The NBA Players Should Not Cave, Season Be Damned

Written on:November 6, 2011
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This past Tuesday night was a downer. Instead of enjoying one of my favorite nights of the year by ordering pizza, plopping down on the couch, and watching the opening night of a new NBA season on television, I was twiddling my thumbs. I was actually catching up on some work, but it was totally depressing to know that I should have been enjoying the NBA tip off. Last Tuesday should have been a night for me to root for the Chicago Bulls to blowout the Dallas Mavericks and embarass the new champs during their first ever ring cermony. Being a die-hard San Antonio Spurs fan, this would have given me immense satisfaction. I’m about as big of an NBA fan as you will find. I watch regular season NBA basketball regularly, and I watch my beloved Spurs religously. When I can’t watch a Spurs game live, I will DVR it and watch it later whilst going to extreme measures to avoid accidentally finding out the outcome before I have personally watched every play. This has become increasingly difficult in recent years with the explosion of communication technology but I have become very adept at cutting myself off from all forms of communication that might accidentally inform me of the score from the moment a Spurs game tips to the moment I can sit down and watch it. My wife thinks I’m a bit psychotic in that respect, but I’m sure there are plenty of hardcore NBA fanatics that can relate. Most NBA fans of this caliber probably care much more about the cancelled games than they do about who is right and who is wrong in the NBA labor dispute. Die-hard NBA fans are justifiably upset that the season did not start on time and most probably just want any deal to be reached that can save a 2011-12 NBA season. I cannot count myself among them. As much as I would love to have a season and have an opportunity to watch my Spurs make one last title run, I would rather see the entire NBA season canceled than see the players cave to the owners in order to finalize a new labor contract.

Trust me, at this point, I’m beginning to imagine the void I will experience if the NBA cancels its season. I am not rooting for this to happen. NBA basketball has been a huge part of my life since I was about 6 years old. The idea of a whole year passing by without getting to experience the rollercoaster of jubilation and agony that comes with being a die-hard fan is terribly depressing to me. Don’t get me wrong, I can put it into perspective. It is fundamentally inconsequential to my pursuit of fulfillment whether the NBA has a season or not. There are far, far more important things that actually have a direct impact on my welfare and will easily fill the void left by not getting to be an NBA fan this year. Nonetheless, I would consider it a very significant loss from the perspective that watching NBA basketball is at the top of the food chain in my diet of entertainment pastimes. I would go as far as to say that I am an NBA basketball addict. During the off-season, I start going through withdrawals. By August or September, I occasionally begin popping in DVD’s of old Spurs NBA Finals games to relive the glory days and to get my NBA basketball viewing fix. My wife becomes flabbergasted when my condition deteriorates to the point where she wakes up in the middle of a Saturday night to find me out on the couch lying in a blanket of my own empty beer bottles and Cheetos crumbs with Game 5 of the 2005 NBA Finals blaring from the TV. And this is my condition after only two or three months without NBA basketball, I only dare venture a guess for how bad it would be after 12 months without the NBA. I say this facetiously, but I also say it to emphasize that I will be personally affected if the two sides in the labor dispute can’t reach an agreement to save the season. As a fan, the terms of a potential agreement are irrelevant to my ability to enjoy the product of NBA basketball games. However, as much as my fanhood is important to me, my principles are much more important to me. As a union organizer, I am priveleged to get to fight for economic justice for a living. On that note, I think it bares mentioning that there are thousands of working class Americans whose livelihoods are also directly affected by the league’s lockout, not just that of the millionaire players.  There are currently thousands of team and stadium employees who are also going without paychecks as the lockout extends. Nonetheless, as much of a stretch as it is to compare the economics of the NBA labor dispute between millionaires and billionaires to the economics of working class Americans, the economic principles are the same. The NBA players are a labor force that the business is demanding take a huge pay cut so that the business owners can continue to increase profits. The NBA players have bargained in good faith and have been willing to sacrafice to allow the league to revamp its business model. However, the NBA owners have taken a hard stance to shift the entire burden of the league’s financial difficulties onto the players. The owners are wrong and the players are right not to cave to this. I fully support the NBA players continuing to hold out for a fair deal even at the risk of losing the season. Should the season be lost, I will be extremely frustrated but I will direct 100 percent of that frustration at the NBA owners. All NBA fans should do the same.

