NBA Lockout: CBA thoughts and theories

I’ve had a hard time writing about the NBA labor dispute because you can only use “slam dunk” as a bad metaphor, and because there’s a low slung layer of ignorance that clouds any judgment. The NBA owners say 43% of Basketball Related Income isn’t enough. But we don’t know exactly what they’re using that money for, so it’s impossible to pass definitive judgment.

Still, there are some things we’ve learned. Here are some ideas, theories and notes that have caught my mind’s eye in the last couple weeks:

Optimistic

The undercurrent of Ethan Sherwood Strauss’s piece on the drag that the NBA’s current TV deal places on league-wide revenue is that David Stern and the NBA blew it by signing an 8 year deal.

When any business signs a deal that long, the idea is to “lock in a rate.” The buyer hedges that the product will continue to have value, thus yielding greater returns at the end through inflation ($930mil in 2007 will not be worth $930mil in 2015), appreciation of going advertisement rates and perhaps an improved, genuinely more valuable product. Meanwhile, the seller, in this case the NBA, bets that by securing an eight year deal, it will earn more money than if it signed a briefer, cheaper deal but looked to capitalize on the spec growth of the league down the road.

The NBA had a choice: take $7.4bil over eight years in hand, or sign a four year $3.2 Bil contract and hope the league is worth $5bil over 4 years when that first contract is up. Ad Week estimates the league provides $1.25bil in advertising value to the networks so that scenario isn’t at all outside the realm of possibility.

That is, when we read into the length and size of the contract, we can see that Stern and the NBA did not expect the league to grow in popularity and is leaving at least $300 (that figure sound familiar) on the table in each of the next four years.

In Limbo

What will the world look like in 2021?

In 2001, the burst tech bubble splattered globs of useless stock all over tech savvy iNvesters and people with sub-infantile understanding of why worthless companies were worth so much. Facebook didn’t exist. Youtube was unprotected, almost unmonitored. NBA TV was available only on TVs. LeBron James, then 23, was a sophomore in high school. John Hollinger, then known as Red Thunder, had lustrous locks of auburn hair cascading down to his shoulders. Points per game was the only statistic that mattered. I had never fired a single neural synapse over what it would be like to live in Oklahoma City. America never lost in International tournaments.

Consider all the ways how we do business, find entertainment, and think about basketball on the court and in the world economy have changed since 2001. Then keep in mind that there has never been an NBA CBA longer than six years.

Ray Kurzweil has convinced me that technology does not progress linearly, but exponentially. With this in mind, imagine how much evolution will take place between now and 2021 in terms of the accessibility and quality of the “remote” (TV and internet) NBA experience.

As the world becomes increasingly connected through the online community and TV continues to integrate with the online world, will there be major opportunities to earn significant revenue through international viewership? Will the NBA strike  up a big online advertising deal to cater to people watching highlights in the back of their robot cars on the way to work in the Unobtainium mines?

The point is that with the pace of world-wide change these days, no one can accurately predict what the world, or the NBA’s revenue market will look like in ten years.

Ancient peoples who supposed all human illness could be categorized as symptomatic of an excess of black bile, yellow bile, phlegm or blood already understood that poor is the plan that cannot be changed.

Whatever is ailing the NBA, a ten year plan is a foolish way to find a cure. The league and its players should both desire flexibility to best handle the ever hastening changes in the their audience and worldwide economic environment.

That is, unless the owners think they can bluff the players into surrendering their connection to those changes by proposing an absolutely fixed cap…

Karma Police

I’m increasingly pessimistic that there will be a season next year. Owners and players can’t agree on the basis of the negotiations. It’s tough to see eye to eye when standing on opposite sides a wide and deep canyon that divides the two.

Chasm: thy name is a decade of salaries un-tethered to Basketball Related Income.

