NBA Economics 101: NBPA files Disclaimer of Interest, dissolves union.

So much going on today, I haven’t really had time to catch up myself let alone blog about it. Don’t have time to offer too much of my own views but here’s a run down of what’s going on written by some of the best NBA writers on the planet. 

The gist of today’s news is that the player’ union (NBPA) has decided to file a disclaimer as opposed to decertify outright. Gabriel Feldman on Huffington Post with an excellent breakdown of what the differences are, how it impacts the process and why they both ultimately mean the same thing. You should follow him on twitter (@SportsLawGuy) until this lockout ends, he’s got all the info you will need. 

What is decertification? Disclaimer of interest?
Decertification occurs when employees formally revoke the authority of their union to engage in collective bargaining on their behalf. Disclaimer of interest occurs when the union formally terminates its right to represent the players. Both procedures effectively dissolve the union and permit the employees to negotiate as individuals.

in my mind, dissolving the union and suing the NBA for anti-trust practices was going to happen if the owners, not the players, didn’t settle at some point. Even when the players agreed to come down to a 50/50 BRI split, the owners wanted to take more out of the system changes. You push to hard and one will eventually snap. And that’s what the NBPA did. Only strange event is that not all the members of the NBPA were polled on their opinion on the matter. Odd. 

This in no way means the season is lost. In 1999, they kept negotiating until early January and they still salvaged a 50-game season. Zach Lowe on SI.com has more thoughts on this.

So, where do we go from here? The season, the NBA and the collective bargaining agreement are now in the hands of lawyers. ESPN’s True Hoop introduces us to them. 

And Salary Cap and CBA expert Larry Coon tells us where we go from here:

By dissolving their union, the players theoretically shift the venue of the dispute from labor law to antitrust law. A lockout, which is legal under labor law, could be deemed an illegal group boycott under antitrust law. Hunter indicated that the players would seek a summary judgment (a determination made by the court without a full trial), asking the court to bring the lockout to a quick end.

The players are also being careful to avoid following in the footsteps of the NFL players, whose union also disclaimed interest. The NFL players (with Tom Brady as one of the named plaintiffs) sought an injunction — a remedy in the form of a court order — ending the lockout. However, a lower court ruled that a law known as the Norris-LaGuardia Act prohibits injunctions in labor disputes. Instead, according to Hunter, the players chose to seek a summary judgment.

A possible timeline of events is as follows:

• The players’ lawsuit will be filed this week.

• The owners will formally respond and address the players’ complaints in early December.

• If the players sue outside of New York, then the first battle will be over the venue of the lawsuit.

• Once the venue is determined, the stage is set for the initial skirmishes over discovery and the like. If the players follow through on their summary judgment strategy, it would happen at this time.

This could happen as early as January or February if the case is filed in New York, or somewhat later if the venue battle causes a delay.

Personally, I’m proud of the players for putting principles ahead of paychecks. A lot of the players have a lot to lose if the season is cancelled. Not just money, but a year of their playing prime. Players like Kobe, Duncan, Garnett and union president, Fisher have limited time to make money and win rings and they are putting it all on the line to help those that come after them. 

Somewhere, Bill Russell is smiling. 

@Suga_Shane

Steven Lebron and I discuss the lockout and ponder about the possibilities. It’s looking cloudy with a chance of the sky falling. 

stevenlebron:

Lockout

Breaking news: the NBA lockout has overstayed its welcome.

After years of posturing, the two sides finally started to make progress in negotiations in recent weeks — progress as defined by the need for a mediator to get the two sides in a room, endless public posturing, ultimatums that are issued then rescinded, threats of decertification and players going on Twitter to discuss the merits of a clause that’s not even in the current proposal.

For fans like myself, the novelty of following the negotiations and getting my hopes up every week has worn off. The two sides have repeatedly used their press conference as a platform to deliver skewed messages to the fans, the media and to the opposing side. There’s been so many layers of rhetoric that it seems only what was said last matters — if even that.

So if we are to believe that, the last word came from the owners last week, with commissioner David Stern declaring that we are finished negotiating. So today, the player representatives for all 30 teams are expected to meet to review the league’s latest proposal. Should they decide to reject or vote down the proposal, well, as they would have you believe: armageddon is ahead.

With the threat of a cancelled season looming and becoming more realistic by the day, to understand the potential impact of this to local economies, I had an exchange with Suga Shane, author of the insightfulNBA Economics 101 columns at NBA Off-Season.

In discussing the overall impact of the lockout, Shane’s theory on the topic is two-fold, “With concern for the employees, I really feel for a lot of these folks but most should still have a job regardless of the NBA season. After all, arenas do more than just host basketball games, which take up 41 games plus playoffs. Most teams don’t even practice in their arenas due to the opportunity cost of leasing out that time to another event and simply building an off-site gym. Last I checked, there is about 320 days of non-NBA dates that the arena still has even if there was a basketball season. They still need employees for these dates. So while it is horrible that these folks will probably have their hours and pay slashed and perhaps some will face layoffs, it’s not as drastic as some think.”

As for the overall impact on local economies: “Local economies might see a boost rather than a loss and here’s why: The NBA takes millions of dollars from consumers and funnels it to a relatively tiny number of individuals. Based on basketball-related income (“BRI”), the average NBA team takes in somewhere between $100-130 million in revenue a season. Last season, the NBA had a total of 21,302,573 people attend games. That’s about 17,000 per game at an average price of about $47 a ticket. That’s about $1 billion dollars in just revenues generated by ticket sales.

“This doesn’t include concession stand sales, parking, and merchandise sold in and around the arena. A huge part of BRI is local money. All of this money gets split up by approximately 500-600 individuals. Sure, NBA teams have employees other than players and coaches, but most of these employees make chump change compared to the millions that players, coaches and owners take home. So in a way, they are an insignificant part of the equation.

