Why the salary cap matters then and now
I finally got around to a detailed read of this fantastic book: The Cap, How Larry Fleisher and David Stern Built the Modern NBA by Joshua Mendelsohn.
There are many interesting parts for our understanding of David Stern and his legacy.
The author is a labor lawyer and professor himself and chooses as his focus the figure of Larry Fleisher. Fleisher was a lawyer and accountant who was the guiding force behind the NBA Players’ Association from 1962 until 1987. He died young shortly after retiring and although he was inducted into the Basketball Hall of Fame, his name is not as well known today as other figures in the sports labor battles of the 1960s, 70s and 80s. I have to confess I didn’t remember him.
Fleisher took the players from a fight for basic pension benefits in 1964, through the 1970s growth, free agency, the Stern era and up through the relative peace and prosperity of the 1980s. It’s a dry but fun read. The book is pitched somewhere between normal pop history and a purely academic work. Mendelsohn has that lawyer’s gift of writing a narrative of complex facts clearly and completely. (You can tell he’s breathing pure oxygen to be let loose on the green field of NBA history compared to whatever boring casework he normally has to work on.)
Most casual fans know some form of the conventional wisdom about the salary cap, which was announced on April 1, 1983. “The NBA was in big trouble in the late 1970s and franchises were going to fail because of high salaries, lazy players and bad owners so Commissioner David Stern got everyone together and forced the players and the owners to agree on a salary cap for the good of The League. Each team could only spend a fixed amount on salaries so it guaranteed the small markets had a chance to compete. And then there was labor peace and profits and competitive parity and the bad times turned around.” Much of the fall-and-rise stuff is materially false, of course. (See here and here for more on the conventional wisdom if you haven’t already.) But to see why and get a sense for the pre-cap buildup we need to go further back with Mendolsohn as our guide, to Fleisher and Oscar Robertson.
Let’s understand Robertson v The NBA
“David Stern said that the most significant day in NBA history was the day the NBA settled Robertson.” (p. 91)
What is a league? Is it a rough alliance of uneasy enemies that anyone can bully their way into, with each new year a possible new alignment of competitors? Is it a slightly more civilized group with a set of tiers and rules by which one may rise or fall? Or is it a moated cabal of co-conspirators that only allows new entrants at its pleasure and enforces its monopoly by whatever means it can? I would argue that American college football has elements of the first category. From what I know of English Football it’s the second. And most of American sports is the third group.
But for a few years in the 1970s, pro basketball in America came as close to an unfettered pure free market competition as any pro sport has since 19th century baseball. And that context is vital for understanding Stern’s myth and motivation.
It’s May 1966. The NBA season just ended with 9 teams. Cut to October 1980. The NBA season is about to start with 23 teams. 14 additional teams in 14 years. (Actually if we cut it to 1976 there were 12 teams in 10 years.) What happened? And how could anyone say “the league was in trouble?” Certainly, some growing pains. But do you see how absurd the conventional wisdom is when you look at pure growth of the sport?
What happened in the biggest picture sense is the baby boom. Millions and millions more Americans were born starting in 1946, and when they reached adulthood in the late 1960s that meant millions more adults with appetite for sports and cash to spend pursuing that appetite and a millions-bigger talent pool to pluck athletes from. (Fun fact: The first NCAA All-Americans from the Baby Boom generation were Lew Alcindor and Wes Unseld. Solid.)
But what happened in the narrow sense is the ABA, Robertson and the Robertson settlement.
The ABA owners saw the coming wave of growth and took aim at the 9-team NBA by starting their own league in 1967. With the introduction of a new major league they established a parallel career option for players and effectively created unlimited free agency, since they didn’t respect the NBA reserve clause agreement. The reserve clause is the dreaded yoke that says players can’t sign with other teams once their contracts are over. In the “classic” NBA system a player has no ability to negotiate a contract other than to hold out. The draft binds him to one team at the start of his career and the reserve clause binds him to that team for the duration of it. (Unless he is traded, at the team’s pleasure of course. At which time his reserve clause obligation transfers to the new team.)
