Links: Dollars and Sense

by Lang Whitaker

Last week, when it was announced that Josh Childress was leaving the Atlanta Hawks to sign with Olimpiacos in Greece, many NBA fans were stunned. While the new world economy had hinted a move like this might happen one day, I think people were surprised that it happened so soon. So I spent some time on the phone today with Josh’s agents, Washington D.C.-based lawyers Lon Babby and Jim Tanner, to talk about Josh’s move, as well as the current state of the NBA economy and how the future looks.

SLAM: Hey Lon.

BABBY: Hey. And Jim Tanner is here as well. That’s in case you have any questions in Greek.

SLAM: Are you fluent?

TANNER: Not yet, not yet.

SLAM: I know you guys both came from a traditional law background. Did you ever think you’d be in this situation, out negotiating NBA contracts and running around the world?

BABBY: I’ve personally been involved in professional sports for 30 years. I’ve always been at Williams & Connolly, but the founder of the firm, Edward Bennett Williams, when I came here, he was the president of the Redskins and ultimately bought the Baltimore Orioles, and I was the general counsel of the Orioles. I worked on the management side for probably 15 years, and for the last 15 years I’ve been working on the player’s side. So it’s been a major part of my law practice for over 30 years. So, now I can kind of parachute into this situation. We represent about 35 professional athletes, men in baseball and basketball and women in the WNBA.

SLAM: Is it markedly different doing baseball contracts as opposed to NBA contracts, since NBA deals are all so structured under the current Collective Bargaining Agreement?

BABBY: They’re different because the rules are different. They each have their sets of rules which I would define kind of like a body of law that you have to master in order to understand what you can and can’t ask for. As a general proposition, there are fewer restrictions in Major League Baseball. If you can think of something and get the team to agree to it, with very minor exceptions, nothing can preclude you from doing it. They have certain rules about bonuses and things like that, whereas in basketball, everything you can think of is governed by the Collective Bargaining Agreement, and more often than not, whatever you think of you can’t do. So in that sense they’re different, but the fundamental process is the same, it’s just you need to know the content of the Collective Bargaining Agreement in both cases.

SLAM: I know I first heard about you, Lon, when players first started hiring you by the hour instead of hiring an agent and paying them a percentage.

BABBY: We still do it that way, almost all the time, with the exception of these European deals where the team is paying for it.

SLAM: Do you do it that way with baseball players also?

BABBY: Yeah, pretty much.

SLAM: What advantage is there to a player who hires you by the hour instead of hiring a traditional agent?

BABBY: You save a ton of money. The basketball players we’ve represented over the course of their careers — people like Grant Hill, Tim Duncan, Shane Battier, Ray Allen — they have literally saved millions of dollars.

SLAM: Is there anything you guys don’t provide that a more traditional agency that charges a percentage would provide?

BABBY: No, we do all the marketing, all the PR, all the day-to-day work. The only thing we don’t do, because I don’t think we’re qualified to do and because I think it’s a bad idea, is financial services. We don’t manage money, which in the current environment, I’m glad about. I wish somebody would manage my money! If I had any left! There are agencies that still do that. We’ve always told our guys that we thought it’s a dangerous idea, that you needed to have separation of powers, checks and balances, those kind of things. It makes sense to have somebody else looking over your money, and we’re not qualified to do it. With that exception, we do everything a traditional agent does, I think we just do it better and we do it for less money.

SLAM: Jim, about Josh Childress — had you guys considered Europe at all, or was that something that just kind of popped up from off the radar?

TANNER: We’d like to take credit for it, but Olympiacos contacted us. We got a call from the owner, and I think he was the one who identified Josh to the coaches and general manager, and I think the first reaction was they didn’t expect that Josh would leave the NBA to come to Europe. I guess they had certain guys targeted that they thought they might be able to persuade to come, and Josh wasn’t on that initial list. So they reached out to us, we had some conversations over the phone and then, after Josh did express some interest, we followed that up with a meeting in Las Vegas where we met with the general manager and one of the assistant coaches. We became more and more enamored with the idea of exploring it further.

SLAM: What kind of reaction did you guys have when you first heard that Olympiacos was interested?

