Sharing is glaring discrepancy in revenue debate
NEW YORK -- James Dolan and Jeanie Buss emerged together from the NBA's first collective bargaining session in four years, walking at a Manhattan pace through the lobby of the Omni Berkshire Place. They were talking about one of Dolan's favorite subjects, rock 'n' roll.
Upon being greeted by a couple of reporters on 52nd Street, the famously media-averse Dolan forced an uncomfortable smile and said to Buss in his gravelly voice, "This is what we get for being the first ones out."
The first ones out, indeed. Why would representatives of the two biggest cash cows in the NBA need to stay a minute longer than required for a negotiating session that touched on one of the dirty little secrets of professional basketball: The disparity between the haves and the have-nots is growing exponentially. Not that Dolan or Buss would notice, given the cacophony of cars, cabs and honking horns -- not to mention the cash registers going "cha-ching" back at the office.
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| James Dolan's Knicks rake in the money -- which, of course, doesn't mean they've spent it wisely. (Getty Images) |
• Class Warfare Index: Comparing haves, have-nots
Buss, the Lakers' executive vice president of business operations, looked every bit the part of the powerful Manhattan businesswoman as she waited with Dolan for a limo Tuesday. And why wouldn't she? At least Lakers fans get championships for their league-high $121.07 per ticket. The team that is run by Buss' father, Dr. Jerry Buss, and coached by her soul mate, Phil Jackson, generates a league-high $1.96 million per home game at Staples Center -- more than six times the Memphis Grizzlies' paltry $322,105 take at the gate.
Yes, life is good at the top.
Life is not so good at the bottom, as small-market owners and executives in attendance at Tuesday's inaugural collective bargaining session could attest. The owners and players are getting started a year early in discussions aimed at avoiding a lockout and restoring fiscal sanity to the NBA. But perhaps the most important crisis facing David Stern's empire is one that the NBA and its players union have never before included in collective bargaining process: revenue sharing.
The widening chasm between the league's money-making teams and those fighting over the crumbs was never more evident than in this summer's free-agent market. Teams like the Celtics, Lakers, Cavaliers, Spurs, Mavericks, Pistons and Raptors -- a murderer's row of revenue -- went on spending sprees. The teams that can't sell enough tickets or charge enough for them sat on the sideline. Worse, some shed payroll in salary-dump deals designed to keep the franchises viable on an increasingly lopsided playing field.
In the 2008-09 season, nine teams accounted for roughly half the ticket revenue in the 30-team NBA, according to the league data: the Lakers, Knicks, Celtics, Suns, Bulls, Cavaliers, Warriors, Mavericks and Raptors. The reasons vary from location and pricing power to, in some cases, the luck of the draft lottery. Cleveland, for example, is a small-market team that is well above the league average in all ticket-revenue categories because of the presence of You-Know-Who.
In all, 12 teams netted more than $1 million in ticket revenue per home game, the others being the Thunder, Rockets and Spurs. Of these, seven made the playoffs.
In contrast were 12 bottom feeders accounting for only 26 percent of ticket revenue: the Grizzlies, Timberwolves, Bucks, Hawks, Pacers, Bobcats, Wizards, Nuggets, 76ers, Nets, Hornets and Clippers. Only the Hawks, Nuggets, Hornets and Sixers made the playoffs.
• Berger: Ticket sales are down ... so try harder
Other leagues -- most notably the NFL and, to a lesser extent, Major League Baseball -- address the disparity in markets through aggressive revenue sharing models. The NFL is the gold standard for parity, sharing national broadcast, online and licensing revenue equally among its 32 teams and also setting aside 34 percent of stadium gate receipts for visiting teams.
Similarly, the NBA shares its national and international broadcast and digital revenue equally among its 30 teams, as well as national licensing and merchandise revenue. But arena revenue -- where the disparity is most evident and growing -- is not shared. Local broadcast revenue, which unequally rewards the big-market teams, is shared only to the extent that it is generated more than 75 miles from a team's home market.