Here’s the short version I’m cribbing from the book: The ABA started and undertook an explicit plan of raiding top talent from the NBA with high salaries, in the hopes of forcing a merger. The initial ABA owners wanted “in” to pro basketball on better terms than expansion would give them. (If the NBA would even expand, which is didn’t seem to want to before the ABA showed them the potential market.) It worked! The two leagues agreed to a merger in principle by 1970. But Larry Fleisher and the NBPA with star guard (and union head) Oscar Robertson sued the NBA, saying this would create an unlawful monopoly. The suit laid out in detail all the elements that would constitute a restraint of trade. A single league would be a de facto monopoly. The combination of the draft and reserve clause meant that a professional basketball player could never sell his services on an open market. In short, they put the world of pro basketball (and pro sports in general) as it had exactly existed not five years before into a legal complaint.
As Mendelsohn writes, “The lawsuit was an audacious act and a tremendous risk.” (p. 84). The plaintiffs said, essentially, “the status quo is illegal” and a judge agreed. As part of the judge’s decision the merger was postponed. Free market conditions persisted with salary bidding between the leagues. In 1976 the Robertson settlement finally allowed the leagues to merge but with the condition that free agency be established. In order to remedy the clear antitrust violations one link in the chain was broken. There would still be an NBA monopoly and a draft but the reserve clause only held for the first few years of a player’s career. Professional players could finally find high bidders for their talent.
As part of the merger four teams from the ABA were integrated into the NBA. Along the way the NBA itself had also been expanding, adding teams in 1966, 1967, 1968, 1970 and 1974. This is not a league that was “circling the drain!” This was a boom cycle entering a period of slight correction.
As so often happens, breaking a monopoly and cutting “the pie” into smaller pieces also increases the total size of “the pie.” New entrants rush in to offer services, this competition leads to higher prices paid for inputs, consumer surplus increases from a combination of more providers and lower prices. It’s the whole reason we have antitrust enforcement. But it does make margins skinnier for the established market participants and that made David Stern unhappy.
One way to look at the NBA in the 1970s is that it represents an outbreak of Actual Capitalism, which the owners and Stern have been trying to reverse, tamp down and smear with a vast (successful) propaganda campaign ever since.
That’s why Stern knew the settlement was the most important day. It halted the free market experiment. Even with free agency the ratchet could begin to turn toward predicability and managed labor costs.
Let’s understand 1970s network TV even more
We have already spent some time on the “tape delay” mythofact of an unpopular NBA in the context of 1970s TV. (If you want more on 1970s TV here’s my take on what the the Vast Wasteland speech and the decline of the variety show can illuminate about the TV industry.)
Mendelsohn adds to this a very specific chapter about ABC sports chief Roone Arledge and the NBA’s TV troubles in the 1970s.
In 1974 the NBA ended a good relationship with Roone and ABC in favor of slightly more money from CBS. With CBS they gained an awkward partner who lowered production values and didn’t seem to have its heart in the NBA. But more importantly they made an enemy out of Roone, who was incensed at what he saw as a backhanded deal by CBS. He sued the NBA and CBS to stop the deal and lost (p. 98) After that humiliation he went out of his way to inflict as much ratings pain on NBA broadcasts and CBS as he could. Remember this is the constrained world of 1970s television. Three networks programming three hours of weeknight primetime and weekend afternoons. Single personalities could dominate the entire world of broadcast.
Almost immediately after the NBA moved to CBS, press reports referred to Arledge’s “crusade against the NBA” and that he was “looking for revenge” and “to bury the NBA in the ratings in order to avenge the league’s jump to a rival network,” Within a year, his retaliation against the NBA had a name worthy of Arledge— it was simply called “Roone’s revenge.” Arledge created a block on ABC on Sundays afternoons that eviscerated the NBA on CBS. He made a Sunday afternoon version of Wide World of Sports and a show called Superstars, where athletes and celebrities would compete in events others than their specialties. The block was a massive hit.
