The "Sports Professor" Rick Horrow, in conjunction with promotional partner Northern Trust, reviews the major business issues that the NBA is dealing with heading into the NBA Finals.
One month into the NBA playoff season, the league anticipates one of the most unpredictable and competitive NBA Finals in recent years.
The NBA focused on its major pluses when the Playoffs began in early April: $3 billion in overall revenues; $765 million in annual television rights fees; and an average franchise value of over $302 million (as compared to $15 million merely 20 years ago).
Yet negotiations between the NBA and its Players Association just hit a major snag. The Collective Bargaining Agreement is scheduled to expire on June 30. As both sides predicted a "relatively painless" contract extension during press remarks at Denver's All-Star Game in February, and the parties looked "very close to a deal" on April 17, negotiations have reached an "alarming" stage, and a work stoppage looms for the first time since the 1998-99 season.
Starting with the Collective Bargaining Agreement, the NBA remains focused on three key business issues during the Playoffs.
BASKETBALL ISSUE ONE: INTENSIFY DISCUSSIONS TO REACH A NEW COLLECTIVE BARGAINING AGREEMENT BEFORE THE JUNE 30 DEADLINE
NBA executives have delicately gone on record blaming players' agents for balking on the previously committed five-year contract term. "We need to get back to the table without the agents injecting themselves into our negotiations as they currently have," said Commissioner David Stern. NBPA President Michael Curry insisted that "we hadn't agreed on anything. When we ran the numbers with our economists, it didn't work."
The negotiations revolve around four basic issues: (1) Current seven-year contract length vs. the five-year limit desired by the NBA; (2) Salary cap – players want 51 percent; today's number is 48 percent; (3) Minimum age limit – the league wants a minimum age of 20, and players are resisting; and (4) Restructuring salary cap exceptions – of the four major exceptions, each has its own specific benefits for signing existing players, free agents, and the like.
The rhetoric now seems startlingly similar to that preceding the NHL lockout, though both sides in basketball have a long-term history of working things out over time. With $3 billion of annual revenue at stake, the angst over the National Hockey League stoppage and current National Football League negotiations, both sides have adequate incentives to settle.
On the other hand, most NBA teams are claiming to lose substantial revenues. The four conference finalists seem to be doing fairly well: The Detroit Pistons increased television ad revenue by 18 percent, and broke into the black during the second round of the Playoffs. The Miami Heat posted the third highest attendance in the league, and first-time season ticket holders renewed at a 90 percent rate.
For many other teams, however, prospects appear troubling. The pressure is particularly acute on the Atlanta Hawks, Philadelphia 76ers, New York Knicks, and Denver Nuggets – all teams whose owners also have National Hockey League franchises. Last week, Commissioner Stern said that a "large seller" of NBA merchandise cancelled future orders, and more pressure will be brought to bear to reach a labor partnership before it is too late.
BASKETBALL ISSUE TWO: MAXIMIZE TRADITIONAL TELEVISION AND CORPORATE REVENUE WHILE SEEKING ADDITIONAL CREATIVE REVENUE SOURCES
Halfway through the $4.6 billion television deal with ABC and the Turner family of networks, results are mixed. The first two rounds of the Playoffs were viewed by 31 percent less network viewers on ABC. TNT's ratings, however, have been better over the past two weeks. ABC has been actively promoting the NBA Finals with Fox with ads starring Julius Erving and others. The network will also christen the four games needed to win the NBA Finals "The Fantastic Four" as part of a joint NBA and 20th Century Fox promotion behind the feature film of the same name scheduled for release on July 4.
