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.
More NBA Economics 101 posts.