Case Study Analysis Part A (“Power Play for Howard”)

James Carruthers, Matthew Chouinard, Amber Hawes, Mike Knowlton, and Shellie Mapes

MGT/445

March 21, 2011

Dr. Michael Charter

Case Study Analysis Part A (“A Power Play For Howard”) Every year, hundreds of millions of U.S. dollars are verbally tossed back and forth during negotiation talks between teams and players. The contract of a player expires and the player may be traded for another player, or essentially bought by another team. The value of a player greatly depends on (a) his playing power and (b) his fan base. In the case of Juwan Howard, a player for the Washington Bullets/Wizards, both his playing power and fan base made him a wanted player by many teams when his contract with Washington expired in 1996. Negotiations became heated, particularly between Miami and Washington, until a miscalculation in the negotiation terms resulted in Howard signing with Washington for another term.
Case Summary Juwan Howard was a professional basketball player in the National Basketball Association (NBA) and was looking to renegotiate his contract with his then-current team, the Washington Bullets. This would give Washington the first chance to make an offer. He had the option to renegotiate after 2 years and decided to do so. Washington's new general manager, Wes Unseld, made an original offer of 78.4 million dollars. This was not satisfactory as the open market had determined his worth much higher and many teams joined in on the bidding. The Miami Heat and Washington Bullets (among other teams) started bidding. Miami eventually outbid the others, making an offer worth over 100 million dollars. Howard accepted the contract and it appeared that he was to be a member of the Miami Heat. Problems arose when the NBA was informed by Alonzo Mourning (another player with the Miami Heat) that he too had been signed to a 100 million dollar contract. This is important because the Heat had not informed the NBA of this proceeding and also because the signings of both Howard and Mourning to those contract would far exceed the NBA's agreed upon salary cap. There were also other discrepancies, such as "unlikely bonuses" which were deemed likely by the NBA forcing them to add those numbers to their salary cap, which they did not do. Other rule violations were made by the Miami Heat as well that invalidated Howard’s contract. The Miami Heat's owner, as well as the president of the team Pat Riley, was upset with the move and both the NBA and the players union brought in arbitrators jointly. If the Heat were to be found liable, the league could void Mourning's contract, fine the club 5 million, suspend Riley for a year, lose draft picks and still not end up with Howard. Washington could resign Howard only if the NBA restored their “Larry Bird rights.” The provision, which was named after the former Boston Celtics star, allowed teams to exceed the salary cap in order to re-sign their own players. The Washington Bullets and Unseld lost their “Larry Bird rights” to Howard when they renounced his contract. But if those rights were renewed, the Bullets amount that they could spend on Howard would be limitless. Howard was declared a free agent. That was challenged by the Heat, but days later the Bullets' "Larry Bird rights" were restored and Juwan Howard was signed by the Washington Bullets.
Benefits

This was about to be one of the biggest moments of Juwan Howard’s professional basketball life. Howard’s agent, David Falk, was entertaining new offers from other clubs to secure a new, long-term contract for Howard. With several teams interested in bidding in his services, his availability created a bidding war - just the situation that Falk wanted in order to obtain the best deal for his client. Although Howard received interest from a number of teams, the Miami Heat and his own Washington team showed the greatest interest.

This bidding situation benefited Howard, as both teams had to outdo each other to land the contract. With Howard and Falk receiving multiple offers, they could establish higher goals, make fewer concessions, and be more selective with new offers. The ability to compare competitive offers will also give Falk an indication of how aggressive each team will be as Howard gets close to a final decision. This was defined as having the Best Alternative to a Negotiated Agreement, or BATNA (Lewicki, Saunders, & Barry, 2006). Identifying the best alternative to a potential agreement strengthened Falk’s ability to secure the best possible contract terms for Howard.

The Washington team used all their available resources to convince Howard to remain in Washington. Their initial offer did not impress Howard, as Falk had assessed Howard’s market value to be much higher than this offer. Washington attempted to leverage their current relationship, showing how adding other free agents would improve the team’s performance (Lewicki, Saunders, & Barry, 2007). By appealing to Howard’s sense of responsibility to his current team and community, Washington was asking Howard to consider the intangible benefits that only their team had to offer, hoping that money was not the only determining factor in Howard’s ultimate decision. This was an example of selective presentation, in which the negotiator presents only information that supports their case and differentiates them from others (Lewicki, Saunders, & Barry, 2006).