BABBY: Our first reaction really was it came at a time when we were searching for what lever we could pull to gain some leverage. And I can’t take credit for the fact that we got the call, but I think we can take credit for seeing that it could change the dynamic of the process. We encouraged Josh to take a close look at it, which he did, which allowed us to explore it, and then it really kind of took on a life of its own. But our first reaction was, Why not? This is what the NBA has been touting for 15 years, that there was going to be a globalization of the game. I said it publicly, but I said it privately right from the start: Why can’t the road travel in both directions? I think after some initial skepticism — from all of us, including Josh — we decided we owed it to ourselves, we owed it to Josh, to take a close look at it, do our due diligence, and that’s what we did. It kind of took on a life of its own at that point and became more and more appealing to Josh. When he and Jim went over there, he made the decision to sign.

SLAM: You guys obviously know Josh very well, and I know him pretty well, but don’t you think it was almost a situation that was uniquely suited for Josh, just because he’s such a well-rounded kid, as opposed to a lot of the younger players coming into the NBA right now who might not be able to adjust as easily?

TANNER: I would say I absolutely agree with that. Josh, after every season over the last four years, has taken a trip with his friends abroad, and he’s also participated in the NBA programs like Basketball Without Borders. So he already had a very global perspective on things that are I think is somewhat unique for someone in the NBA or someone of his age. I think he was ideally suited to take advantage of this opportunity.

BABBY: Plus he’s a Stanford guy, so he’s been exposed to a diversity of culture and diversity of opinion through that great university. He’s a smart guy, he’s intellectually curious, all those things. I wouldn’t use the word “unique” because that implies that he’s the only one. I think it would be appealing to any number of NBA players — and some of them are our clients — to at least explore that. But that’s not going to be everybody, that’s for sure. And that’s part of our job as his representatives to make sure he understood exactly what was going to happen and what it was going to be like. But he is certainly someone who has the right sophistication and cultural curiosity and independence to be able to accept the challenge of moving over there.

SLAM: Lon, on the conference call that day to announce it, you mentioned — and this has been quoted a lot since then and you just said it again a second ago — but you said globalization can go “both ways.” I’ll play devil’s advocate here: Can it really go both ways? I know the Dollar’s in the tank versus the Euro, but are the leagues in Europe really as good as the NBA, or will they be, from a talent perspective? Is the competition as good?

BABBY: No, of course not, nobody would claim that. But what I am saying is that I think there are certain circumstances where you can consider it, and I think as it becomes…or IF it becomes more and more common, then the flow of talent in both directions is eventually going to bring it to some kind of parity. And what I really meant to say is that I think at the end of the day — and I can’t tell you when that day is — there is likely to be, as David Stern has talked about many times — and I don’t think that day is imminent — there is likely to be a European division to the NBA. And I suppose if that ever were to happen, however many years into the future that is, it’s quite possible that Josh Childress signing to go to Europe was an important step in that happening, because it at least exposes the possibility that players will look to Europe as an alternative to the NBA in certain circumstances, and the more common that becomes, the more likely it is that it’s all going to be one enterprise one day. I’m not suggesting that’s happening anytime soon, but I know David has talked about that and it seems to me logical that this would be a step in that process.

Going way back in my youth and my experience, look at the separation between the American Football League and the National Football League. There was no question that the National Football League was more talented, but eventually enough players went to the AFL that it became almost parity, and then when the Jets beat the Colts in the Superbowl, everybody said, Wow! I expect and hope we’ll be successful this time, but there’s already been enough bumps in the road (for the USA Men’s Senior National Basketball team) that you have to respect these other players. But that’s not to say that today playing for Olympiacos is going to be as challenging — it may be challenging, but it won’t be the same level of basketball as playing in the NBA. And Josh understands that, and anybody who would suggest otherwise I think is deluding themselves.

SLAM: Did the Josh deal happen in a way because he’s not a superstar? Is that the next step, a superstar going over there? Or is it jus that right now those teams in Europe are just better suited to picking off mid-level guys?