On the surface, the NBA owners’ argument is that 22 of the league’s 30 franchises are losing money to the tune of around $370 million a year, collectively, and that it is simply not sustainable to continue to operate with a labor contract that apportions more than 50 percent of basketball related income to the players. Digging a little deeper beneath the surface, this is actually somewhat of an accounting trick. The league is including each franchise owner’s liabilties from the purchase of a team as liabilities on the balance sheet of the franchise’s yearly operating budget. In essence, the league is conflating the revenue needed for a franchise owner to pay down debt with the revenue needed to operate the franchise for a fiscal year in the black. The NBA Players Association Executive Director Billy Hunter contends “There might not be any losses at all. It depends on what accounting procedure is used. If you decide you don’t count interest and depreciation, you already lop off 250 [million] of the 370 million dollars.” Source: – Is the NBA Really Losing Money?. Accounting for the long term liability of an NBA owner into the balance sheet to determine the franchise’s profitabiltiy is a perfectly acceptable business practice. However, selling the public on the idea that these owners are losing $370 million dollars annually in operating costs for the purpose of increasing leverage against the players is disingenuous. Essentially, the league is demanding that the players help bail out a group of 22 owners who bought in over their heads by selling the cutbacks to the public as necessary to allow these owners to operate a normal business in the black.

But basketball is not a normal business. Upon purchasing their assets, many NBA owners have already entered into a sweetheart business scenario in the sense that local tax payers in many of these teams’ communities have either subsidized or paid for the building of the arena that the team plays in. Malcolm Gladwell writes that “since 2000, there have been eight basketball stadiums either built or renovated for NBA teams at a cost of $2 billion — and $1.75 billion of that came from public funds.” Source: Grantland – ‘Psychic’ Benefits and the NBA Lockout. The NBA owners are already benefiting from socialized liabilities and privatized profits. Gladwell goes on to point out that the NBA owners are only losing money if you place the ‘psychic’ benefit to owning an NBA franchise at zero. Because NBA franchises are such a rare commodity, each and every owner stands to make up for any losses plus a substancial profit upon selling the franchise. In the same article he writes, “When sports teams change hands, however, the actual sales price is invariably higher. Forbes valued the Detroit Pistons at $360 million. They just sold for $420 million. Forbes valued the Wizards at $322 million. They just sold for $551 million. Forbes said that the Warriors were worth $363 million. They just sold for $450 million. There are a number of reasons why the Forbes number is consistently too low. The simplest is that Forbes is evaluating franchises strictly as businesses. But they are being bought by people who care passionately about sports — and the $90 million premium that the Warriors’ new owners were willing to pay represents the psychic benefit of owning a sports team.”

To further illustrate the hole in the league’s argument that the business model is broken for NBA franchise owners, lets take one of the franchises that Gladwell references and use it in a hypothetical example. In this hypothetical, we will use the Golden State Warriors and we will use the league’s own assumptions about annual losses including allowing the long term liability of the franchise to be included in the yearly operating budget. In 2010, the Golden State Warriors were sold for $450 million. Chris Cohan, the seller, originally bought the team in 1995 for $119 million. Source: – Lacob, Guber Have Deal to Buy Warriors. Even if he had operated the team for 15 years at the average loss per year of $16 million (the $370 million annual losses the league is claiming divided by 22 teams the league claims are in the red), he would have lost a total of $240 million. Therefore his sale of the team for $450 million minus the $240 million in losses and minus his original investment of $119 million would mean that he still would have sold the team for a profit of $91 million dollars. Of course, in reality, the team did not lose anywhere near that amount of money during this 15 year time period (most of the financial difficulties the league is reporting arose after the financial collapse of 2008) so his actual profit was substantially higher. I have not heard any talk from the owners’ side of the bargaining table of offering a percentage of the profits upon sale of a franchise to NBA players. Yet even when you take the league’s assertion of annual losses at face value, the owners still stand to make a profit when they sell because of the ‘psychic’ benefit to owning a franchise. Therefore, the long term liabilities that many NBA franchise owners incur when purchasing a team should not be applicable to negotiations with the players unless the owners want to allow the players to share in the profits that the premium of owning an NBA franchise generate. Since the NBA will never offer to allow the players to share in this premium, essentially this means that the owners are demanding that the players help them pay down their debts now in order to maximize the windfall profits they will make when they sell their franchises above market value. It is the players’ unique talents and hard labor that creates the ‘psychic’ benefit that generates the premium on franchises and allows basketball to operate outside the realm of a normal business. I don’t think many die-hard fans are filling up arenas and tuning into televison broadcasts night after night to look up into the luxury box and root for the team’s owner to turn a net profit. While bargaining in good faith the players have already conceded more than enough to cover any losses that franchises are incurring from actual operating expenses. What the owners are demanding is exploitation of labor and the players should not stand for it.