The Miami Heat established themselves as the aggressor among the teams vying for Howard. With Pat Riley, a four-time championship winner as their general manager, they could assemble an attractive offer that could appeal to Howard as both a player and an individual. As a team that was a perennial playoff participant, the Heat tried to show Howard that Miami was a place where Howard could achieve both his personal and professional goals. With Miami offering the most money and having a winning organization, Riley could be confident that they had the most to offer Howard when compared to any of the other teams. The Heat also showed willingness to accommodate any additional requests made by Howard, and those concessions could help eliminate other competitors in the race (Lewicki, Saunders, & Barry, 2007).

Costs

The precedence of NBA negotiations became heightened for the leagues top players in 1996 with many subsequent charges assumed beyond contractual agreement. Negotiating for players became much more expensive with the competition of a few key players. The case of Juan Howard, the Miami Heat, and Washington Bullets was one of the largest and most expensive negotiations as of 1996 (Lewicki, Barry, Saunders, 2007, p.616).

Juwan Howard was coming off of an initial contract with the Washington Bullets as a free agent after two years. The existing contract in Washington was for $37.5 million per seven-year contract and a free agent status after two years completion. Because Howard had proven his abilities both on and off the court, the Washington Bullets had some renegotiating to do or else lose their star player. The Miami Heat general manager had pulled out all the stops to negotiate for Howard. Howard experienced the plush luxuries intriguing the star player to feel at home in Miami. The costs between the general managers of Miami and Washington were not apparent but both teams spared no expense with attracting the attention of the star.

The legal expenses of gaining Howard on the Miami Heat were found to be more costly than anticipated. The Miami Heat exhausted compensation above the collective bargain agreement with the union and team owners’ agreements thus nullifying the Howard contract (Lewicki, Barry, Saunders, 2007, p.621). The legal expenses were not stated in the article but could be estimated at elevated levels due to the public status of the situation.

Howard ultimately received a resigning contract with the Washington Bullets worth $105 million excluding perks for a period of seven years. The costs for such contracts relevant to a team’s bottom line are expensive, but the rationales for such expenses are anticipated to generate new and larger revenues for the teams profit. Even though the negotiation was not intended to be so costly on the intent of Howard, the end result of renegotiating his existing contract proved to be a large raise exceeding expectations.

Risks

As with any negotiation, there are risks for all parties because each side wants what is best for himself and is not always willing to compromise. In the case of Juwan Howard, he had become eligible to be a free agent and wanted to continue playing basketball for the Washington Bullets. When he entered negotiations he was only concerned about what he would receive and had some high demands. He wanted a $100 million contract to stay in Washington and some perks such as a hotel suite and a limousine for transportation (Lewicki, Saunders, & Barry, 2007). The biggest risk Howard faces is not obtaining the contract with the Bullets that he wants and unfortunately that happens; however another team, the Miami Heat were also interested in him and take the steps to procure him by meeting all of his his demands (Lewicki, Saunders, & Barry, 2007). If another team had not been interested in him, Howard could have been out of a job or forced to settle for less money than he wanted.

The Bullets team managers had to assess the needs of the team and decide what would be beneficial to the entire team and not just one person. Because Juwan Howard was such a fan favorite, if the team’s management does not retain him the team could lose money because Howard’s fans may follow him to the new team. It had appeared that by not meeting Howard’s demands the Bullets had lost a popular player, however because the contract with the Heat came under scrutiny by the league and going to arbitration, Howard was able to return to the Bullets (Lewicki, Saunders, & Barry, 2007). Under new negotiations, the Bullets gave Howard the money he was demanding but thought it better to treat him the same as the other players in regard to the hotel suite and the limousine, the team’s management believed it better to not treat him better (Lewicki, Saunders, & Barry, 2007).

Conclusion The negotiation case study of Juwan Howard and the Miami Heat v. Washington Bullets/Wizards illustrated a number of important factors required in a successful negotiation. First, the need to outline the goals for the parties involved. Howard wanted to be paid what he and his agent felt he was worth; the teams involved wanted to supply their fan base, club, and team with a star player while limiting costs. Second, the importance of research prior to entering negotiations is addressed. Had the Miami Heat realized outright that it offered Howard an invalid contract term, time and money would not have been wasted on lawyers, negotiations, and communications. Thirdly, the weight of the risks, costs, and benefits is addressed for all parties involved. Each team had to consider what would be risked, the costs (in money and benefits), and the benefits should Howard sign or not sign; Howard had to determine his own risks, costs, and benefits per the teams’ offers. Ultimately, Howard was essentially forced to settle and sign a contract with his original team because research was not properly conducted by one of the vying teams.

References
Lewicki, R., Saunders, D., & Barry, B., (2006). Negotiation (5th ed.). New York, NY: McGraw Hill.

Lewicki, R., Saunders, D., & Barry, B., (2007). Negotiation: Readings, Exercises, and Cases (5th ed.). New York, NY: McGraw Hill.