“Americans, on the whole, are a spending society. Our entire economy and the philosophy it’s built on depends on consumer spending. With that in mind, I doubt NBA consumers are going to start saving their money if there’s no actual games to spend it on. They are going to find other activities to spend money on. So now, they fill the void by say: going to the movies and getting some ice cream. That should fill up the three hour entertainment void left by the league. You spend relatively the same amount of money but you spread that money out to more businesses and more individuals. And that’s the key to a consumer-based capitalist economy: more people possessing expendable income.”

As for the important week ahead: “The latest offer from the owners was more or less an ultimatum. We don’t know what the actual BRI split will be because both sides are being a little secretive about it but we do know some of the demands the owners have. The bottom teams which make up somewhere between 10-16 teams have taken over these negotiations. If their demands fulfill the expectations of those teams, we’re all in trouble. This means stringent demands from both the players and the upper echelon of NBA teams in terms of earners and spenders. They are demanding salary cuts in terms of monetary amounts and length. They want roll backs and amnesty on existing deals as well as steep luxury tax implementation and revenue sharing. Basically, these owners bought a Civic, entered it into a Ferrari race and are now demanding a ten-lap head start to bring competitive balance to the race. The alternative is that the NBA will lower their offer if this one isn’t accepted by the NBPA.

“The players’ association has to take the offer to their members for a vote so the actual terms of the deal don’t matter as much as the number of desperate players. Will there be more players willing to lose a season and decertify to get the deal they want based solely on pride? Or are there more players willing to bite the bullet and just play the season at this point as opposed to losing a season and a year’s worth of salary? The majority players make less than $2.5 million and even though the NBPA took measures to hold a percentage of salaries as well as defer some players salaries to help cover months of a lost season, I’m not sure if that’s enough.

“Right now, the NBA’s future is in the hands of bench players. Do they want to play or do they want to decertify. The actual terms of the deal don’t matter anymore.” 

And so we wait as another artificial deadline lies ahead. The threats and posturing figures to intensify in the coming days. But the feel is that it’s going to take a while before basketball returns. I won’t be mad if I’m wrong.

The NBA Lockout: A $4 Billion Dollar Game Of Chicken

I keep having this wild & vivid reoccurring dream and it scares me to death. Not because it feels so real. Because it probably is.

I’m sitting in the middle seat of a McLaren F1, traveling at some obnoxious speed. Not sure how fast I’m going but I know I’m moving at a dangerous rate. one wrong move and I’m toast. 

The catch is that I’m not driving. I don’t even have a steering wheel in front of me. The cars traveling straight as an arrow but I start to panic because I know that if this thing doesn’t come to a stop soon, somethings bound to go wrong. 

I look to my right and Derek Fishers sitting there and he has the steering wheel. 

“Hey, Shane. Don’t worry, I got this.” 

No words, just thoughts. As I ponder how experienced Fisher is at driving this fast or if he really knows how to handle a car like this or if he’s got some kind of secret plan he’s trying to execute I scan around the car. 

To my left is Billy Hunter. And he’s got a steering wheel, too. 

“Hey, Shane. Don’t worry, I got this,” mumbles Billy. 

All I can think about is why are we going so fast and what are we driving towards? Are we late for something? Does someone need our help? What’s waiting at the end of this journey? Will we even make it that far? 

As a million thoughts are racing through my head as this ridiculously expensive car is racing through my dreams. I’m both angry and scared. I don’t know what’s going to happen and I have no control of the outcome. And then it happens. I suddenly realize I don’t have a seat belt on.

This isn’t even the strange part.

Some how in this dream, I’m also sitting in a completely different car. The car, might be different, but the situation is identical. It’s also just as confusing and reckless. 

I’m sitting in the middle, once again, but this time I’m in the back seat.

Michael Jordan’s at the wheel. 

Sure, this sounds like a dream, but let me reassure you that it’s not. This is definitely a nightmare. 

“Don’t worry, I got this,” Mike tells me. 

If you didn’t spot the difference, I didn’t either. not at first, but Jordan’s a little less friendly than I remembered him. In fact the entire feeling of this ride is a bit more curt than it was in the McLaren. 

I scan around the car and I see a lot of recognizable faces, but none of them are comforting. Paul Allen is on his Blackberry, trying to order a championship from Amazon.com, Dan Gilbert’s sitting to my right, throwing bundles of money at anyone who’s heard of the Cavs and Robert Sarver’s to my left, just laughing hysterically. 

David Stern’s in here, if you were wondering, but he doesn’t say much. He’s gagged and tied up in the trunk. Right next to a giant pile of money. 

“What’s all that money,” I ask.

“That’s our revenues, son, this car runs on it. You’re sitting in the one and only BRI50. It’s a one of a kind SUV that burns money as fuel,” yells Gilbert as Sarver keeps cackling like a hyena in the background. 

“We got about $3.5 billion left to burn. It’s going to be a long ride until Hardline County” says Jordan.

At this very moment I realize where this cars headed. We’re driving directly at the McLaren. Doesn’t matter how much fuel we have to burn, Jordan and company are determined to get there. 

Peter Holt chimes in over the bluetooth system of the car, “When you hit them, Michael, hit them hard. They haven’t felt enough pain yet.”

David Stern starts mumbling something and I can’t quite figure it out. I don’t know if it’s the gag in his mouth or that he’s never given it to us straight. I can’t even think about what he’s saying, my brain chemicals are running wild. I’m both angry and scared. I don’t know what’s going to happen and I have no control of the outcome. And then it happens. I suddenly realize that Daivd’s trying to inform me that I don’t have a seat belt on. 

____ 

What makes the situation worse is that I can’t wake up from it. I mean, I can wake up, but even in the real world, this same game of chicken is happening. Both the NBPA and the NBA’s owners have decided that their going to put $4 billion dollars of annual revenue on the line and see which side cracks first. Both sides have dug in deep, held their ground in the most stubborn of ways and are daring the other side to test their resolve. 

