The NBA Lockout - What Am I Missing?

The Game Room
1

So, as most even casual sports fans know, the NBA is currently in the midst of a protracted lockout that seems likely to wipe out a substantial portion of the season - or, very possibly, the entire thing. I want to say right off the bat that I don’t “side,” in any meaningful sense, with either the owners or the players. I think it’s kind of crazy to assign ethical or moral value to business decisions between individual parties: I think both sides are right to act in their own respective rational self-interest. I don’t particularly care whether the players seem “overpaid;” if they feel a deal other than the one on the table is in their best interest, they should not take the current deal. I also don’t care if the owners are losing money, as they claim, or making money; if the owners want to generate more profit from their investment and feel they can get it, they should try to do so. Nobody’s right, nobody’s wrong, nobody’s committing a war crime.

However, I am having a very difficult time understanding the players’ stance in light of their own self-interest.

Consider.

The biggest sticking point in negotiations at this point is percentage split of basketball related income (BRI). For those not closely following, essentially the owners guarantee that the players, through salary, will receive a given percentage of the BRI. Last year, the total BRI was around 4.6 billion dollars. This will be important later.

The players wish to receive 53% of the BRI; the owners wish to give the players 50%. The players have rejected 50% absolutely. They appear willing to not play the 2011-2012 season at all, if necessary, rather than accept 50% of the BRI.

Let’s imagine two hypothetical 10-year contracts: one in which the players get 50% of BRI and one in which they get 53%. For the purposes of this exercise, I’m assuming that total revenues will consistently increase by 3% every year during the life of these contracts. Over the life of these two contracts, the total income for the players would be about 28 billion for the 53% share, and about 26.3 billion for the 50% share. So over 10 years, the difference between what the players want and what the owners have offered is $1.7 billion.

A 50% of an imagined 4.6 billion in 2011-2012 would be $2.3 billion. If the coming season is cancelled, this 2.3 billion will not be paid to the players. Ever.

As far as I can tell, this suggests to me that the players will not recoup the costs of a lost season even if they get exactly the contract they are requesting. Right?

Scenario 1: The players sign today, at 50% and play the season. Players get 2.3B for 2011-2012 and a total of 26.3B for the ten years that they do play (total of 28.6B, ending in 2022).

Scenario 2: The players miss 2011-2012 and sign for 53% later. Players get 0 for 2011-2012 and a total of 28B for the ten years that they do play (total of 28B, ending in 2023).

So in Scenario 2, the players get $600M less and it takes them an extra year to get there.

And this doesn’t even take into account exacerbating factors, like the fact that $2.3 billion right now would grow in value over 10 years, or the fact that if the 2011-2012 season is cancelled revenues may not continue to increase steadily.

So in light of this - and again, saying nothing about morality or ethics or anything silly like that - why don’t the NBA players take a deal at 50% and get on the court for 2011-2012? If the season is cancelled, they are guaranteed to make less money total.

2

Part of it is the agents have the players ears. And the percentages do work out better for them because their career can be 30-40 years, and if they give up the 3% now they will lose in the long run.

3

Yeah, it only makes sense if you do the math for the agents career or maybe the superstars who play for over a decade at least. For the average player with an average three year career and no international teams knocking on their door any deal will be better than losing games.

4

Doesn’t the math work out more or less the same way for the owners? That is, won’t they also lose about the same amount by losing the season as giving in on the 53%?

5

Exactly.

But the OP is missing the fact that the NBA is a star driven league, and most of the stars can make a decent income playing overseas in the absence of an NBA season. For people like Kobe Bryant, the choice is between playing 82 games for around $25 million, or playing in 1 in Italy for about 2 million. I am sure he could play elsewhere for plenty of money as well. Either way, it is likely a sizable pay cut, but that doesn’t take into account that he has a lot of more free time, far less wear on his body, and about $28 million/year in other income. He is likely not hurting for money, nor are most of the superstars that really drive league revenue. In fact, some of them are planning to stage their own international tour which could net the $1 million per game each.

6

Owners would lose a significant sum in a lockout, but there’s a couple factors to consider–first, these guys are really, really rich, and their NBA team is probably not a significant source of profit to them (if at all). Owners can more easily afford to lose a season’s worth of income.

Second, many teams are losing money anyway, so the difference between playing a full season and playing no season is not as significant as you might think.

7

Sure they are. That is why they open their books so freely.
Most owners overpay for the team out of vanity. they generally pay 25 percent over the assessed value. That is their problem. Why should the players deal with that?

8

I’m sure this will irritate a few people out there, but I really don’t hear a groundswell of public anger over the basketball strike.

Does the average american care?

Basketball just doesn’t seem to create the buzz it once did. I know there are die hard basketball fans, but there are also diehard hockey fans (I’m one of them) and this lockout reminds me of the season the NHL lost. It’s almost as if everyone sees the season ending as a foregone conclusion.

