Blog Entry

Economists: Lost season 'insane' for NBA players

Posted on: October 31, 2011 11:38 pm
Edited on: October 31, 2011 11:41 pm
 
Posted by Ben Gollivernba-lockout

Tuesday is November 1, meaning the NBA lockout will officially enter its fifth month. We've now officially reached the stage where we find out how much "principle" is worth to the NBA's players.

Why? Because paychecks will finally be missed. Because each wave of cancellations brings with it a known cost. Because the National Basketball Players Association will soon reach the break even point where it will be more beneficial -- purely in their financial best interest -- to cave to the NBA's revenue demands rather than to hold a hard line.

Put simply, the money lost in salary will soon surpass the potential money to be saved in continuing negotiations. Once that happens, this whole thing becomes about principle. 

Two economists writing on Grantland.com assert that the nuclear option -- a completely lost 2011-2012 season -- would be a financially "insane" eventuality for the players, even given the penny-pinching offer currently offered by the league's owners.
The split on BRI (Basketball Related Income) is supposedly the biggest point of contention. Players want 52.5 percent (down from 57 in the previous contract). Owners are “adamant” on 50 percent and started with an initial lowball offer of 37. Take the NBA’s 2009-10 BRI estimate of $3.6 billion; 2.5 percent of that is $90 million. Let’s say the life of the contract is 6 years. The total value of that over six years, with reinvestment, is around $500 million.

Is it economically worthwhile for the players to hold out for $500 million?

No. Total NBA salaries last year were over $1.5 billion, about three times the amount they are fighting over. Canceling a third of the current season would wipe out the gain of winning the extra 2.5 percent of BRI over the life of the new collective bargaining agreement. Canceling the whole season over 2.5 percent of BRI is insane for the players.

Can the players stop the owners from getting a deal that is much worse for them than the previous Collective Bargaining Agreement? No. What the players are willing to agree to is already materially worse than before. The only question that remains is how bad it will get. Does the players’ line in the sand over 2.5 percent of BRI make economic sense? No, not if they miss many games to achieve it.
The NBPA is being advised by a leading economist, so the union is not blind to this reality. In fact, despite all of their rhetoric about being willing to lose multiple seasons to preserve their achievements in previous negotiations, the example set by the financial overhaul of the NHL surely is fresh in their minds. The players will come down off of their current position. It's only a matter of when, and, also, how painful.

If the NBA makes anything more than a modest concession on the revenue split in the next two weeks or so, there's a solid chance this thing gets done. If not, things could get even uglier. The important takeaway point here though is that the NBPA's decision-making is still, after all these months, being guided by rational thought and not emotion. If we're still having this same conversation on Dec. 15, with no substantial movement from either said, then emotion will have won out. That would be terrible, horribly frustrating news for all involved. 
Category: NBA
Comments

Since: May 17, 2008
Posted on: November 1, 2011 12:07 pm
 

Economists: Lost season 'insane' for NBA players

Second the cost of the lockout to the owners and the money they lose on a canceled season for $500 Million is not discussed. 
Good point, but I think the reason it is not discussed is that I think everyone realizes that the owners can afford the loss more than the players.  The mainly billionaire owners say they are already losing $300 million/year under the old deal.  If there is no season, the SAVE $500million in player salaries, so they are already $200million better off with no season as compared to playing--now with the lower BRI split that number will change, but the owners do still save the $500 million in salaries.  Even if they lose money this year...they still own their teams and can own then for decades with an opportunity to make money (and the NBA is usually not their only source of income) while an NBA player has, if he's lucky, maybe a 15 year career, but most much less---they have far less time to make money and will have a harder time "making up" what they lose by sitting out a year.

Bottom line -- if I am losing $300 million a year as an ownership group and sitting out a year over 2.5% of BRI saves me at least $500million in expenses, I am likely willing to do that in exchange for long term, "big picture" gains.  As a player, especially a 10+ year veteran, sitting out a year or more is all loss with any "big-picture" future gains likely being for somebody else's benefit (i.e. future players).  The players will give on this issue, but if I am the owners I might "throw them a bone" and offer 51% so the players can save some face and the league can get back to playing ball quicker.



Since: May 17, 2008
Posted on: November 1, 2011 11:57 am
 

Economists: Lost season 'insane' for NBA players

According to Aldridge, the league offered 50%, but that offer was tied to a de facto hard cap (in other words, a system under which any team subject to the luxury tax would be unable to use most salary cap exceptions).  The players were NOT offering to take 52.5% under that sort of system.  Instead, the players are offering to take 52.5% under a system in which luxury tax payers can use salary cap exceptions (but still pay luxury tax at an escalating rate).  Under that scenario, the owners are offering only 47%.  So the actual gap, on an apples-to-apples comparison, is 47% vs. 52.5%.  That's 5.5%.
I think this is wrong or outdated.  Every report I have read for more than a week says that the sides are both discussing a salary cap situation similar to the procedure now...the difference would be a more punitive "luxury tax" for exceeding the cap, increased revenue sharing, smaller and shorter mid-level exception, and shorter max contracts with smaller max raises, etc.  The "hard cap" proposal is long gone (and, in fact, an article in the NY Time (I think it was the Times) says next years salary cap will be the same as last years if not slightly higher).  The owners are now at 50%, the players at 52.5%.  If this is the only big difference in the two proposals the players are crazy not to take it (as supposedly some older players -- who realize how few years they have left, like Kobe Bryant, Garnett, etc---want to take it).