The Union is demanding that the players take their generous concessions and start the season already. The owners are demanding rollbacks of nearly $2 billion dollars over the life of the CBA. The stalemate here is that neither side wants to negotiate much in these so-called negotiations. 

Or do they. 

The players union announced the other day that they’d probably be willing to take a 50/50 BRI split if all the system changes made sense. 

Owners had threatened to drop their 50/50 offer to 47/53 if players didn’t agree to it by Wednesday. Wednesday came and went and the owners didn’t budge. 

Both sides know that they are hurling themselves at one another at a reckless velocity. Not only do they have to be careful not to lose control of their own vehicles, they have to make sure they can survive the crash. 

Not just their own survival. My survival as well.

If you haven’t figured it out yet, I represent the fans in my dream. We’re as entrenched in the situation as they are. Sure, we didn’t buy the car, fill the gas or drive it down the road, but we are on board and we are scared. 

The truth of the matter is that this lockout was once about economics and revenues and legitimate concerns about the leagues long term survivability. We’re well past that now. Most of the concessions both sides have made would have ensured profitability for most of the league and a system that was fair enough for both players and teams. 

This has gone beyond logic and numbers and entered into the dangerous world of egos. This lock out has become a giant dick swinging contest, only no ones really down to fuck. Well, perhaps that’s not true. They’ve been fucking the fans for at least 10 days now and I don’t see this car slowing down anytime soon.

Hope you got your seat belts on.  

@Suga_Shane

Read More NBA Economics 101 Posts

NBA Economics 101: Michael Jordan with the worst ‘heel turn’ ever. 

Word is that Michael Jordan is trying to drop a double-nickle on the players. And by double nickle, I’m talking about the BRI split. According to Howard Beck of the New York Times, Michael Jordan is leading a group of 10 to 14 owners that refuse to go over 50% on the BRI split. 

I find this hilarious since Jordan was the one who thought players deserved huge chunks of money and that they never got paid anywhere near their real worth. Jordan was the one that made over $30 million for a single season of basketball. Twice! Jordan was the one that infamously told Washington Wizards owner, Abe Pollin, “If you can’t make a profit, you should sell your team.”

And here we are today, a decade and a CBA later, Jordan is on the other side of the table. He now feels what the owners felt when he successfully gouged them for millions. He now understands that basketball is a business on both ends. Not just for players but for owners too.

Michael Jordan has always been a competitor. He’s never wanted to lose. Not on the court, not in the media, not on the poker table and certainly not in his own mind. No matter what he does, he wants to declare himself the winner and he’ll be damned if anyone beats his new team. 

@Suga_Shane

NBA Economics 101: Welcome To Miami’s Universe

While contemplating the future of the NBA that the new CBA will usher in, a thought that occurred to me was that the NBA is doing everything it can to make player movement difficult. The owners are asking for add financial burden on bigger markets to prevent them from loading up on super stars as well as curtailing the earning power of players who want to change teams. It’s a well accepted notion that the steep demands of ownership stem from, at least in some way, the Miami Heat free agency heist from last summer. But will a stricter CBA ensure that the Miami Heat are perinatal favorites to win for the next decade? 

LeBron’s coup d’état during the summer of 2010 moved power out of ownership and squarely into the hands of players. LeBron dictated what teams came and serenaded him. He chose where he played and who he played with. His tour de force sent shock waves through the NBA.

Fans didn’t know how to react. Here’s a man exercising his freedom of choice. Breaking the shackles of common thought and building a super power in a way we hand’t seen before, through player’s choice. Many chose to hate him, partly for ‘The Decision’, but also for reasons we didn’t even know. 

Owners hated what they saw because they knew what was coming next. Players would learn from this and empower themselves. 

And as the story goes, the players did learn, they did arm themselves and some even pulled the trigger. Carmelo Anthony forced his way out of Denver and into the bright lights of the Mecca we call MSG. then out of no where, we heard Deron wasn’t happy in Utah. the Jazz took a proactive stance and traded their franchise player to save themselves from the mess Denver had stepped in. Utah got the ebst deal that they could, but was this the new NBA world we would have to live in? One where a team traded their franchise player in his prime out of fear they they would just up and leave anyway? Owners and fans braced themselves. Who was next? Chris Paul? Dwight Howard? J.R. Smith? You’re right, no one cares about J.R.

The owners decided they needed to end this before the NBA became a league with 4 All-Star teams and 26 Washington Generals. So came the lockout, the steep demands, the ugly negotiation sessions and missed games. 

So where do we stand now? Owners have asked for larger luxury tax penalties as well as a lower BRI split. The combination would ensure that most teams refuse to or simply can’t afford to pay multiple superstars without sacrificing quality in players 3 through 15. Teams have also discussed lowering both max salaries and the number of years a player can sign for. To add to that, owners want to add penalties for a player changing teams in free agency by having to take a major reduction in pay. Owners have even called for the inclusion of the ‘Melo Rule’. Such a rule “would prevent players from signing Bird rights extensions with teams that acquired them via trade after the July 1 in advance of their final season under contract” according to Tom Ziller of SB Nation. 

What would the future of the NBA would look like with all of these provisions in the new CBA? Dwight Howard wouldn’t be able to come to the Lakers unless he waited until he’s a free agent and signed for a huge pay cut. Chris Paul wouldn’t be able to force a trade to the Knicks. Blake Griffin isn’t going anywhere. Even the sweetheart Oklahoma City Thunder might not be together for much longer. Not unless OKC can figure out how to pay Westbrook and the impeding luxury taxes that would come with such an extension. 

Where does that leave the NBA? 