BABBY: That’s a good question. I think the answer probably is a function of leverage and negotiations. If you’re a superstar in the NBA, you’re less impacted by the restrictions of restricted free agency. You see Deron Williams with Utah or Okafor in Charlotte, it’s taking time, but they are singing contracts or extensions because the teams are willing to step up, even though there is no real market pressure to do so. There is the threat of the qualifying offer, but that’s a risky move for any player. So I would say the better the player, seemingly the more leverage that player has, and therefore the less burdened they are by the restrictions of restricted free agency. So it’s most logical for the mid-level player or the above mid-level player — not the superstar and not the guy below who is able to get an offer sheet and force a team to match. If you look at the history of this, most offer sheets are for a player at or below a mid-level contract, whether it’s Turiaf or Azubuike. We did one a few years ago with Andre Miller and the Clippers and were able to do this enormous signing bonus which made it virtually impossible for the Clippers to match. Most times restricted free agency only works for a lower-level guy and the most vulnerable players are the ones in the middle or slightly above the middle, which is where we put Josh.

TANNER: I think it’s most likely that the middle-level players would be targets for European teams, but I think also the fact that when Olympiacos first contracted us said they weren’t sure Josh would be willing to come overseas, I think it only takes one to start the momentum, so that European teams see that they can get a quality NBA player and NBA players see that that’s a viable option. So I would say Josh taking the first step, you never know where it’s going to end up in terms of whether stars or other great players go over to Europe.

BABBY: But if it’s a player that a team is willing to pay the max for, you’re not likely to get more than that overseas. So it’s going to have to be someone who’s fighting to get more money than they think they can get in the United States.

SLAM: You’ve talked about this a little, but do you think this could spur any change in free agency rules in the next Collective Bargaining Agreement?

BABBY: I know both sides will want to discuss restricted free agency, and it’ll be a subject of collective bargaining. Whether the Josh Childress signing, in and of itself, causes enough of an impact on the market remains to be seen. But I know it’ll certainly be a subject of bargaining because the player’s side is unhappy with it and therefore it’ll be a topic of discussion, and I’m sure the threat of a player going overseas like Josh did and some other non-American NBA players are doing is something the NBA will have to take stock of and analyze and see how they want to respond to it.

SLAM: Do you think this movement that we’re seeing now — even the non-American players like Krstic and Nachbar — does it have to do with the economy in the States versus the European economy?

BABBY: Oh yeah. Jim might know more about this than I do, but the strength of the Euro gives these teams resources that allows them to compete. The exchange rate is such that for every Euro they spend they’re getting one-and-a-half times that in Dollars. And these deals are being done in Dollars for the most part. But even if they’re done in Euros, they’re more valuable to the player, so for sure that’s having an impact.

SLAM: Jim, I remember on the conference call you mentioned that Josh’s contract is in Dollars, not Euros. How does that work for someone who’s a financial neophyte here.

TANNER: His contract is in Dollars and that’s just one element of the negotiation, and that’s where we ended up in terms of how the compensation would be paid.

BABBY: And it gives Josh a frame of reference, too. We know what the Dollar means here. If you were to do it in Euros then you’re asking the player to kind of do his due diligence on the exchange rate, and if he stays the full three years you don’t know what the exchange rate will look like. There are enough things to complicate the deal for Josh Childress that he didn’t also have to then become an economics major to figure out the exchange rate between the Euro and the Dollar.

SLAM: One thing we’ve talked a lot about is contracts in Europe being tax-free, or the team pays the tax. How does that work?

TANNER: The way it works is that the team pays the tax in that jurisdiction, and then at the end of the year they issue a certificate to the player that he can then apply against US taxes. Depending on where he’s playing overseas, that would dictate how much tax is paid on his behalf, and then depending on where his state of residence is in the US, that dictates how much of an offset that overseas tax would make against his US taxes. A player is still responsible for his domestic taxes, both federal and state, but he gets to offset those taxes against what’s been paid for him overseas.

BABBY: When you look at the number, you’ve got to remember the number is net. It’s not net of all taxes but it’s net of Greek taxes, which is significant benefit to the player.

SLAM: How many hours does it usually take you guys to negotiate a deal or check out a contract?

BABBY: Oh, it depends. And it’s not just the time that goes into negotiating, it’s the whole process of Josh leading up to that, from the time he was drafted forward, we’re doing work. People always say, Why doesn’t it take a certain number of hours? It’s much more than that, but I can tell you that at the end of the day, virtually without exception, the player is saving money. And we cap it at a certain percentage, which you have to do under union rules anyway. So they can never pay more than they would otherwise pay, and they almost always end up paying less.

