These are exciting times in the National Basketball Association, and I mean that with utmost sincerity. The cloud of a year without professional basketball is heavy indeed, but those in power have a real chance to set the NBA on the true path and ensure success for the next decade with a well thought-out and fair Collective Bargaining Agreement. Will it happen? Judging from small samples the media has been able to procure from closed-door sessions between the owners and the players association, talks have been about as fruitful as a conversation with a brick wall. But alas, that’s just how these things seem to go, and real progress is never made until the 11th hour of the 11th hour of the 11th hour. And you know what? In some ways I don’t blame the two sides (Okay, that’s a lie), because the situation is about as complicated as it could be.
If you take a look at the current labor agreements of the four major professional sports—the NFL, MLB, NBA, and NHL—one thing should immediately jump out: they are all exceedingly different and each one boasts its own inherent strengths and weaknesses. For instance, the NHL and MLB possess excellent player development leagues integral to the health of their sports, while professional football and basketball tend to pluck their prospects from college and immediately toss them into the fire. A select few are ready to contribute right away, a few more reach their potential in several years, and the vast majority fail miserably. The NBA’s developmental league might contribute next to nil to the professional game, but its CBA boasts its own advantages. For example, NBA players earn a higher average salary than any other sports league in America and its players enjoy fully guaranteed contracts. NFL players, on the other hand, can be cut practically on a whim.
But there is one stipulation familiar to all our favorite leagues: revenue sharing. It’s the life-blood of the NFL and NHL, practically non-existent in the NBA, and eminently exploitable in baseball. Revenue sharing, of course, is the process by which teams pool their profits together and then split it up amongst the league. There’s different ways of splitting the revenue, but generally the richer teams fork over more money and lower market teams receive larger shares. Ideally, it evens the playing field between the bigger markets and smaller ones, and allows teams such as the Green Bay Packers or Buffalo Bills to compete. In terms of parity and revenue sharing the NFL is the league all others aspire to. But it begets several interesting questions: Is the NFL the outlier among professional sports—an unrealistic goal for the lesser leagues; and is parity truly necessary?
Zach Lowe tackled both questions in this excellent column before the holiday weekend. In his piece Lowe talked to David Berri, an economics professor at Southern Utah University. Berri had some very interesting things to say, namely that the sport of basketball is inherently uncompetitive. Lowe quotes him as saying, “The NBA has never been a competitive league, and it’s never going to be a competitive league” and, “Some teams get the best players and some teams don’t. However you shuffle the league, it’s going to be the case that a few teams are dominant and a bunch of teams are not — just like in the 1980s, with the Celtics, Pistons, Sixers and Lakers.” It’s hard to argue with what Berri says, as the post-merger NBA has been dominated by a select few teams—including the six-time champion Chicago Bulls of the 90’s, the trio of titles won by the Celtics in the 80’s, the 10 championships won by the Lakers over the past three decades, followed by the dynastic Spurs of the new millennium and a couple of titles won by the Pistons and Rockets. Commissioner Stern and company are constantly harping on a better competitive balance throughout the league, and point to revenue sharing as an excellent solution, but does the NBA truly need parity? I argued this in my previous piece on the labor front, but I’ll reiterate: parity in the top half of the NBA couldn’t be better, it’s the grand-canyon sized gap between the top half and the bottom half that is cause for concern.
Recently, thanks to some superb investigative journalism by Deadspin and ESPN it has come to light that NBA teams may be embellishing their financial data so as to seem worse off than they actually are. Specifically, Deadspin acquired financial documents from the 2005-2006 New Jersey Nets and ESPN took a look at documents leaked to the public that pertain to the New Orleans Hornets from the 2008-2009 season. Granted, the documents are dated, but both teams used archaic (yet perfectly legal) accounting tricks to accentuate their financial hardships according to both reports. Yet despite all that, Forbes still reports that 17 of the NBA’s 30 franchises lost money in 2009-2010 even though the league as a whole turned a profit thanks to teams such as the Bulls and Lakers who account for much of the league’s overall revenue.