The owners’ proposal is a complete non-starter because it asks players to forfeit entirely their connection to the success, or failure of the league. This is a fundamental concept, first introduced almost 30 years ago, that makes teammates of natural enemies. When the players have a hard cap of 57% BRI, as they do now, they are positively incentivized to do everything in their power to grow the league. So are the owners.

It’s inconceivable that the players would ever agree to do what the NBA did in their TV rights negotiation and potentially miss out on a major monetary windfall down the line by signing a deal that will far outlive the average NBA player’s career. It’s not just less money, it’s the removal of the ability to earn more money if the league does well that is so damaging to any real progress.

The NBA has proposed a ten year deal not to address the future, but to redress the ill of the past and present. The figure they’ve proposed is projected to be around 40% of BRI, but it could be even less considering that the number is based on today’s down economy and weak TV deal. Now, 45% BRI in 2021 may yield significantly more than 57% BRI in 2011. But $62mil is $62mil is $62mil, regardless of how much the super-talented youngsters grow the popularity and marketability of the league.

No Surprises

Deron Williams heading to Turkey has generated the most media waves, but imbedded in his remarks (and those of other players) is an idea that may more effectively erode the owners’ position. It may be little more than NBAPA messaging, but multiple players have essentially said “we’ve known there would be a lockout for a couple years.”

Observing the NFL labor dispute, it seems the players were caught off guard by NFL owners insisting, despite the fact that owning an NFL franchise is a license to print money, on a bigger share of league-wide revenue. The NFLPA has to organize nearly five times more athletes than the NBAPA does, and do to the short term nature of NFL contracts and careers, one would expect NFL players to be less prepared for a work stoppage.

But listen to NBA players, and there’s plenty of evidence that these guys have invested in things besides bejeweled self-portrait medallions and are more widely prepared for a season without income than any pro sport labor union in history.

No one wants to miss a whole season, and I doubt the majority of players would be able to afford it, but I don’t expect the players to cave when they miss checks for the first time. This is especially true if playing overseas becomes a viable option for mid to small contract players. It’s not a pay cut to take a $2million salary if the alternative is zilch.

Bullet Proof… I Wish I Was

I doubt very seriously that revenue sharing will significantly change the competitive landscape of the NBA. An oft cited statistic is that since 1984, only eight teams have won an NBA title. But beyond the fact that five different teams have won in the past six seasons, the more relevant perspective on that phenomenon is that between 1991 and 2006 at least one of the following players appeared in the Finals: Michael Jordan, Hakeem Olajuwon, Shaquille O’Neal or Tim Duncan.

Over the next ten years, it’s quite possible you’ll be able to say the same thing about LeBron James, Derrick Rose, Kevin Durant and Blake Griffin.

There’s a vibrant debate over whether it’s desirable or even possible to legislate competitive parity (remember that Miami’s Big Three would be under the proposed hard cap even before salary roll backs), but I have the feeling owners pouting about the difficulties of building a team in Indiana that can keep pace with the Eastern Conference arms race would gladly settle for economic parity.

These two ideas are often conflated, as well Mark Cuban entered “COUNT THA RINGZ” as a legal justification for fiscal irresponsibility in the management of his team. The goal wasn’t to make money, it was to win. That’s why his team has about three times more assistants than players in addition to countless consultants and other costly investments in things other than players (which are still the most costly).

Ironically, Cuban is now a part of the cadre of owners leading the charge on the league’s hardline stance.

What separates Cleveland from Miami isn’t the amount of money available to free agents. The best markets will still be powerful because of increased sponsorship and lifestyle advantages inherent to large media centers. The difference in 2010-11 salaries between the Heat and Pacers was negligible, as was that between the Thunder and Knicks.

There will always be bad teams, bad management and bad markets, that’s not the owners’ beef. They just want to get a little more of the bread. The appearance of competitive parity per enforcing economic parity in the form of guaranteed team profits (without effective revenue sharing) is an ancillary benefit.

Twitter: @BeckleyMason

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