SLAM: OK, Hey, do you guys know any good lawyer jokes?

BABBY: (laughs) If I did I wouldn’t end up telling you, I can tell you that. What else can we tell you, anything? What’s your impression of the reaction to this in the marketplace?

SLAM: I think it’s been very interesting. As a Hawks fan, and I wrote this last week, I can understand why Josh would not take the deal, and I can also understand why the Hawks wouldn’t match that deal.

BABBY: Nobody ever asked them to match it, by the way. That’s kind of a misnomer that I guess they suggested, that I insisted that they match. We never asked them that.

SLAM: Well, I think that may have come about, even wrongly, because on the conference call talking about the deal, Josh said, They told us to go get a deal and bring it back to them.

BABBY: Yeah, well, they were talking about an NBA deal. They weren’t talking about this deal, and we never once said, We want you to do what they’re doing in Greece. Not once. And that was never suggested because they’re different markets and different circumstances.

SLAM: Even as a Hawks fan, if Josh comes to the Hawks and says I got a three-year deal for $20 million, tax-free or whatever, I don’t think it makes sense for the Hawks to invest that much money in a guy who is basically going to be your sixth man, and then be tied to that deal for the next three years. So I think I understand it from everyone’s point of view. But it looks terrible for Atlanta Spirit, because now you have Josh Smith floating around out there, and I think Hawks fans are kind of panicking, to be honest with you, at least if you go by the emails I’m getting.

BABBY: I think the only thing that can be questioned in this whole process is how did it come to this point? What I am fond of saying is that these negotiations are as much about poetry and atmospherics are they are about dollars and sense. And somehow that wasn’t controlled, maybe by either side. But for it to get to a point where a player of Josh Childress’ magnitude is prepared to consider taking a very unusual step, something went wrong in the process, whether it was our fault or their fault. I think our view of it is they made it clear to him throughout the course of his career there that he was very important to the team and he was a pillar of the franchise, but yet from Josh’s perspective, the pace of the negotiations did not reflect that. That’s where I say the poetry was off. The Hawks I’m sure would have a very different point of view about that. But the idea that this thing was allowed to get to the point where it had a life of its own really is some kind of flaw in the process.

Now, Josh isn’t the only one. You look at Josh Smith, you look at Okafor and how long that took until today. You look at Deng and Gordon, Iguodala, a lot of these players are in the same boat. We were just lucky enough to find an alternative that we think kind of changed the dynamic a little. And we’re curious as to whether it will change the dynamic when he comes back. But in the meantime it beats playing for the qualifier.

SLAM: But let’s say Josh agreed to a deal with Atlanta early on and then Olympiacos had called. Would Josh be happy being locked into a deal in Atlanta or wouldn’t he want the most money he could possibly make?

BABBY: One of the things we do with every client is we give them a list of factors, and we ask them to prioritize them and not be embarrassed that number one might be compensation. Some people put that at the top, other people put other things on the top. So I think it depends very much on the individual. I think in order to get Josh to go to Greece, Olympiacos knew they had to pay a premium and they were prepared to do that. I don’t mean to suggest and I think it’s wrong to suggest that Josh was purely and simply motivated by maximizing his dollars. Not that there’s anything wrong with that.

SLAM: So there was a good chance that had everything gone smoothly from the start of the free agency period, there was a good chance that Josh could’ve stayed in Atlanta or at least the NBA.

BABBY: I would say that’s true. But we would’ve never known because the Greek thing would’ve taken off.

TANNER: I think on day one of free agency, everyone’s expectations were that Josh would end up back in Atlanta.

BABBY: And what Atlanta did was they stood on their rights, and I don’t fault them for that. They said, We’re going to make an offer, and you go out with it and try to get someone to match it, and if it’s not enough, prove to us that the market is wrong. Ultimately we did that, but it took such a long time that lightning struck. And I think they didn’t see the storm clouds on the horizon until the lightning struck.

SLAM: Well, I appreciate the time guys.

BABBY: No problem.

SLAM: And thanks for explaining all this — a lot of this stuff is Greek to me.

BABBY: Ha! You’ve been waiting all day to use that, haven’t you?

SLAM: No comment.