“The Cap” p. 100
The most powerful man in TV embarked on a vindictive plan focused on destroying the NBA’s success! And, even in the face of this, they did negotiate increasing deals throughout the 70s. I made a point of showing how strong primetime network TV ratings were compared to sports in part 1. Arledge literally imported primetime stars from network TV into Sunday afternoon to clobber the NBA with.
I was struck by one number in the details of the 1982 negotiations. CBS showed regular season NBA games in November during the NFL strike. “Those two broadcasts had drawn strong ratings, and each of them had been watched in about 5.6 million households.” (p. 219.) Here in 2025 it was recently big news that a regular season February Lakers/Celtics game had drawn almost 5 million viewers. “Saturday’s Lakers-Celtics NBA regular season game averaged 4.6 million viewers on ABC, marking the largest NBA regular season audience — outside of Christmas — since a Cavaliers-Celtics game in February 2018 (4.64M). The previous high was 4.58 million for last season’s Pacers-Lakers NBA Cup Final.”
I found an AP story from 1981 saying that the Neilsen household total was 79.9 million households. (“Neilsen Ratings Give CBS Lead for 9th week”, July 24, 1981) The NBA finals ratings of the “bad era” that “everyone knows was bad” were in the 5.8-6.5 range. A Neilsen ratings point is one percent of households, so a 6 rating would translate to roughly 6% of 79.9mm or 4.8mm households viewing. In other words we’re roughly in the same band of absolute viewer count on “tremendous successes” now that were on “bad” efforts back then.
This is the central paradox of the TV situation: In 1981, when the US population was 227mm, if you have a live entertainment product that can bring 5mm (2.2%) of those people to a TV set? Sorry. It’s a poor product that can’t compete with the network’s other shows and your TV deal is a humiliating $18.5mm per year. In 2025, when the US population has grown to 340mm, if you have a live entertainment product than can bring 5mm (1.4%) of those people to a TV set? Congratulations. It’s a crown jewel of the rights world worth $4 billion per year. (And yes, even with inflation that’s a huge jump. https://www.usinflationcalculator.com/ estimates that $18.5mm in 1981 is “only” $64.9mm in 2025.)
That paradox is key to the false narrative of the “unpopular NBA” propaganda.
Do you see? Do you see that the very thing we talked about that happened to the NBA in the early 1970s is what has happened to the world of TV entertainment? The network monopoly was broken first by cable and then again by YouTube and social. New entrants rushed in and created many more options for customers. Providers were forced to increase their payments to producers for their inputs. The pie got bigger but margins for the existing participants got smaller. Right now there is a very free market for independent video creators compared to what existed in the network-bound 1970s.
I won’t go so far to say that’s completely free but it’s pretty free. If you have a compelling video product you can put it directly on YouTube and get a rough 50/50 cut of the platform advertising money. And, like an athlete, you can still negotiate the ancillary endorsement revenue that comes with that level of exposure. Compare that to the barriers to entry to get in front of TV audiences in the 1970s. The top youtubers and twitch streamers earn as much or more than the top NBA players and the tail of earners is much longer than the tail of NBA jobs.
So what about the cap?
Was Stern a genius? An evil genius? Did he scalp the players? Did he save the NBA? Did it need saving? One piece of conventional wisdom that proves true is that there was a grand compromise at the heart of the cap agreement: Players agreed to salary limits in exchange for guaranteed share of a fixed percentage of the owners’ revenues. Both were things that had never happened in the sports labor battles: Demands for fixed revenue had recently been denied by NFL owners in the 1982 failed NFL strike. And of course no players union had submitted to a cap before. It was effectively cap and floor.
Was he a visionary? One thing that mildly surprised me about the book is how clear-eyed everyone was in 1982 about cable. The players were insistent that any coming cable revenues be included in the “basketball related revenues”, the owners were keen, Stern talked about cable, etc. In hindsight that shouldn’t have been so surprising. As we discussed, 1979 was the rough peak of network power and cable’s rise became increasingly clear.