In Miami’s hands. Miami has already pulled off the greatest haul in free agency history. They already have their Big 3 and they are under the cap. No need to worry about extensions to their superstars or signing that would propel them into the upper atmosphere of the luxury tax. Miami is locked and loaded and if even half the CBA rumors are true, they are locked in for the term of the new CBA. 

Who would be able to compete with them? No team would be able to stack up to match them. Teams would have to figure out how to get better via trades and drafts. Free Agency might no longer be a viable option unless teams like Chicago and New York can find stars willing to sacrifice a greater amount of salary than we have ever seen before. 

Miami started this movement which in turn moved the owners into a position that would ensure that this type of player movement would never happen again. Ironically, locking the Heat into a position of power that no other team would be able to achieve again. 

Miami, this is now your world. At least until the next lockout. 

@Suga_Shane

Photo - Don’t know where I found this awesome photo. If it’s yours let me know and I’ll dole the credit. 

More NBA Economics 101 posts. 

Must-read material from NBA.com today. 

fuckyeanba:

NBA.com opened up discussions with famed University of Chicago Economics Professor Kevin Murphy. If you’re unfamiliar with Murphy or the University of Chicago Economics program (think of Thorstein Veblen, a Worldly Philosopher and coiner of the term “conspicuous consumption”), here’s some quick biographical info on the man:

Never mind the card-carrying variety — Murphy, working with the NBA players union during this lockout, is a check-cashing genius. That’s the very best kind, as bestowed by the MacArthur Foundation “genius grant” — $500,000, no strings attached — he received in 2005 for his research on “seeming intractable economic questions.” Back in 1997, he received the John Bates Clark medal awarded to the most promising economist under the age of 40.

He is a professor of economics at the University of Chicago, he’s been commuting to the labor talks in New York and, with all due respect to NBA commissioner David Stern, union director Billy Hunter and the others hashing out the league’s finances and future, he truly might be the smartest guy in the room.

“Kevin is far and away the smartest guy in the field,” Freakonomics author and Chicago colleague Steven Levitt said in a 2006 profile of Murphy. “Not only is he widely regarded as the smartest economist on Earth, but he can also fix your refrigerator.”

Murphy was at the negotiating table for yesterday’s 15 hour session, and he’ll be back there today (they started at 2 PM EST). His confidence lends us all some well-deserved optimism after Thursday’s BRI blowup.

“I was very pessimistic last week after the Thursday blow-up but I’m beginning to come around and think we’ve got a shot,” Murphy said. “If there’s a deal here, it’s going to be a deal that nobody likes. That’s what deals are. Nobody walks out feeling like they got a complete victory. That’s initially. But then you get back to playing and you realize, geez, I can live with this.”

Check out NBA.com’s Full Q & A with Murphy, who they describe as the “superstar of supply and demand.” I’ll try and post some more information from the interview once I get through the whole thing.

NBA Economics 101: NBA Ownership, Sanctity Of Sports, Vincent Van Gogh & Profits

Jerry Colangelo, former Phoenix Suns owner and director of USA Basketball, was on The Herd with Colin Cowherd this morning to discuss his views on NBA ownership, high salaries and how to operate an NBA team. Jerry made a few great points that I wanted to explore. I’ll discuss player salaries and the luxury tax later today, but the one statement Colangelo made that stuck out to me was his theory that NBA owners need to protect “the sanctity of the game of basketball” and not worry so much about their bottom line.

Do NBA owners have a duty to protect the sanctity of the sport? That’s what Jerry thinks, and I have to agree. 

I am of the opinion that an NBA franchise is more of a luxury good than just another page in one’s investment portfolio. A team should be purchased as a conversation piece and not as a business venture. Not that NBA franchises aren’t profitable, they are, but they don’t always redeem those profits in a traditional sense. 

So if an NBA team isn’t a traditional business, what is it? 

The NBA is the Vincent Van Gogh for the extravagantly wealthy person who doesn’t want to buy a Vincent Van Gogh. 

Owning an NBA team is like owning a piece of priceless art. You pay millions of dollars for it just to hang it up in your yacht or your fourth vacation home. It is your badge of success. You wave your franchise around at parties, invite strangers to your luxury suite and even use it as leverage to broker billion dollar deals. You invite over millionaires and diplomats and politicians and you point at your priceless piece of art on the wall and say, “look, I have something no one else has. I have a piece of culture.” 

Because that’s what an NBA team is, it’s a piece of culture, and a rare one, at that. There are only 30 NBA franchises to go around and the possibility of the NBA expanding is as slim as Van Gogh growing his ear back. In fact, even if you are rich beyond all measure, it would be easier for you to purchase one of the 900 Van Gogh’s in existence than it would be for you to own one of the 30 NBA teams. And if you don’t like Van Gogh, there’s hundreds of Picassos for you to choose from.

Just like owning a piece of rare art, it’s the NBA owner’s job to protect the sanctity of their investment and not worry about their yearly operating income. The owner of a Van Gogh, who spends money out of his or her own pocket to parade the Van Gogh from country to country from museum to museum, does it because they have a love for the art. The money is not important; it’s the sanctity of culture, of that piece of art that trumps short term losses. Jerry Colangelo is right; NBA owners have the same civic duty.

Owners must protect the game and help it grow, evolve and get better not try to wring out every last cent from it. What would a worn and tattered Van Gogh be worth if its owner pimped it out for $5 photo shoots at every elementary school on the planet just to turn a yearly profit? The number one concern of ownership should be to ensure the survival of the essence of basketball. If a new system would return them yearly profits but erase the culture of basketball, what would they have left? Would people even watch the game? People don’t pay to go see an assembly line worker put together a car but people do flock from all over the globe to catch a glimpse of Mona Lisa’s infamous smile. It’s not the business model that attracts us or our dollars, it’s the culture.

Owning an NBA team isn’t about the short-term profits, it’s about owning culture. 

