marketing position is open. VP slots at small and medium size companies don't just open up every day, and as you learn more about the opening, you become more intrigued. Casual Friday in the Marketing department?

You've got over 10 years experience marketing in this industry, almost five at the current company, and you have been given progressively more responsibility, high profile projects, and control over a small team and budget. You like the company, love living in the area, and have cemented solid relationships in the local business community as well as been an active participant in a few industry associations, even serving as a conference speaker on a couple of occasions.  You have even let your Gen-Y staffers run with the whole 'social media' thing to support the company marketing efforts. It isn't for you personally, but you realize that times are changing, and empowering the right people to help navigate through these changes just seems to make sense.

All told, you have some really solid qualifications for the VP role, and if the company had one of those progressive HR constructs known as a 'succession plan', your name would almost certainly been in the 'Ready now' box for the VP of Marketing role. So as you sit down at your desk to have one last look at your resume before firing off an email to the CEO to forward your name for consideration for the VP position, you see a company-wide announcement drop in to your inbox.

It reads : Please welcome our new VP of Marketing - Bruce Pearl. 

You think - What? Bruce Pearl? The former University of Tennessee Men's Basketball Coach that was fired for lying to NCAA investigators during an investigation into the program's recruiting practices? A guy who has been a basketball coach for the last 25 years or so, and whose only knowledge and experience in the grocery business is that perhaps occasionally he shops in one?

That's our new VP of Marketing?

The bit about the Marketing Manager I just made up, but back in the 'real' world the aforementioned Bruce Pearl was indeed just hired by the wholesale grocery distribution firm H.T. Hackney as their new VP of Marketing.

Now I don't profess to know anything about H.T. Hackney, or the climate of the Knoxville area wholesale grocery distribution business, but taken simply at face value, the hiring of Pearl into a VP of Marketing role fresh off recent scandal, and perhaps more importantly, an entire professional career that had pretty much nothing to do with the grocery business or corporate marketing seems quite baffling. Sure, the company gets a short-term publicity pop, everyone in the area knows who Pearl is, and most probably never heard of H.T. Hackney before, but longer term, can or will a hire like Pearl cause more damage than good?

I wonder if there really is a H.T. Hackney Marketing manager that won't get his or her shot because of this move. Or maybe there is a slate of great marketing pros that are looking for their next career move that would have made a super hire for the position.

I guess time will tell, but I do think these kinds of stunt hires, particularly ones we see that are sport-related, don't seem to work out all that well.  

In Hackney's defense, this article from ESPN announcing the Pearl hire refers to a news release where Hackney officials refer to Pearl's 'marketing and economic background as a student at Boston College', as some justification and support for the hire.

In these tough economic times it's good to know that a solid education still carries weight in the job market. Even if, as in Pearl's degree, it was earned in 1982.

Have a great and long holiday weekend!

The NBA, where a 30% pay cut was the better option

So the National Basketball Association, henceforth referred to as the 'NBA', 'The League', or 'The Association', fresh off by most accounts was a very successful season, one that started with the LeBron James 'Decision' drama last summer, followed by a compelling regular season that saw several young players raise their play to superstar status, and capped off by a dramatic Championship series were the aforementioned James' Miami Heat team was defeated by a rag-tag, inspirational band of tattooed milliionaires from Dallas, has managed to follow up on its recent success and buzz by failing to forge a new labor agreement between the owners and players, resulting in a classic 1930's style Lockout1.

The lockout has effectively stopped almost all league business, imposed a ban on teams having any contact with their players, and has even resulted in the scrubbing of the NBA's and associated team websites from player photos, bios, and really most signs that people actually play the games2.

Since in a lockout situation the owners no longer have to pay the players, one might think the teams could settle in for a protracted impasse, since player salaries make up the majority of team expenses. But even though the lockout is but a few days old, some teams are already making decisions that seem primarily intended to reduce non-player labor costs. Case in point - the Los Angeles Lakers decision to decline to renew the contract of long-time Assistant General Manager Ronnie Lester3.  