Besides fibbing owners and accountants, one other issue stands between professional basketball’s current model and the NFL’s Holy Grail: television contracts. When folks argue against increased revenue sharing this is usually their biggest argument. Why? Because the NFL’s national television deal is so completely unique and un-replicable unless the NBA decides to cut its schedule by 65-odd games. The NFL, with its inimitable 16 game schedule was able to ink mammoth television deals with CBS, FOX, NBC, and ESPN so all its games are broadcast on national networks unlike in the NBA, where only a few games are seen on the big networks per week and the vast majority are shown on local stations. That’s not to say it’s impossible, just that revenue sharing in the NBA will be much more complicated, as teams will have to essentially give up money they earn from individual television deals they signed independently. Essentially, the structure of the NFL’s television contracts foster cooperation, while the NBA’s (and MLB’s) system does not. But here’s the minimal revenue sharing problem in a nutshell: The Laker’s—under the current system—aren’t required to share ANY of the enormous $150 million local television contract they inked recently with any other team, even if that figure alone is more than some teams make in a season from every revenue source they have, according to NBC Sports.
But that doesn’t mean a better revenue sharing system wouldn’t enhance the NBA’s already-excellent product. Critics point to small-market teams like the Oklahoma City Thunder as evidence that intelligent management and a little bit of luck is all it takes for lower-revenue teams to compete with the titans, and that plenty of massive-market franchises (such as the Los Angeles Clippers, New York Knicks, and Houston Rockets) fail despite being able to pay any number of players they would like. But will the Thunder be able to afford Kevin Durant, Russell Westbrook, James Harden, and Serge Ibaka in the future—four players who figure to cash in big-time (Durant already as) once their rookie contracts expire? The problem persists in baseball, where break-out players on small market teams are stolen by huge markets like the Red Sox and Yankees. Take the San Diego Padres for example, who lost elite talent Adrian Gonzalez this past offseason to the Boston Red Sox on a $154 million contract they simply couldn’t afford to match, or the Tampa Bay Rays who are forced to make difficult and often controversial personnel decisions every year.
Plenty of folk’s way more experienced with the “business of sports” than I am have offered up their own revenue sharing proposals. Andrew Zimbalist (a big name in sports economics), in Zach Lowe’s formerly referred to piece, endorsed a revenue sharing system that would redistribute the wealth based on market size rather than earned revenue. David Aldridge, in this superb piece about the lockout, proposes a plan in which teams split more of the percentage from ticket sales (like the NFL’s 60-40 split) and a split of local T.V money. Both are sound, and both would save the NBA.
The heart of the lockout lies in management’s belief that the players are making too much money, and they’re using what may or may not be faulty financial data to support their claim that franchises are losing money in droves. We’ll probably never know the truth as the NBA won’t open their books to the public, but revenue sharing remains an extremely viable solution being put on the back-burner by ownership. The Player’s Union is pushing for it to become a part of CBA negotiations but the suits won’t have it, claiming they can only deal with it after the core financial model of the league is determined—meaning once the players take massive pay-cuts and ownership is back in the black. My greatest fear is that the owners increase their profit margin at the expense of the players—just to save some money—while the health of the league is not actually improved. The rich continue to get richer, the poor end up turning a profit, but it’s all for naught because the gap hasn’t been closed.
Revenue sharing isn’t the magic elixir; the finite solution that will suddenly morph every team into a contender, or save David Kahn from himself. But it WILL give those small markets the extra ammunition they need to retain their stars, chase big-name free agents, and climb the mountaintop. And that, most of all, is what I want to see. Owners have no one to blame but themselves—after all they’re the ones that sign off on the hellacious and indefensible contracts given to the likes of Rashard Lewis, Baron Davis, and Gilbert Arenas—but from what we’ve seen the NBA’s model of business has some major faults, no matter the length some owners go to make it look like they’re losing more than they actually are.
The new Collective Bargaining Agreement will hinge on much, much more than revenue sharing, and I would like to cover the salary cap, the split of Basketball-Related Income (BRI), and player salaries in greater detail. However, I believe sharing the wealth is the most viable solution for struggling markets that doesn’t involve massive cuts to player salary and a draconian split of BRI. Just like in all negotiations, finding the middle ground is key…why not start with revenue sharing?
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