Since: Dec 29, 2007
Posted on: November 1, 2011 11:17 am
 

Economists: Lost season 'insane' for NBA players

I guess i just dont care. Where i work the owner sets my pay and i have two options. First he makes me an offer and i can accept it . Or i can look for other oppertunities. Ive been on my job for over twenty years. Let them go else where and try earning the insane amount of money they are getting! Owners can just start drafting players in a few years who cares Lebron who????



Since: Mar 19, 2008
Posted on: November 1, 2011 11:05 am
 

Economists: Lost season 'insane' for NBA players

If the NBA really wanted to play hard ball, they could simply pick 2 teams for contraction, come to what they determine to be a fair value to pay those 2 teams ownership and then tell the players union this; take our offer, or we close down 2 teams and further limit your options to play in this league.




Since: Jul 8, 2011
Posted on: November 1, 2011 10:48 am
 

Economists: Lost season 'insane' for NBA players

The Grantland analysis makes perfect sense, except for one gigantic problem: the parties are NOT 2.5% apart.  The actual gap is 5.5%.  David Aldridge reported this yesterday on NBA.com, but a lot of people in the media have been slow to pick up on it.  According to Aldridge, the league offered 50%, but that offer was tied to a de facto hard cap (in other words, a system under which any team subject to the luxury tax would be unable to use most salary cap exceptions).  The players were NOT offering to take 52.5% under that sort of system.  Instead, the players are offering to take 52.5% under a system in which luxury tax payers can use salary cap exceptions (but still pay luxury tax at an escalating rate).  Under that scenario, the owners are offering only 47%.  So the actual gap, on an apples-to-apples comparison, is 47% vs. 52.5%.  That's 5.5%.




Since: Aug 21, 2006
Posted on: November 1, 2011 10:17 am
 

Economists: Lost season 'insane' for NBA players

This is an easy fix.  The owners should close up shop, go home and tell the player's union to 'call us when you agree to our terms'.  And, not to bother us unless you do.  They will in a couple of weeks.

I would ove for that to happen. That would probably be the beginning of the end for the NBA. Lets see you have a league without players.



Since: Oct 16, 2006
Posted on: November 1, 2011 9:16 am
 

Economists: Lost season 'insane' for NBA players


This is an easy fix.  The owners should close up shop, go home and tell the player's union to 'call us when you agree to our terms'.  And, not to bother us unless you do.  They will in a couple of weeks.



Since: Aug 17, 2006
Posted on: November 1, 2011 8:07 am
 

Economists: Lost season 'insane' for NBA players

First the owners locked out the players, it is not a strike.

Second the cost of the lockout to the owners and the money they lose on a canceled season for $500 Million is not discussed.   


Third the current contract sets the groundwork for the next contract so there is more money at stake than just the current contract, especially if the players are considered weak.

Fourth neither side is looking at what will make the sport grow, which is putting a better product on the court,  more competative balance among teams, NFL style, more effort in games, and better competition.  More revenue sharing with a hard cap and a hard floor on contracts combined with shorter incentive based contracts should fix what is a sometimes very boring game, especially if you are fan of the 76ers, Wizards, Bobcats, Kings, Clippers, Timberwolves, Bucks and moving forward the Cavaliers, Nets and Warriors.      



Since: Sep 20, 2006
Posted on: November 1, 2011 7:53 am
 

Economists: Lost season 'insane' for NBA players

It's not insanity that is the problem- it's intelligence...or lack of it.

Billy Hunter and Derek Fisher were hired by the NBPA union members to represent THEM...ALL the players....but, in fact, they are only representing the top paid 2 dozen players in the NBA....the Kobe's, LeBron', Wades, etc...the issues that stall the lockout won't effect
the other 90% of the players who average around $5 mil a year.

A lot of people are paying for mistakes of a few.

A half dozen owners got the NBA into this situation, by overpaying a couple of dozen max contract players beyond what the NBA profit margin will bear.

 The lockout is the rest of the owners only way to correct that mistake. Unfortunately, those same overpaid stars can afford to wait forever, and ARE the reason the lockout continues....they refuse to give enough back for the NBA to make a profit. They either don't understand that the NBA that pays them, is a business that has to make a profit to continue, or they refuse to believe the NBA is losing money-even though the IRS, a Federal Mediator and 3 dozen financial experts have confirmed it.

For the NBPA, they will soon understand it IS all about money, and they have to know they have to lose. What they are looking for now, is a "surrender with dignity"....a concession they can hang their pride on.

If there is justice, the NBA will insure the $100 million they have to extract from players will come from the max contracts responsible for all this.

People need to consider that before buying a pair of shoes with these slumdog millionaires name on them.   



Since: Sep 23, 2007
Posted on: November 1, 2011 7:51 am
 

Economists: Lost season 'insane' for NBA players

Ceghill, let's hope the players are not as ignorant as you.   Some of the owners are losing money on their investment.  For ego reasons some may not mind in the short term if their team is winning but no good businessman is going to continue to lose money if the team is not bringing him positive press.   You state that the $500 million difference should not make a difference to the owners but since there is only 30 of them, that is nearly 17 million an owner.  With 420 players that is about $1.2 million a player.  If owners have to go deep into the playoffs to see a financial return then they may truly be ready to see this season go away.  The owners all have other investments that will continue to bring them income. 

The NBA will find that if they lose a season that like the NHL they will not be able to plug back into their fanbase without a significant loss.  People will find other places to invest their time and money and many will be slow to return and I am sure some will never return.


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