From the ESPN Los Angeles piece on Lester's departure from the Lakers:

Barring a last-minute change of heart, Lester's 24-year run with the Lakers will end when his contract expires this month. By then, at least 20 other Lakers staffers, including almost all of the scouts who work under Lester in the basketball operations department, will have already packed their belongings and headed home. They've been told little by the team, except that employees whose contracts expire on or after June 30 would not have their contracts renewed, and their jobs may or may not open up again down the line.

So on the surface it seems like a sad, but kind of straightforward deal. The League is in what appears will be a lengthy labor dispute, the upcoming season is perhaps already in danger of being delayed, if not totally canceled, and teams like the Lakers are taking quick and aggressive steps to reign in labor costs that are still in their control.  Makes sense right, and really isn't all that noteworthy a story. 

That is until we catch one more little tidbit about the Lester employment situation with the Lakers, buried about 2/3 the way into the piece:

Lester wasn't fired or laid off. By all accounts, he's still greatly respected within the organization and around the league. Lakers general manager Mitch Kupchak considers him both a friend and one of the best assistant GMs in the league. He just didn't protect himself well enough last summer when the Lakers gave him the option of signing a one-year contract for the same pay as before, or a three-year deal at a 30 percent pay cut.

Now it gets more interesting. Apparently this time last year, the Lakers offered Lester a choice - re-up for one year at his current salary, or take a 30% hit but get the security of a three-year deal. Twelve months ago the lockout might have seemed a possible but unlikely outcome given the apparent irrationality of a collection of mostly billionaires (the owners) and millionaires (the players) being unable to agree on a fair division of a massive pot of revenues4. But even as far back as last summer even the most optimistic observers of the NBA scene were expecting a labor problem, and a likely lockout. 

As an executive on the inside, Lester had to know that the lockout was likely, and he must have also suspected that in the event of a lockout, front office personnel might be in a tenuous situation. But knowing that, and presented with a three-year, 30% pay cut option, he elected to re-up for the single year, maintain his salary level, and leave himself exposed to the contract non-renewal it appears he is facing this month.

Tough call, even when not staring an impending business crisis in the face. But it is a good question to ponder, even if a theoretical one.

If your employer offered you a three-year guarantee with a 30% pay cut, would you take the deal? 

Or would you roll the dice like Ronnie Lester did, maintain your salary for the time being, and take your chances?

Notes:

1. That sentence was over 100 words in length. Ridiculous. Get an editor.

2. It is really kind of jarring. Take a look at NBA.com if you don't believe me. The front page of the Knicks team site features a tribute to the team's dancers and the 'Knicks Now' section is mainly about some recent community outreach efforts by the club featuring team executives.

3. Lester's best season of his NBA playing career was 1981-1982, when he averaged 11 points per game for a pretty bad Chicago Bulls team. The second leading scorer on that team was Reggie Theus, possibly more well known to readers as the star of Saturday morning classic 'Hang Time'.

4. There is quite a difference in opinion how profitable (or not), the NBA is, and whether or not the players or owners are mainly responsible for the current labor crisis. Some good background can be found on the FiveThirtyEight blog at the New York Times site.

Why You're Wrong about LeBron James

Subtitled : I am not sure I completely believe what I am about to argue in the post either, but someone had to take an opposite position.

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The facts of the case are these:

1. Last summer two-time league MVP, consensus best player in the NBA, and one of the best all-around players in league history LeBron James, a free agent no longer under contract with his team of seven seasons the Cleveland Cavaliers, elected to sign a contract to play for the Miami Heat. The 'decision' by James to join the Heat was panned not so much for the actual business and competition factors, but rather for the manner in which it was announced - a one-hour TV special on ESPN, that in combination with the backlash against James from the jilted Cleveland community, ended up backfiring on James, portraying him as an out-of-touch, arrogant, self-important and egocentric person.  