But why should NBA owners carry the burden of paying for an NBA team for the rest of society to benefit from? Because owning an NBA team will lead to long-term benefits and profits. Just like owning a piece of valuable art, the value of that art is always appreciating. Look at the list of the world’s most expensive pieces of art and look at those dollar figures. Then go explore the historic sales figure of every piece. The short term losses incurred of owning such an object is nothing compared to the astronomical profits made once the piece is sold off. 

Even when the NBA is supposedly losing money, billionaires are willing to invest hundreds of millions into a franchise. Any franchise. They can’t wait to get their hands on them. They bid them us and pay prices much higher than their perceived value. So why would smart business people want to tie up so much cash into a business model that supposedly doesn’t leave any profits at the end of the year?

Appreciation. 

The one prominent form of profit for an NBA owner that is best hidden is how well an NBA team appreciates in value. Outside of the Bobcats, of which we still don’t know what their purchase and sale values where, never has a team sold for a loss on initial investment, not even the deeply troubled Hornets, who were purchased for $32.5 million and sold for around $300 million in 2010. The Philadelphia 76ers, how supposedly haven’t turned a profit in nearly a decade, just sold for a net profit of $150 million dollars and the old ownership, Comcast, got to keep the arena to themselves. Jerry Colangelo sold the Phoenix Suns to Robert Sarver in 2004 for $400 million dollars. 

An NBA franchise shouldn’t be viewed as a tool that only makes you money; it should be viewed as a piece of art that will still make you money. And owning an NBA franchise shouldn’t be viewed the same as being a CEO, it should be viewed as being a curator of art. 

If NBA owners don’t want to protect the sanctity of the sport, than may I suggest they leave these 30 businesses alone and find one of the hundreds of thousands of traditional businesses to invest in. Perhaps they’d be more comfortable in a corporate culture rather than owning a piece of human culture.

@Suga_Shane

Read the rest of our NBA Economics 101 posts

**EDIT**: A couple of readers mentioned that Malcolm Gladwell had penned a similar piece on Grantland.com (LINK). 

I hadn’t seen that article before but I took the time to read it and I’m not surprised that Gladwell and I had the same brilliant idea. All joking aside, a large faction of writers feel the same way. And others have compared owning an NBA team to owning art or rare collectables. 

We all agree that the appreciation in value is there. Even the owners acknowledge that. They argue that it’s not a guarantee, and I agree. It isn’t. I just thought that my post goes beyond Malcolm’s “Psychic Benefits”. 

Where I differ… maybe not differ, maybe expand on his and other people’s theory, is that NBA owners aren’t just profiting from these increasing resale values, they are buying a very, very rare piece of human culture, and it’s their responsibility,as Jerry Colangelo points out, to preserve the sanctity of the game at whatever cost necessary. Just as a curator or owner of a Van Gogh has to protect and ensure the survival of their rare piece of art. 

Because if owners start to treat basketball as a traditional business and they start to tweak and change and limit the game in order to make short term profits, NBA basketball seizes to be basketball and it becomes an abomination of the game. 

So tome, this is more important that the short term profits or even the long term profits. These men volunteer to become curators and caretakers of our game. Our culture of basketball. It’s their duty. And if they don’t want to bare such a weight, then they don’t need to buy in to the NBA. There’s a long list of billionaires itching to take their place. 

Thanks for reading!

Shane Baker

NBA Economics 101: Billy Hunter Speaks & Other Ramblings 

Bill Simmons posted up a new B.S. Report today where he was joined by NBPA President, Billy Hunter. If you haven’t listened to it, do so now. Billy spills the beans for the entire 1-hour long podcast about what owners wanted, what the players wanted and how the owners can’t even agree with themselves, let alone the player’s union. 

There were a lot of golden kernels of information in this episode and some of it confirmed a lot of theories most of us have had (or feared) about the owners and how long this lockout will last. 

Option to Extend - I think the most important thing Billy Hunter mentioned was that the owners had and still have an option to extend the old CBA one more year and have refused to do so. Hunter mentions that this will allow the league to get the season underway and play out all of 2011-12 while also negotiating the new CBA, thus saving us the pain of missing games. Unfortunately, Billy didn’t really expand on this point. Simmons tried to get him to talk about it but Hunter went off on a long tangent and I think they both just forgot to get back to it. 

3%!?! That’s it?!? - The players came down from their 57% share of BRI from the last CBA to 53% for the new CBA and they won’t budge off that number much (They went as low as 52.5% but the owners refused to take it). Most people were left disbelief that the union and the owners were fighting over just 3%. 

Sure, 3% sounds like chump change when talking about the increase in the price of a can of Coke or a Kit-Kat bar, but when we’re talking about a revenue share of nearly $4 billion dollars, that 3% is big, big dollars. Here’s the math for all you nerds who are interested:

3% is about $120 million a year in revenue. And that’s based on $4 billion in BRI (BRI that is hand picked revenue by the owners). That $4 billion will surely increase over the next few years as the game will get more popular and then in 2016* when the new TV deals kick in, that 3%, which was $120 million a year, can turn into $150 or maybe even $175+ million a year (that’s only $5.8 billion in revenue, a modest possibility).

The CBA will most likely be a 7 or 10 year contract. Now if you do the math, that insignificant sounding 3% is worth somewhere around $1.2 to $1.5 billion dollars. That’s $50 million per owner or $3.75 million per player.

This isn’t pocket change. Not even for millionaires and billionaires. 

Mark Cuban and the “Good Guys” - Hunter mentions that a few owners were willing to be more flexable with the system, BRI and negotiations in general. I’ve mentioned this before but I’ll say it again, some owners have more to lose than to gain by this lockout and I’m not just talking about money.