(If you want to see a visionary at work, check out Ted Turner in the 1970s. He spent every dollar he had buying and creating video properties in anticipation of the coming cable bonanza before almost anyone else had an inkling.)
I think it’s safe to say that few if any actually saw the gusher of revenue that was about to become available to club owners. (Remember that 1984 is the turning point year that scholars have identified.) We highlighted the 50% that YouTube pays out, but Stern’s first cap CBA deal actually paid out 53% of basketball-related revenues and subsequent CBAs have stuck to a percentage split. If Stern had really seen the future he never would have agreed to fixed percentages. As Mendelsohn notes, Fleisher was open to a “hard cap” tied to a number, not a percentage. If Stern had been able to anchor caps to a number, (and gotten the hard cap at that) no matter how high it seemed in 1982 it is certain that would have paid out better for the owners.
But no matter. Stern’s genius if it exists is for “rationalization” with all the good and bad loaded in that term. The glorious chaos of the 1970s had produced new teams, new cities, new champions and yes, bigger TV deals. But the boom did produce the possibility of messy failures.
For all the owners poor-mouthing it seems indisputable that The Cleveland Cavaliers were in serious trouble. Their owner Ted Stepien truly was destroying their financial and talent position in a series of moves that looks like undiagnosed mental illness. (He repeatedly made racist remarks, he started an in-game polka dance team named after himself, he sued a radio host, he traded every draft pick for the next five years. At one point an audit found that they were spending more on advertising alone than their entire revenue.)
I am not convinced however that any more teams than the Cavs were in immediate danger. Maybe the Clippers, whose own idiot owner Donald Sterling was supposed to be kicked out then but lasted until 2013. On p. 236 Mendelsohn find a quote from the Sonics owner Sam Schulman saying 10 teams might fail. On the next page Sixers owner Howard Katz estimates two or three teams. This seems like the usual owner BS that we’ve heard in every one of these situations. Either way if the NBAPA position of “let them fail” seems callous, consider that in the previous decade between the NBA and ABA I count something like 20 major franchises that had either folded or moved cities. It was chaos, but it had produced more jobs and more competition as chaos so often does. The Cavs had only been a franchise for 12 years.
Stern saw the chaos and shuddered, preferring and ushering in the coming era of no team changes and steady surplus accruing to the owners instead of the fans. The genius and the madness is enclosed in this quote of Stern’s that Mendelsohn finds on p. 179: “We had to persuade the players, but it was actually persuading the owners… We had to preach to the players and the owners that it was good to have a competitive league.” The NBA in the 1970s was more competitive than it ever was before or since! Different teams won titles every year! The ensuing cap era was marked by major market dominance and small markets repeatedly getting their rugs pulled through means fair and foul! Stern’s propaganda is so complete that he probably believes it himself. For some people the oozy collusion of rationalized industry is what they truly think competition is.
But wasn’t this the only answer really?
I don’t think so. We can dream up better worlds. But this has already gone on long enough. We’ll save that for the next chapter because some amazingly timely news has recently hit from literal other worlds.
In the end of course the owners were quickly “persuaded” when Stern presents the cap deal to them. Though there was one singular exception that jumped out at me because of its echoes in the later Stern misadventures. You must read this extended quote Mendolsohn finds. (p.276)
The owners voted in favor of the agreement twenty-two to one, with the only dissent coming from Sam Schulman, owner of the Seattle Supersonics. Even [combative Spurs owner] Drossos voted for it. Schulman was furious at the deal and claimed he intended to file lawsuits to derail it, saying that Fleisher had “raped the league.” “The union made no concessions of any substance,” Schulman said. “When we go into negotiations we deal from weakness and fear and make concessions. This is a repeat of what has happened each time in collective bargaining. We are shutting our eyes to reality.” Schulman credited Fleisher, calling the agreement an “indisputable” victory for the players. … “The whole scenario was obvious to an 11-year-old.”
The Cap p. 276
Wow that’s some pretty strong stuff undercutting David Stern from the Seattle Supersonics. I wonder if he would file that away in his vindictive brain for twenty years?