2. James, (and his new teammates Heat stars Dwyane Wade and Chris Bosh), compounded the PR disaster spawned by 'The Decision', with an over-the-top, flashy, introduction event in Miami, where James and the others (in uniform), pranced around a smoke-filled stage and opined about winning not just one NBA title, but 'six, seven, eight... ' titles. I am paraphrasing a bit, but you get the idea.

3. The Heat concluded an up and down season, (it was painful at times to watch these three star players attempt to co-exist on the court, when each was accustomed to being 'the man'), with a 58-24 record, good for first place in the NBA's Southeast Division, and the third-best overall record in the league.

4. Entering the NBA playoffs the Heat then defeated in succession the Atlanta Hawks; their nemesis, the Boston Celtics; and the league's top regular season team the Chicago Bulls. Each series was decided 4 games to 1, making the Heat an impressive 12-3 in the first three playoff rounds.

5. In the NBA finals, the Heat were defeated by the Dallas Mavericks, a veteran team playing at the top of their form, 4 games to 2. James was harshly criticized for poor play in the series, particularly in the 4th quarters of Games 4, 5, and 6 (all Dallas victories). James lack of production in these situations served in stark contrast to Dallas leader Dirk Nowitzki, who consistently made big plays and shots to lead Dallas to the title.

6. Immediately following the Game 6 loss, James further damaged his already shaky reputation by implying that people hoping he and the Heat would lose would 'got to wake up tomorrow and have the same life that they had before.' While James would also have to wake up and continue his life, strongly implying that his life, with his millions of dollars, mansions, private jets etc. was somehow superior to yours, mine, and pretty much everyone else's.

These are the basic facts of the case, my apologies for going on so long about them prior to mounting my apologist defense for King James.

If you are like my friends and fellow bloggers Kris Dunn at the HR Capitalist, or John Hollon at TLNT.com, you have taken LeBron to task for arrogance, lack of humility, inability to win or lose gracefully, and over-confidence. While Kris and John and the hundreds of other writers that have participated in the LeBron dogpile have their points, I'll offer three (hope I can come up with three), reasons why they and you are wrong (or at least a little hypocritical) about LeBron.

1. History 

LeBron is most often compared, unfavorably, to Michael Jordan, the greatest player in NBA history. Jordan won six titles with the Bulls, the first one in his seventh season in the league. This was on a team with another all-time Top 50 player in Scottie Pippen and the greatest coach of all time, Phil Jackson. LeBron just completed his 8th season in the league falling just two games short of winning his first title. And since he started his NBA career at a younger age, LeBron is only 26, while Jordan was 28 when he claimed his first title.

Sure, maybe we take shots at LeBron because he compares unfavorably to Jordan, but lets not forget Jordan was a a transcendent, once in 50 years or so player. Everyone compares unfavorably to Jordan. No matter what line of business you are in, be in basketball, software development, or running a company, chances are you won't hold up well either when compared to the legends of your field. 

2. We like to selectively remember

LeBron left Cleveland, and several million dollars in salary on the table, to play for Miami in a situation that he (rightly) assessed as providing a better opportunity to win the title. In sports, fans usually take to task players that are perceived as being only in it for the money. Now LeBron likely earns so much from off the court endeavors that the few million he walked away from in Cleveland did not play into his decision rationale all that much, but it still sets him apart from probably 90% of professional athletes whose primary objective is to wrest every last dollar from their team. LeBron gets bashed for taking proactive steps in his career management to attempt to improve his chances to win and we kill him.

Remember that Cleveland team that LeBron single-handedly dragged to the finals in 2007? That was the worst team I have ever seen that actually made the finals. LeBron was not going to win in Cleveland. But he played out his contract, did not whine to the press and try to force his way out via a trade, and exercised his right to choose the team that best fit his goals and career aspirations. The same process any of us would do. And that over the top 'Decision' TV show? We usually fail to mention that show raised over $2M for the Boys and Girls Clubs, one of James' favorite charities. Finally our friend Michael Jordan, who we like to compare LeBron with since we know LeBron can't measure up, let's also not forget how he quit his team to pursue an irrational dream of playing major league baseball, only to come back a year later.