Teams like the Mavericks, Lakers, Celtics and Spurs have a rapidly closing championship window. Teams like Miami, New York and Oklahoma are on the cusp of success and don’t want to miss a season in their prime. There are also teams with lucrative television deals, most of which are the same teams listen above, that would miss a significant chunk of revenue if we missed a season. There are also owners that their sole business is their basketball team. They don’t have secondary businesses that help support their basketball addiction. 

According to Hunter, Mark Cuban went as far as asking for a league with no salary caps. Perhaps Cuban should buy an MLB team. I’m sure most owners, even the extremely rich, aren’t for this idea but Mark is one of the few owners with an old school approach to owning a team. You do whatever it takes to win and worry about profits later. To Mark and the old school owners, profits always came as long as you were chasing wins. The NBA was more of a novelty the a net income. 

All of these owners in the “Good Guys” club want the season to start and it seems are willing to take the 53/47 split. The problem is that these owners don’t have enough numbers to help sway the final vote in their, and everyone’s, favor. So, we are still locked out. 

Globalization and Localization - the players have done a great job of getting out there and spreading their own brands and giving the starving fans a taste of basketball whenever they can. The head chef in this kitchen has been Kevin Durant. He’s played in every single park league and pick-up game on the planet during the lockout. If he could, he’d even cameo in a WNBA game or two. 

This past weekend, Kevin Durant hosted an “All-Star” level charity game in Oklahoma City which brought out names such as LeBron James, Chris Paul, Russell Westbrook and many more. The game was as close to an NBA game as one could be in terms of professionalism and setup. They even had a legit halftime show, as Nate Jones tweeted. Side note (we don’t have footnotes like Grantland.com), Michael Beasley led all scorers in this game with 56 points. That’s crazier than Michael Beasley. 

If this is any indication, the 6 city All-Star Barnstorming Tour that will feature Durant, Kobe, LeBron and more is going to be a must-see when it visits your city. What started out as a few innocent park league games between the famed Goodman, Rucker and Drew leagues has now expanded into a global extravaganza that the players could possibly capitalize and profit off of. This 6-city tour, which can be expanded if the lockout is extended, could be the beginnings of a player owned and operated league or just some much-needed leverage in the labor negotiations. 

Speaking of Globalization, Daniel Buerge of Lakers Nation has a great theory on how players playing abroad during the lockout would actually benefit the NBA: 

Take into consideration Deron Williams, who was one of the first NBA players to sign a contract with an overseas team for the lockout. He is currently signed on in Turkey, where he is on the court several times a week. Do you think any of the fans are looking at him and referring to him as Deron Williams, Turkish basketballer? Of course not. He is Deron Williams, NBA superstar. The same goes for Pau and Marc Gasol in Spain. Dirk Nowitzki in Germany. Kobe Bryant in Italy. Each and every time a fan looks at or thinks of one of these stars the first thing that comes to mind is American basketball, and in turn the NBA.

I guess the NBA wins, no matter what the players do. 

Can I get A Season? - One last important information that Billy Hunter and Bill Simmons discussed is something I wrote about last week, are some owners actually willing to miss a season to get the deal they want. Billy and Bill both seem to agree with my theory and even go as far as saying it’s looking like a strong possibility. 

I’d continue on about this but my keyboard is soaked in tears and I can’t continue typing. 

@Suga_Shane

More NBA Economics 101 posts. 

*EDIT: New TV deal starts in 2016, not 2017 like I originally wrote. H/T to Jared Wade for pointing that out. 

Do you have a lockout related question or comment you’d like to share? Get at us on twitter (@OffseasonBlog) or via email (playoffsblog@gmail.com) and we’ll try to answer as many as we can in tomorrow’s NBA Economics 101 post. 

NBA Economics 101: Why some owners prefer to stay locked out

Ken Berger of CBS Sports tweeted some updates from today’s on-going NBA negotiations, and they don’t bring an ounce of good news. By the way, if you aren’t following Ken’s lockout tweets, you’re not staying informed. 

Berger reports that some owners would rather miss the entire season than take a bad deal. No idea who these owners are, but there has to be more than just a couple or else this lockout would have been solved by now. But instead of speculating on who’s giving these negotiations the Mutombo finger wag, let’s explore why the owners would rather miss $4 billion in revenue instead of taking a less favorable deal. 

First we need to realize that the owners didn’t want to really start negotiating until they were able to force the players into a corner where they would be walled off by missed paychecks. This is the NBA’s most potent form of leverage.

Of course, the league has other perks that the players can’t find else where, at least not immediately. Things like sponsorship dollars, television deals, high salaries, and state-of-the-art arenas. I say immediately because if the players left the NBA for a new league, that new league would one day reach and probably surpass those current assets of the NBA, but that’s not important. What is important was that the owners wanted and needed to miss games to begin seriously negotiating with the players. 

Technically, no one financially benefits from missed games, at least not in the short term. Since the NBA is currently under a 57/43 BRI (Basketball Related income) split and any deal going forward would be around a 50/50 BRI, the owners would miss just as much revenue as the players if games are missed.

So how is lost games leverage and why are the owners, who are already pretending to lose money* be willing to lose more money? 

It’s leverage because the owners are invested in the NBA for much longer than players. According to the Sports Business Journal, the average NBA career is 4.81 years, much much shorter in comparison to how long some owners maintain ownership of their NBA teams. 

Currently the players have given back about $200 million a year by reducing their BRI cut to 53%. This hasn’t been accepted by the owners yet but if it was, each team stands to make, on average, $6.67 million more a year based on last year’s revenues and probably much more when the economy recovers and the NBA signs it’s new national television deals in a few years. 

Currently, the BRI split based on 43% and $4 billion in revenue leaves each team, on average, with $57.3 million a year after player salaries are taken out (57%). 

One lost season to an owner is nothing if they can make $6.67 million more a year for the life of their ownership. Even if an owner was only looking to hold the team for 10 years, that’s $66.7 million more revenue with a better deal. And that number would be even greater if they can get the players to come down to a 50/50 BRI split.

