On the lockout and the myth of guaranteed profits

Stern does his sarcastic impression of fans

After a depressingly acrimonious end to the NBA and NBAPA’s first bargaining session since the league locked out the players a month ago and the subsequent legal action, we can glean a little more about the true intentions of NBA Owners. Following the close of the meeting, NBA Commissioner David Stern essentially accused the players of failing to bargain in good faith, an accusation the players foisted upon the NBA weeks ago.

The claim is odd, and even insulting to fans. Is Stern implying that the players are locking themselves out? Is he saying that their intransigence amounts to contempt even though his side has refused to budge and players have already offered monetary concessions? Or is he just trying to pass the buck and deflect blame?

After all, transparency is a non-issue for the players. We know what they make and how they make it. The owners claim to have “opened their books,” but the players union wonders which pages are missing. Transparency can only be an issue for one side.

Even what the owners actually want has been obscured. The players want to be paid as much money as they can for playing basketball, the owners want “guaranteed profitability.” Of course, profitability, from the management perspective, is more complex than profitability from the laborer perspective, which amounts to getting paid. Managers have to think about not only the various sources of income, but the expenses. As the debt deal disaster constantly reminds, there are two ways to end up with more money, cut costs or increase revenue.

For NBA owners, only players are a collectively fixed cost. They know 57% of BRI will go to them. Everything else they pay for, though necessary (you can’t decide not to pay your stadium lease, for example), will vary widely from owner to owner.

What’s more, those expenses will largely be discretionary. How many assistant coaches do we pay? How many trainers do we employ? Do we buy that thinnest flat screen for the locker room? Do we keep gold flakes in the pregame meal?

That is to say, the amount of money an NBA owner can spend on his franchise is literally limitless.

Playing to win the game

The objective of owning and NBA team is not, like other businesses, to simply make money for providing a product, and that complicates the profitability demand.

Take newly minted NBA champion owner Mark Cuban, perennial leader in payroll costs and loophole abuse. Cuban is an immensely successful businessman. He is forward thinking and innovative. Is there any doubt that if Cuban wanted to make money, or at least lose far less, on the Mavericks, he would?

The fact is that Cuban has not run his team like a for-profit business, but as a for-championship business. He has been accused of mismanagement in a court of law, and offered “COUNT THA RINGZ” as his legal defense. He won a chip, that was the goal—not profitability.

From a business perspective, it might be possible to argue that Cuban’s spending has been the primary factor in the meteoric rise of the franchise’s value and standing within the NBA community, but the league-wide rise in popularity, and consistent winning (I’d argue much of the spending has been superfluous to winning 50 games each year) have also played major roles.

So how much  money would the players have to give up before Cuban’s team would be a surefire profit production machine?

Members Only

In practice, being an NBA Owner is like joining the one of the coolest rich guy club in the world. The cool kids have to let new members in by vote–there’s probably some hazing/initiation in which new owners have to mud wrestle Paul Allen in a secret room on a smaller yacht (the S.S. Kuato) located within his absurd aquatic skyscraper, or are forced to listen to 20 seconds of James Dolan’s band on repeat in a dark room for twenty four straight hours– and then you get to do pretty much anything you want.

Don’t like your GM even though he’s done a great job, fire him!

Like your GM even though he’s been routinely incompetent? Keep him as long as you want! It’s your party!

No shareholders can vote you out, you get to be owner for as long as you can afford it (and maybe a bit longer), or until you die.

Some seek entrance into the club out of a sense of civic duty, others to have something to do when not shredding on the guitar, others to heighten their profile as they run for political office in Russia, and all to compete with other superwealthy folks in a nationally televised setting.

It’s about vanity, it’s about fun, and it’s about winning.

Help me to help me

Given these motivations, it shouldn’t surprise us that owners are losing money. They might cash out when selling the team, but if money is the object, these shrewd businessmen are making a foolhardy investment. Any number of investments would more reliably turn a profit than owning a team.

So the question has nothing to do with surviving, or the health of the league. The NBA is in great shape. This is about owners wanting a luxury item (what again, is the social imperative for professional basketball?) that they can show off to their friends and enemies, that confers status and a special place in the local and national community  and makes boatloads of money.

The problem is that there will always be an owner with a competitive drive and a desire to spend whatever it takes to win. Player costs represent the largest but not the only major cost to teams. Remember BRI represents a percentage of income, not a percentage of expenses. If there’s one thing past CBAs can teach us, it’s that certain owners will always find a way around regulations and cost caps to spend as much as they can to inch closer to victory. Cost certainty is anything but.

Pots and Kettles are actually different things

Both sides have accused the other of failing to bargain in good faith, but only one side has offered concessions. The NBA isn’t seeking a minor adjustment, but attempting to completely overhaul an economic system, one guaranteeing players a certain share of BRI rather than a flat total amount, that has existed in the league for almost thirty years. The agreed upon percentage has oscillated over the years, but the players and owners have since 1983 shared in the fortunes of the league they both fuel.

On top of that, the owners, via Stern, have had the gall to suggest that the players are the ones being disingenuous, unfair and unreasonable. (I typed that very angrily.)

At first I assumed that the owners were simply starting from an absurdly low offer as a hardline bargaining tactic that would force the union into concessionary bargaining. It seemed to be working, and I still think the players would be willing to dip down to around 52% BRI (or about $150 million less than they collectively receive now) if the owners presented a reasonable proposal.

But being reasonable doesn’t seem to be a part of the plan. The shameless scheme, as proven by the league’s insistence on a radical proposal while holding the season hostage (it’s unlikely they’ll waver until they see how missing paychecks affects players) and taking preemptive legal measures against the players, is to break the union.

This isn’t a negotiation, that word implies a give and take, a search for productive compromise.

This current path is a huge risk for the owners, who could be throwing away millions by depressing the value of their upcoming TV deal through a lost season during the sport’s peak world popularity. TV will ever be the largest potential source of revenue for professional sports leagues, and with all there is to entertain the masses these days, continuing NBA popularity is not assured. Just look at Seattle, where twice as many fans as Key Arena could ever hold pack the house for MLS games—and that’s not even a particularly inspiring product!

A part of me just wants to players to cave so we can have a season next year. Another part, the part that hopes the fantastically skilled and entertaining laborers can get a reasonable deal, wants a world governed by transparency and rationality.

That part can just barely stomach the NBA owners leveraging all they have to get a revolutionary new deal, but not the misrepresentations about why they want it, or how they’re going about getting it.

Twitter: @BeckleyMason

Related posts:

  1. Lockout: The TV Problem
  2. NBA Lockout: CBA thoughts and theories
  3. 2016: How much TV money will the NBA be making?

Trackbacks

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