Using the league data obtained by CBSSports.com, Jim Grinstead of Revenues from Sports Venues created sort of a Class Warfare Index for NBA teams. It shows some things you'd expect -- such as some of the biggest-market teams making the most money on ticket sales -- and some things you might not. Portland, New Orleans and Orlando are great examples of why a better revenue sharing model is needed. All three teams were above the league average in total ticket sales but below average in ticket revenue simply because those markets can't support high enough prices. The Blazers are the most blatant example, selling an average of 17,872 tickets per game (third in the league) but generating only $813,809 per game (15th).
"The key on Portland and New Orleans is that they aren't maximizing their ticket revenues per fan in the stands compared with other teams," Grinstead said. "It could be that they are underpriced, or it could be that their market won't allow more aggressive pricing. You can't charge New York prices in Milwaukee."
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| Portland Fans fill the Rose Garden seats, but the Blazers can't charge what big-market teams do. (Getty Images) |
The NBA's luxury tax acts as a revenue-sharing instrument to the extent that teams exceeding the threshold -- $69.92 million of payroll for the 2009-10 season -- pay the teams that aren't. The NBA also has used a little-known "assistance program" to help low-revenue teams since the 2005-06 season, said Joel Litvin, the NBA's president of league and basketball operations. A struggling team in a two-team market, such as the Nets or Clippers, could qualify even though they're in a large city.
The NFL has a similar program that provides $10 million to $15 million in additional shared revenue per season, according to an NFL source. The NBA declined to detail how much money its assistance program provides to low-revenue teams, but Litvin said the amount increased in 2008 when owners voted to extend the program.
Revenue sharing has not been included in previous collective bargaining negotiations because both sides view it as an internal issue for the owners. But that attitude has changed this time around, given concern on both sides about how the sagging economy could affect business. With the salary cap expected to decline in the last two seasons of the current CBA and owners asking for a greater share of revenue in the next agreement, the union is concerned that players' movement and earnings will be further restricted by the growing number of teams unable to compete financially.
"We think it's important for them to address the disparity in revenue from the high-end to the low-end teams," a players association source said. "But I haven't heard anything about what they plan to do."
That's the problem. High-rollers like Dolan and Buss aren't eager to share their riches with the Grizzlies and Timberwolves of the world. For one thing, why mess with a model that's working for them? For another, owners in prime markets paid a premium to own those teams because of their lucrative revenue streams. When you throw in the fact that successful teams don't want to be on the hook for franchises that spend foolishly -- Mr. Dolan, I think your limo just pulled up -- the battle lines are clear.
"Most owners think it's pretty farcical that they need to support a New Orleans team that's used the full mid-level exception four years in a row," said a front-office executive whose team is among the top generators of ticket revenue. "The other owners are like, 'Why am I going to help you when you've been spending money you don't have?'"
Perhaps this explains why the owners' negotiating committee, which had been expected to unveil the framework of a new revenue sharing plan Tuesday, didn't do so. Getting big-market and small-market owners to agree on how to share the wealth could be more difficult than getting the owners and players on the same page.
"It'll be a brawl," the front-office executive said. "It'll be really ugly at that point. If [revenue sharing] is what they're going to try to do, I can't believe there will be a whole lot of consensus on how to get there."
• Berger: Owners share grim figures at CBA talks
Short of adjusting the league's revenue-sharing formula or forcing low-revenue teams to find other income sources, there are only two solutions left. One has been tried: relocation. Another has not: contraction.
"The long-term strategy that the NBA has to grapple with is not just revenue sharing, but do I have teams in the right cities?" said Grinstead, whose Nashville-based publication tracks stadium revenue in all major sports. "If I pull a team out of Minnesota, am I moving to a market that helps me?"
Stern did not comment after the CBA talks this week in New York. But in his pre-Finals address, he acknowledged some teams are struggling and said all aspects of a new revenue-sharing model will be on the table. "We're continually discussing issues of revenue sharing," Stern said. "We've always had owners who do less well, and they have issues about how they're going to fund their teams. But overall, we're doing pretty well."
And pretty well has 30 different definitions.
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