Even if an owner who will keep the team for 10 more years misses one year of revenue, which was about $57.3 million dollars last year, they still stand to make $9.3 million more dollars over a 10 year ownership. That’s because the amount they stand to gain from these negotiations over a 10 year span is greater than the revenue lost from a single lost season. 

Compare that to the average player. If someone plays and makes exactly the average amounts, they would have played nearly 5 years at about $5 million a year and made $25 million over their career. A missed season means they would lose $5 million or 20% of their career earnings. Even these missed games account for a large chunk of a player’s career earnings. And as we all know, the average player doesn’t play for that long and they don’t make that much money. Those numbers are inflated due to the superstars making $20 million a year and those super athletes that player 10-15 years in the NBA. The majority of players earn much less and have much shorter careers. These players who, again are the majority, will be much more willing to accept a deal once checks are missed. 

That $6.67 million figure is where we are now. Players have already agreed to roll back their share of BRI down to 53%. But the owners want more simply out of greed and the fact that they think they can get it. Not only would a lower BRI split give the owners huge profits over the life of this CBA, it will set them up in a more favorable position for when they have to renegotiate the next CBA in 10 years. 

If you’re asking why the owners don’t take the 53/47 share now and try to get the remaining 3% in the next CBA, it’s because right now is the perfect economic climate to pull this off. No one knows what the economy will be like in ten years (or 7-years, if the owners include the early opt-out clause as discussed). What if the economy makes a full recovery and no one believes the owners are losing money anymore? They would have lost a lot of credibility and leverage. Now is the time. 

Obviously not all the teams are willing to lose the season. Some teams, like the Lakers, Knicks and Bulls, who have giant media markets, make so much money from a single season that they don’t care to make a little more at the cost of missing a season. 

Other teams, like the Celtics, Spurs and Mavericks, have an aging core of superstars and they don’t want to miss out on a chance to win one last title before they have to start over. 

Then there are the teams that have large profits to gain and nothing to lose. Well, maybe a season to lose. 

@Suga_Shane

More NBA Economics 101 posts. 

NBA Economics 101: Owners Aren’t Stupid And Capitalism Is Okay With Me.

There is this notion that NBA owners are some how stupid. They don’t understand finances, economics, or even simple math. They supposedly over paid for already over valued franchises and then proceeded to lose millions a year in both liquid cash and franchise worth due to contractual obligations.

This isn’t a smear campaign paid for by the NBPA. This notion is being championed by the NBA owners themselves. Disguising themselves as ignorant people who were somehow trapped into business dealings which left them in shambles. Let me get my point out right now: NBA OWNERS ARE NOT STUPID PEOPLE.  

12 NBA owners are worth over a billion dollars, with the richest, Paul Allen, near $20 billion dollars. The “poorest” NBA owner is worth $80 million dollars, at least. We are talking about 30 of the most elite and successful businessmen and investment groups in the world. These 30 owners some how navigated the complex and treacherous world of international dealings, cut throat mergers and acquisitions and up and down stock markets and were some how able to come out of it with enough capital to purchase basketball franchises worth hundreds of millions of dollars and yet we are to believe that they suddenly lost the ability to operate these franchises? No. Let me once again restate my premise: NBA OWNERS ARE NOT STUPID PEOPLE. We are talking about the 30 smartest and richest people on the planet. People with more employees than most of us have dollars in our savings accounts. And we are to believe that after making millions and even billions of dollars going up against other brilliant businessmen that these same gentlemen can’t negotiate a profitable deal with a bunch of 20-something year-olds? 

That’s not what this is. This lockout isn’t a correction of their own fallacies. This is a practice of the tools provided to them in a capitalist society. And there’s nothing wrong with that. But the owners can’t play the victim without implicating a perpetrator. They only have three choices: 

1. Themselves - Never in a million years. These men have bigger egos than the superstars that they employee. 

2. The Economy - This won’t work and I’ll explain why in a second. 

3. The Players & The CBA - AHA! ”Let’s blame the greedy players!” The perfect crime.  

Why can’t the owners blame the economy? We are in the midst of one of the worth recessions we’ve seen in over a century and the economic climate doesn’t seem to be improving. But the NBA and ownership can’t blame the economy for one reason: It would mean that the CBA is sound and that outside influences are the driving force behind lost profits. Therefore there would be no need to demand such brash negotiations to take place between the NBA and the NBPA. So you’ll never really hear the owners blame the possible collapse of our entire economic infrastructure on lost profits. It MUST be the CBA and the greedy players. Or at least that’s the notion that the owners want us, the fans and players, to buy into. 

So here we are today blaming a system that worked for a decade and no one had any qualms about just 18 months ago. Not owners, not players, not fans and especially not David Stern’s personal bank account. 

Speaking of Daivd Stern, he still has a job. That fact alone should be proof that the NBA owners are happy with the direction of the NBA. After all, Stern is an employee of the owners. The same owners that fire GM’s and coaches on a yearly basis as if it were a sport itself, yet David Stern has been able to keep his job for over two decades. The owners are even entrusting him to lead the negotiations during this lockout despite the fact that he supposedly messed up the last time around. Are we to believe that NBA owners are so stupid that not only would they would keep employing such a person for 20+ years, but they would pay him millions and leave him in charge of negotiating their business’s economic future? No. Again, NBA OWNERS ARE NOT STUPID PEOPLE.  

Do you know what changed in the last 18 months to spark up such turmoil in the NBA?

Not the revenues. In fact, the NBA saw an increase in revenues this year. and since the revenue split is always static at 57/43, they should have budgeted for a lower cost of operations than the monies they actually received.

