Archive for July, 2011

11
Jul
11

Why the NBA can and will have two leagues

If you read the sports news you know a lot of talk over the last few months has centered on lockouts, the one going on right now in the NFL, which should be resolved soon, and the one that just began in the NBA which most experts agree will take a very long time to resolve. The consensus opinion is that most if not all of next years NBA season will be cancelled, and the more I look at this thing I am starting to agree. Although it is great that my Dallas Mavericks won the NBA championship, what is happening in basketball right now is not great for the NBA or its fans. Make no mistake. This league is in serious trouble.

According to the NBA owners 22 of 30 teams lost money last year, and there are reports that the league revenues are down by as much as $300 million over the last few years. To be fair, nobody knows exactly how much money the league has made or lost because they don’t open their books to the public, and their are discrepancies in accounting practices. But one look at the games, and the teams suggests that they are losing money, how much we can’t be sure. The Atlanta Hawks and the Milwaukee Bucks are two teams that come to mind that never sell out games and are usually at half capacity or less. The NBA does make money from t.v. contracts but not the kind of crazy money thrown at the NFL, and with the recession both tickets sales and merchandising revenue are down significantly. In short, the NBA is losing money and wants to drasticly cut salaries to offset this.

Right now the NBA salary cap is set at $58 million, but because it is a soft cap with long term contracts and luxury tax penalties, most teams salaries run revenues in the 60 to 70 million range, so league salaries reach approximately 1.7 billion, and players are currently guaranteed 57% of all league revenues. The NBA owners would like to reduce that number to less than 50% and cut salaries to approximately 750 million. Whatever the numbers end up being there is no question that the owners and the players are way far apart.

Ordinarily in these situations I side with the owners because, frankly, it is there money. Yes, they make money from fans, but they are the ones charged with spending it and putting together teams. If your boss thought you were paid too much he would have every right to ask you to take a pay cut, or fire you. And in essence, there is no difference to me when it comes to pro sports leagues. Owners have few options if they are losing money. They can cut players salaries or raise ticket, and merchandise prices, and in a down economy that last one isn’t going to fly. But the problem is the NBA isn’t like the NFL. In the NBA the product really is the players. It wouldn’t bother me if the Cowboys found new players, I would still watch them. But there is no other Dirk Nowitzki out there if you’re a Mavs fan. If you like the Lakers you can’t just go out and find another Kobe. The NBA is a star-driven league and without the stars people don’t watch. If you want proof just look at what happened right after Michael Jordan retired. The league was in the toilet for five years. The NBA also does the best job of keeping its players together on the same team (the Miami Heat fiasco not withstanding). The Lakers, Spurs, Mavs, and Celtics, the teams that have combined to win the last five NBA Championships all have three or more players that have been on the roster for at least four years, and until Phil Jackson’s retirement coaches that have been there at least three years. You don’t see a ton of guys move around in the NBA which is why fans have a closer relationship with the players on the teams they watch.

The NBA players also have one more advantage in these negotiations that they have not had in years past. There are now other countries that are willing to pay significant money to attract NBA players to come over and play in their leagues. Rumor has it top guys can make up to ten million a year to play in China and Europe, not counting endorsements. Deron Williams, the point guard for the Nets has already agreed to a deal to play in Turkey next season if there is a lockout. Kobe Bryant is in high demand in China and play over there in an exhibition league this season. And this isn’t the leagues of twenty years ago. There are good players in Europe and China now, multi-million dollar stadiums and a huge fan base. If the players don’t get a good deal, the very top guys can leave and make comparable money. You don’t think Dirk couldn’t play in Germany, Tony Parker in France, Steve Nash in Canada? You get the idea.

So if the NBA players have an advantage in these negotiations, and I believe they do, and the NBA owners are adament about reducing players salaries, and they certainly are, how can we expect that these two sides will come together? The answer is simple. One day, sooner or later, the NBA will have to divide itself into two leagues. Typically in pro sports this works the other way around. You will see two leagues come together in order to grow the game. This was the case with the famous AFL/NFL merger in the 1960’s. But we have seen in recent years, with both the MLB and the NHL the idea of contraction coming into play. Bad teams (like the Expos) are either folded or moved to another market. By my estimation the NBA should contract at least four franchises (Hawks, Bucks, Raptors, Timberwolves). Of the four only the Bucks have any real history, and that is only because Kareem passed through there, and all four have apathetic fan bases, and draw almost no crowds, or make any money. There are other franchises like the Clippers and Nets that are down right now, but that is mostly because of the way they are run. Both are in good markets, and could turn it around. In any case there is no way to make some of these franchises profitable without dratic reduction in players salaries, and so the NBA may be forced to contract, or move these teams.

On the other hand the NBA is one of the few professional sports leagues that has no true minor league, and the game is huge overseas. The NFL once tried to grow its game by creating NFL Europe, and it was mostly a disaster, but that was because of the sport, not the market. People overseas don’t know american football real well, but they do know the NBA. They play it and watch it all the time now. A developmental league that played some of its games overseas would be a great advetisement for the league. The league could play six to eight teams on a shortened season (during the summer would be idea) and it would allow the NBA to stockpile young talent and scout European and Chinese players. More importantly, by shifting some of the NBA into a cheaper league, you could remove unprofitable teams and reduce the current NBA to say, 24 teams. The popular teams would stay, and because you have no bad teams drawing revenue, there would be more of a piece of the pie for players to split up.

This move is not just a way to save money. In the next ten years it may be the only way for the NBA to survive. If the game grows in China at the rate it currently is, young superstars may start playing over there anyway, and the NBA will lose out on future prospects. This is already happening in baseball where good players frequently head to Japan if the deal is right. The NBA could be forward thinking, and remodel its league to reflect a more global approach. If they don’t do it, someone will beat them to it.

Even more scary is that the NBA players could break away and start their own leagues. Some of these guys, like Jordan, Shaq, Lebron make enough money to buy their own teams anyway. They are not bound to the NBA. My guess is that their will be basketball sometime next year (probably January) because the two sides both have too much to lose right now. But it is doubtful that any new CBA will adress all of the current problems that basketball has, and in a few years both sides will be in a labor dispute again.

The NBA has to dramatically change the way in which it does business. Without change they are doomed to fail.  A new global NBA, divided into an American and World League seems radical right now, but it is the way to go. Some day it may be more than an idea, but the only viable option left.

Sincerely,

Jack B,