When entering a business negotiation you must be prepared. This is an introductory business negotiation case study that focuses on Juwan Howard and is based on publicly available information. This case study discusses the benefits, both tangible and intangible, and costs as they appear to relate to each party. As stated in the conclusion, some of this is speculation since I was not privy to anything but public information.
Juwan Howard, a star forward for the Washington Capitals basketball team, was in the second year of an eleven year contract. Howard was now able to claim free agency, thanks in part to the previous General Managers allowing an option at the end of year two. This option clause, ostensibly to allow Howard to prove his worth as the fifth player chosen, was a gamble on the Capitals side that did not pay off. Howard ended up becoming a superstar, worth well more than the $3.5 million that Howard was originally paid. Now, as a bona fide superstar, Howard was demanding $100 million. This would make Howard the first player in NBA history that earned more than $100 million over the term of a contract, which was limited to seven years by arbitration agreements.
The road to $100 million dollars is not direct though, and there were several key players in the negotiation. Howard and his agent, David Falk, were aiming for the best deal possible. Capitals General Manager Wes Unsfeld did not want to lose his star player, especially in light of his team not having made the playoffs for eight years. The only serious competitor vying for Howard was Pat Riley of the Miami Heat, a team with many stars and a winning club. Even though the principals need to work with each other in the future, there were some elements of distributive bargaining along with the expected integrative bargaining.
Howard loves living in Washington, and in fact had put down some roots there. Howard also had adoring fans who loved him in Washington. He was the big fish in Washington athletics, and could always count on good press and the ability to get his other, non-basketball, projects positive public relations. In Miami, however would have to share the spotlight with other big names like Mourning and, since he had not proven himself there yet, might be setup by the press for any failings of the Heat. This is what happened with the Kobe Bryant and Shaquille O’Neil pairing in Los Angeles.
One of the intangible benefits that Pat Riley could receive was having a “dream” team again. When Riley coached the Los Angeles Lakers, he continued in the tradition of earlier Lakers dynasties. With several very high-profile players, Riley and the Heat could expect to garner much publicity. It would also increase his respect in the basketball world making him a giant amongst big guys!
Unseld needed a superstar on his team, and without Howard the prospects of finding one did not appear that strong. Unseld also needed to make his offer appear fair without compromising the clubs financial future and not make it so low that there would be negative publicity.
For Juwan Howard the major tangible benefit is that Miami is paying a lot more money. Miami is also offering many perks such as a limousine and luxury suites when on the road.
Riley knew that there was some exposure to the leagues salary cap, but believed that the a strict interpretation of the collective bargaining agreement would leave the Heat under the cap. This would allow Riley to spend all the money that could be allocated to salaries, a large expense. The upside to the spent money, if the team could perform, was more revenue from ticket sales, sponsorships, and other merchandise.
Unseld needed a superstar to promote a lackluster basketball team. Without Howard it would be harder to recruit other superstars to play on the team. With Howard, fans would continue to support the team, if not the coaches, and if a second star player could come on board, Rod Strickland was mentioned, the team could become contenders. With more revenue, better players, up to the salary cap, could be brought in and gross reciepts would increase.
Time was of the essence for all the negotiators, but especially for the two teams. Howard could wait and appear to not care if he missed out on some of the season. Riley on the other hand, had to have a deal signed with Howard in order to finish contracts with other players on the team. The Heat had to know what money was left to avoid the salary cap, but could not know that until the Howard contract was signed. Riley only made one main offer which was very high signalling that he wanted this negotiated quickly. Unseld was less constrained by time, but still needed an answer so he could find another player if he needed to.
The primary risk to Howard was image. Even though he was pretty much the one with power in this negotiation, if he did not meet or exceed expectations he could be traded. A clause in his contract needs to specify that being traded does not nullify the existing contract, and most sports contracts also include an injury clause. If Howard received a career ending injury what would be the fair thing expect the team to provide. Certainly the team should not have to pay his complete contract, but some compensation is certainly justified. Howard could also hurt his chances in future re-negotiations if he attacked this negotiation strictly from a distributive bargaining viewpoint. Sometimes the other side needs to win something, especially when the parties will be negotiating in the future.
If the new team, with Juwan Howard, did not perform as expected, fans and the press could be brutal. If fan support started to wane, ticket sales and other merchandise sales could decline and that would leave less money in the future to replace and trade other players. If there was a personality conflict, especially egos colliding, the negative publicity could force the Heat to shop one of the superstars to another club, this could be at a loss since the contract needs to be fulfilled no matter who ended up with the player.
Unseld had two major risks, one if Howard accepted the contract, and another if Howard left. If Howard stayed in Washington with the final contract offered, Howard could later feel cheated, especially if in the near term another superstar player gets a contract worth more than what Howard agreed to. If Howard ends up in Miami, the local press could put pressure on Unseld and the team owner for not coming up with a better offer. This could be especially brutal if Washington repeated their lackluster seasons and Howard goes on to help Miami win big.
Not being privy to the minds of all those involved, I am drawing some of my own conclusions. The Miami Heat, and especially Pat Riley seemed to know what they wanted and were willing to pay the absolute maximum they could. It ended up that they did not take into account the players union and the league nullifying their contract. Riley also appeared to be much more of a win-lose negotiator, while Unseld was more interested in both Howard and Washington winning, both on and off the court.