In a similar labor dispute in 1998, an NBA player famously told then Washington Wizards owner Abe Pollin, “If you can’t make a profit, then maybe you should sell your team.” That NBA player was Michael Jordan. Source: Spurs Nation – MJ’s Perspective Changes With Team Ownership. Jordan is now the managing partner in the Charlotte Bobcats franchise and is part of a group of about 10 to 14 NBA owners who are pushing the league to hold a hard line by offering the players only 47 percent of basketball related income (BRI). Because of the fact that Jordan made a significant part of the fortune that afforded him the means to become the majority owner of an NBA franchise by collecting checks on the other side of the table, he might be prudent to remember where he came from. For the 1996-97 and 1997-98 seasons, Jordan brought in salaries of $30 million and $33 million, respectively. I might point out that it was because of the work of the union (when he was a member) that the contract which he signed in 1996 allowed him to earn more per season than the maximum salary a player could earn under the just-expired labor contract. Since Jordan’s playing days, the league has instituted a maximum on players’ salaries. The highest paid player in the 2010-11 season was Kobe Bryant, earning just under $25 million. The league has already been putting a squeeze on the players over the course of the last two labor contracts, yet Jordan is now on the extreme end of the owners’ bargaining position. The idea that Jordan, who is the only ex-NBA player to become a majority owner and who even delayed the announcement of his retirment from the Chicago Bulls until after the end of the 1998-99 NBA lockout so that he could stand in solidarity with those NBA players, is pushing so aggressively to serve his own interests now at the expense of the current players is reprehesible. Jordan is in the unique position to be the ultimate arbiter for a fair labor deal given that he is the only human being who has sat on both sides of the negotiating table yet he has chosen to attempt to squeeze the players for every penny he can rather than embrace what he must know in his heart to be the extremely generous concessions the players have already agreed to. If Jordan is too leveraged in debt to make a profit owning the Charlotte Bobcats, then maybe he should hede his own advice and sell the team.

In the most recent round of negotiations yesterday, the NBA offered a sliding scale in which the players would be able to earn between 49 and 51 percent of basketball related income (BRI). The owners then followed this offer with an ultimatum, either the players can accept this deal by Wednesday or the league will reduce its offer back down to 47 percent of BRI. The NBA players have held firm to this point by expressing that they will not accept anything less than 52.5 percent of BRI. This is already a huge concession from the 57 percent that they were afforded in the previous labor contract. The players should not cave to the owners’ ultimatum. If more of the season is lost, it is the owners’ fault, not the players. All of the various team and stadium employees who are also losing income as a casualty of a prolonged lockout should blame the owners and not the players, and do it vocally. All of the die-hard fans who are already feeling the void of having the early part of the season cancelled should blame the owners and not the players, and do it vocally. Allocating between 52 and 57 percent of income to labor is indeed at the high end of most corporate business models in America, but it is not unreasonable. The general rule of thumb is that the more specialized the labor force the higher the allocation of resources to salaries and benefits. The NBA players just about epitomize a specialized labor force as these athletes’ talents are unequalable and irreplaceable. A replacement labor force for the locked out players does not exist. Without the countless hours that the players put into developing their skills to be able to compete at the highest level, there would be no business of basketball that would allow billionaires the privilege to not only own a team but to eventually take advantage of the ‘psychic’ benefit by selling it at a substantial premium over its market value. The league should be counting its blessings that the players are willing to meet them halfway by conceding to take 52.5 percent when the previous contract provided them with 57 percent. The owners should do right by the players, the currently out of work team and stadium employees, and the die-hard fans and accept the concessions that the players have already generously offered while negotiating in good faith. The players should not concede another dime even if it means that this season will be cancelled. As a die-hard NBA fan, I will be rooting for the players to hold the line as hard as I root for the Spurs to win a playoff series, season be damned. After all, should the season be lost and I have to really find out what 12 months of withdrawals from NBA basketball feels like, it will be the owners who will have cancelled the season. As much as they will attempt to spread the blame around, this die-hard NBA fan will apportion all of the blame upon them and I will never, ever forget who was at fault.

In solidarity with NBA Players United.

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