3. You're only angry because LeBron didn't win

Much of the heat LeBron is getting is not so much because he and the rest of the Heat bragged, strutted, and pranced around before they had won anything, but because in fact they did not win. We give lots of slack to arrogant winners, not so much to arrogant losers. We look back with reverence about the famous Larry Bird three point contest story, where Bird famously derided his competition prior to the event by telling them they 'were all playing for second place', and then proceeded to win the contest. We can either take shots at arrogance or take shots at talking too much and not backing it up, but it seems a bit hypocritical to have it both ways. In business and in sports, we want our leaders to be confident, to project strength and resolve, we need to have someone to follow into the competition.  Do you really want a person leading your team or your company that doesn't predict victory? If all LeBron ever said was 'We will take one game at a time' and 'We have to continue to work hard', the media would kill him for being a drone or a cliche-spewing dullard..

4. (Hey, I actually thought of another reason) - There are bad guys everywhere.

LeBron is an easy target, in fact he has placed the target right on his back. But the fact that the target is there doesn't mean we need to take shots at it. But professional sports is full of guys of questionable character, that have had run-ins with the law, and a demonstrated history of bad behavior. In fact some of those kinds of guys play for the Dallas team that everyone adopted as some kind of rag-tag, Hoosiers-like plucky band of underdogs, (who were led by Dirk Nowitzki and his $17.2M salary). If you don't believe me, just Google 'Jason Kidd domestic violence' or 'Deshawn Stephenson arrested'. Sure blast LeBron for being arrogant or out-of-touch, but let's not give guys who have done much, much worse things a pass while we are at it.

Well there it is, my 1400-word defense of LBJ. While I am sure I have not convinced most of you, especially the Cleveland fans, I hope that I made you pause just a bit to think about LeBron in a wider context. Let me have it in the comments...

Have a great weekend!

Halls of Fame

Today marks the start of the Memorial Day Holiday weekend here in the USA, a holiday observed in remembrance of all the nation's fallen heroes in the various branches of the armed forces. While observed as a solemn holiday, Memorial Day has certainly changed over time to be known as a unofficial start of the Summer season, and parties, parades, barbecues will be in full force over the next few days.

While Memorial Day is about fallen heroes, we know that the idea of just what makes a 'hero' is kind or personal and even fluid. Heroes can and are found in all kinds of places - in homes, schools, community centers, and yes even in profession sports stadiums.

I'll be spending the first part of Memorial Day weekend on a short road trip to visit one of the most iconic and historical, (and uniquely American) places in the country - The Baseball Hall of Fame in Cooperstown, NY. The Hall is a kind of gathering place for those of us who (at least at some point), looked at baseball and baseball players as some kind of heroes. Now I know full well that sports figures can't be compared to 'real' heroes in the military, in public service, or those that bravely and anonymously do much more important work. But as a kid, those kinds of heroes, while I certainly was aware of them, were quite a bit more remote and inaccessible compared to the baseball stars I looked up to as heroes. And in some ways, when I go back to the Baseball Hall of Fame and look at the pictures and memorabilia of some of those players, for a moment I can see and feel really clearly back to my 10 year old self, when the results of meaningless mid-July Mets game meant the world to me.

Do sports hold too exalted a position in American society? Probably. Do we compensate too highly people that can hit a ball or throw a pass better than anyone else? Definitely. Do we go a little overboard by erecting museums and mounting plaques and statues in honor of ball players? For sure.

But I think the best part of these Halls of Fame are how they help us remember, even for a short time, the reasons why we played or watched the games in the first place, before we became consumed with 'important' things, and when anything, really anything was still possible. They are a look back, not only into the history of the game, but into our own lives in a way.

The Hall of Fame is a very cool place, and I highly recommend it to any baseball fan, or even any student of American History. The story of baseball is intertwined and essential to the complete understanding of the American experience in the last 150 or so years. And the little village of Cooperstown, NY is one of America's most beautiful places.

I hope you have a great Memorial Day Weekend!