What does this mean? Let’s assume the owners thought that revenues wouldn’t increase, but stay the same. Let’s also assume they thought total NBA revenues would be $100 million dollars per team, I use that number for simplicity. That means that they would know that they can keep $43 million and are obligated by the CBA to spend $57 million on players’ salaries. So they would budget their coaching, medical and front office needs based on the $43 million in revenue that they assume is coming their way. But what they actually received in terms of revenue was greater than the previous year. Unless owners were stupid and expected greater returns in a downed economy, they probably took in more money than they had budgeted to spend. 

What did change is the economy which in turn changed the mindset of the average consumer. The fears brought on by the economy — bankruptcy, debt, unemployment — served as the perfect smoke screen for owners. The people might actually believe their cries if the people believed that things were just as bad for the rich as they were for the poor and middle class. As we’ve heard before, this CBA negotiation is all a PR war. 

But I have no problem with what the owners are doing. These are simple negotiation tactics and last I checked we still lived in a capitalistic society. If you owned a business and you could convince your employees to take less money because the way you arbitrarily calculate income shows that you lost money, why not go for it? One of the issues for the players is how BRI (Basketball Related Income) is calculated. It allows for owners to leave of certain arena profits and other sources of income created solely through NBA ownership and include other accounting factors, such as contract depreciation and purchase price & interest into losses. Is this fair? In business anything you can get the other side to agree on is fair and the players agreed on this system. The flip side of it is that owners don’t get any of the endorsement money that players collect and they don’t even ask for it. But BRI aside, I think what the owners are doing is the not only the smart thing, it’s the right thing. 

I can’t think of any non-charitable business that wouldn’t jump at this opportunity so I can’t blame the owners for doing so. What business wouldn’t try to increase profits by cutting costs so long as they don’t lose productivity?

And in the NBA, productivity is games, and that brings me to my most important point: We haven’t missed out on any regular season games yet. 

So don’t panic, not until October 31st, at least. Let the businessmen do what businessmen do. Just because this is basketball doesn’t mean it’s immune to the ideals of capitalism. If NBA owners didn’t explore these channels to line their already wealthy pockets with more profits, I’d consider them stupid people. 

But we all already know NBA OWNERS ARE NOT STUPID PEOPLE.

@Suga_Shane

Photo via

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NBA Economics 101: NBA Ownership, hidden revenues and the plight of fans

The New Jersey Nets were officially introduced to Brooklyn today by none other than BK’s Marcy Project survivor, Jay-Z. After a year of searching for a name and an angle to re-brand the struggling franchise with, it looks like the team will stick with their original name; the Brooklyn Nets. 

But that’s not what we’re here to talk about. The Nets did make a big splash today in the blogosphere and twitter but not because of their more than obvious name announcement. They made headlines due to the fact that a well know and respected writer finally stepped up to dismiss the myth of NBA teams losing serious amounts of money. 

Malcolm Gladwell dropped a must-read post on Grantland today titled ‘The Nets and NBA Economics’, essentially touching on same points that fellow bloggers like @JonesOnTheNBA, @HPBasketball, @KBergCBS and myself have been championing for months. 

Read Gladwell’s piece. Read all of it and understand it. It’s got numbers in there that will make turn your insides and set fire to your heart. Perhaps it will burn off the wool that’s been pulled over the eye’s of the majority and it will be loud and clear; NBA OWNERSHIP IS A PROFITABLE BUSINESS. I can not express this enough.

NBA teams make a ton of revenue that doesn’t fall into the typical BRI (Basketball Related Income). Sure, NBA owners are mostly all billionaires and have various businesses and streams of income, but that’s not what we’re talking about here. We’re talking about business opportunities that only present themselves to the very select few that own a basketball team. 

Whether it’s Jerry Buss teaming up with AEG to build LA Live, Dan Gilbert leveraging his Cavaliers’ ownership to open Casinos in Ohio, Mark Cuban’s HDNet television networks and many, many more including the Nets moving to Brooklyn and helping fund the Atlantic Yards project, which will make millions for not only their current owner, Prokhorov, but also for the Nets’ previous ownership group.

I could go on for days on the various ‘side projects’ that were given birth by NBA ownership yet not a single dime has come to the players via their BRI Revenue Sharing model in the CBA. Not one dime. It’s not “basketball related” owners will argue. Those concerts that sell out and bring in revenue for the 200+ days that the NBA doesn’t have games, the off-season events that take place in your favorite team’s arena, all of the television stations launched around your home town teams, all of that revenue, not a single dime goes to the players yet not a single dollar would have been realized if it weren’t for the NBA and those same players. 

What city would approve hundreds of millions in funding for an arena if it were to only host concerts? What taxpayer would willingly pay more for beer if they weren’t able to have a home town team to cheer for? We, the people, the fans, give millions to billionaires for the promise of a team to cheer for, to die with and to celebrate with and in return we give them millions in unaccounted revenues.

I am a believer in capitalism and I see no harm in making a profit, even if that profit is extravagant, and that profitability would be perfectly fine with me and millions of other sports fans if the owners weren’t lying to us. Telling us that their businesses are crumbling and that the fan can no longer get their daily fix of the NBA until the players give them something back. But haven’t we given them enough? They’ve leveraged our abiding loyalty to our teams and cashed those chips in for billion dollar stadiums and matching net worth’s. Imagine a homeless man begging for quarters on the street corner, most of us would have no issues with handing that man a quarter. Now imagine after giving him that quarter, the man steps into his Ferrari and drives off to his mansion in Beverly Hills. That’s the what the owners are doing yet until today, most weren’t hadn’t seen the car or the house. For this, I applaud Gladwell, Grantland and ESPN, for finally shinning light on the grim, dark secrets of NBA ownership.  

The sad thing is that we will happily continue the financing their empires so long as they give us our sports. Entertainment for equity; that’s the ultimate price you pay as a sports fan. 

@Suga_Shane

More NBA Economics 101 posts.