The NBA Lockout: Here's What You Need to Know

The players want the NBA to be more like Major League Baseball. The owners want the NBA to be more like the NFL.

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Lucy Nicholson/Reuters

As if we didn't have enough labor crises already, the NBA has become the second major sports organization to enter a player lockout. Could 2012 be a year without basketball? (Or football?) We're here to guide you, step by step, through the squabble that could take down the $4 billion industry of professional hoops.

What's the NBA dispute about, in a nutshell?

The players want the NBA to be more like Major League Baseball. They want huge player salaries that are guaranteed to pay out, even if the player under-performs.

The owners want the NBA to be more like the NFL. They want smaller player salaries, more "revenue sharing," and the ability to let players go if they don't perform.

How did we get here? The NBA expects to lose $300 million this season after losing more than $300 million last season. Those losses aren't concentrated in a handful of clubs. Two thirds of the NBA's 30 teams will lose money this year, Commissioner David Stern said.

Owners currently pay players about 57 percent of their gross team revenue. If they paid closer to 50 percent of the pie, they might be in the black. That's what this fight is about: Designing a system that allows teams to offer players competitive salaries without bankrupting smaller teams.

What's the difference between a "hard" and "soft" salary cap?

A salary cap is a spending limit on your players. The NFL has what's called a "hard" cap. There are very few exceptions where teams can spend above the limit on players. This makes teams more competitive. It also means that owners don't get into a horse race to see who can pay the most money.

The NBA has what's called a "soft" cap. The official limit is about $58 million, but teams can go over that in all sorts of ways. The most famous is the "Larry Bird Exception" that allows teams to resign players above the cap without it counting.

Most basketball teams spend above the cap. Boston, New York and the Los Angeles Lakers can spend more than $100 million, while Minnesota spends less than $50 million. Like major league baseball, teams that spend way above the cap pay a luxury tax that is redistributed throughout the league.

What do the owners want, and why?

The owners want more money. First, they are asking for a one-third reduction in player salaries. Right now, owners are required to spend nearly 60% of team revenue on players. They want to bring that down closer to 40%.

Second, they want a hard cap.

Third, they want "non-guaranteed contracts." This will let them cut, or renegotiate with, a player who under-performs. One of the highest paid players in the league right now is Rashard Lewis. He's guaranteed to make $21 million in the final two years of his contract. In the last two seasons he's played only 50 games and averaged half the point total of Dwyane Wade. The owners want to be able to get out of those contracts.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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