Anyone else feel the same way, or is there a large roar out there that I just don’t hear? I imagine in cities with no NFL and/or NHL there might be, but outside of that, I don’t get a sense that the NBA is missed all that much. When the NHL was gone for a year, I found other things to do. My life wasn’t impacted negatively by the strike. I have a feeling NBA fans are finding the same thing.

9

If that were true, they wouldn’t be fighting over the 3% difference in revenue.

10

No–most owners expect to either be holding onto their team for much longer than the length of a typical NBA career, or else to be able to sell the team to some other sucker based on an expectation of future revenues. Also, the owners are looking at net income from their side–that 3% difference could push the team into the red. Player’s salaries are always a profit to them–they make what they make. But an owner can conceivably lose less money by not operating for a season than by playing the season under an unfavorable CBA. And again, when they’re trying to sell the team a few years down the road, they have an explanation for the losses that year: “Oh, we had to lock the players out to get a decent union contract. But we got one, and profits have been substantial ever since! This franchise is totally worth ten bazillion dollars–just sign on the dotted line!”

11

Well if they’re going to bother with losing money, and they perceive that they can break the players union if the lockout becomes protracted, why not go for the gusto? Their goal is profitability. They’re not fucking around with “if the economy ticks up, they will be profitable, otherwise who knows.” They want profit certainty, and they’re willing to go to the mattresses to get it.

Quick question, are you going to pop into every lockout thread and keep saying the same falsehoods about the owners not opening their books? Because if you are, I’ll quit correcting you on it.

The owners have opened their books to the players’ union. They have not opened them to the general public. Why should they?

Also, using GAAP, many of the teams in the NBA are losing money. This does not include the cost of purchasing the team. It does include other accounting “tricks” that are widely used but debatable in terms of profit/loss. But just based on team revenues and expenses, many are in the red.

12

Maybe, but there are plenty of credible, non-biased sources that disagree with those conclusions in part or as a whole. Even if some teams are losing money, so long as the league itself is profitable, there are many solutions to that problem that have been successfully implemented in other leagues. In response to that problem, baseball has implemented enhanced revenue sharing, and has been successful to a large extent because of that. The problem is the owners won’t even discuss those issues until the NBAPA agrees to a 50-50 revenue split. That seems a little disingenuous if you assume the owners want to be profitable rather than just break the union.

The other issue with these claims of poverty is that accounting tricks, mismanagement, and fiscal profligacy can all lead to being in the red as well. The players have little control of over those things. Additionally, just looking at static balance sheet is a bad way to evaluate a business. Even if they lose money, the business can almost always be sold for more than one has paid for it.

If the owners are really telling the truth, than I would offer any owner claiming to lose money the following proposition: Publicly offer to sell the team for what you paid for it. I guarantee they would have plenty of offers.

13

Both sides look terrible in this, and both seem willing to die on that 50-50 hill. That’s money the players will never recoup, and the owners are frittering away the follow-up to one of the best NBA seasons ever.

I won’t dog the player’s union too bad, because a 50-50 split with a hard cap will lead to steep salary declines for the “middle class” players of the league, and the union has to represent their interests too. But it’s not like the owners will stop overpaying for journeyman players (by rationalizing to themselves that they’re signing a star), they’ll just be restrained from doing it too often. So if the rest of the owners’ proposed reforms make sense and are necessary for the long term health of the league, why fight tooth and nail over a 3% split just to lose more than that in a lockout?

14

The Toronto Star ran this story on Saturday. They talked with former NHLer Bill Guerin about the labour stoppage. Guerin was a big union guy when the NHL lost the 2004-05 season. He now realizes that it was stupid to lose an entire season, especially when players will never be able to make that money back. And when the average salary in the NBA is something over $5 million, it isn’t chump change.

15

Yup - and the owners are figuring that sooner or late, the union will splinter because of this tension, allowing the owners to negotiate something more favorable to them. They can wait longer than the players can.

16

And the “red ink” hasn’t seemed to have much of an impact on the union’s stance.

17

The problem is that you can say the same thing every lockout. It would be a nearly unending decline.

18

I basically tried to rationalize it this way: “It’s like two parents who are talking about getting a divorce, but both are too greedy and stubborn and stupid to work out the bumps in their marriage for the sake of their children.”

19

Especially since the NBA has to be paid its TV rights fees.

http://aol.sportingnews.com/nba/feed/2010-10/nba-labor/story/tv-dollars-give-nba-owners-advantage-over-players-during-lockout

20

http://www.cbssports.com/nba/story/15317168/nba-losses-justify-player-pay-cuts-open-the-books-and-show-us
I wish you were correct when you post like you know what you are talking about.