When the owners and David Stern blame the NBA lockout on rising expenses, don't believe that it's player contracts that are growing out of control.
Jul 7, 2011 - In the course of making their case in the lead-up to the 2011 NBA Lockout, the league's franchise owners have argued that the current system doesn't work because players make too much money. As evidence, the league has said that owners have yet to make a profit in any season under the current collective bargaining agreement. A source familiar with the audited financial reports presented to the players' union tells SBNation.com that the NBA lost $1.5 billion between 2005-06 and 2009-10, and is looking at estimated losses of $300 million for the 2010-11 season. (Note: Forbes also reported these numbers on Wednesday.)
A season which saw amazing ratings increases, an attendance bump and -- as a result -- a not-inconsequential revenue bump. Yet the losses continued, according to the NBA's financials. That must mean that expenses keep piling up, right? And that must mean player salaries are out of control, right?
Well, not really.
Under the now-expired collective bargaining agreement, player payroll is tied to a benchmark -- 57 percent of basketball-related revenue. The league actually keeps 8 percent of each player's annual salary in order to keep payroll costs at that 57 percent threshold; if total payroll comes in under 57 percent, enough money in escrow goes out to the players to true up the books. If total payroll exceeds 57 percent, owners keep the portion in excess that's in escrow. The benchmark is a legit constraint; TrueHoop's Henry Abbott has brilliantly noted that the 57 percent benchmark is effectively the hard cap that the NBA owners seek.
As such, as revenue grows, player salaries grow proportionately. If revenue falls, player salaries fall proportionately. The NBA can argue (and has argued) that the deal they signed in 1999 and re-upped in 2005 sucks, and that's it's not tenable. But blaming rising player salaries is similarly not tenable. Salaries are tied to revenue, so payroll only goes up if there is more money being earned off of the men who make that revenue possible.
But what about about total league expenses to put on a show, or more accurately, about 1,300 or so shows a season? Those expenses sure as spit aren't tied to revenue -- teams can spend whatever they want. If Mark Cuban wants to spend $20 per towel and upgrade his team's hotels on the road, he can do that. If Paul Allen wants to give Steve Francis $30 million to go away, he can do that. If James Dolan wants to give Jerome James $30 million to eat the last poppyseed bagel for five years, he can do that.
Have owners spent themselves into oblivion outside of player salaries? Here's a chart, based on the operating losses data from the NBA's audited financials and furnished to SBNation.com, that shows annual growth in revenue and non-player payroll spending by the 30 NBA teams from 2005-06 to 2009-10.
In 2007, 2008 and 2009, "other expenses" grew more than revenue or payroll did. From 2006 to 2007, revenue and payroll each grew 6.6 percent. Given the NBA's claimed losses, non-payroll expenses grew 9.8 percent between those seasons. That's a massive uptick in comparison. The gap exists in 2008 and 2009, as well. Strangely -- very strangely -- the 30 NBA teams actually shrunk non-payroll expenses in 2010, despite modest upticks in revenue and payroll. Non-salary expenses had been growing at 4-10 percent over the previous years ... and the NBA cut it by almost 1 percent out of the blue.
If you adjust to keep non-payroll expense growth at the same level as revenue growth -- essentially coupling claimed expenses with revenue, which isn't an actual suggestion for the new CBA but an exercise to show the impact of rapidly growing non-salary costs -- you'd knock about $340 million off of the league's reported losses over the past five years. That doesn't fix the problem entirely -- remember, the league says it lost $1.5 billion over that span -- but it's something worth keeping in mind.
When the owners blame the lockout on rising expenses, don't believe that it's player contracts that are growing out of control. It's the cost of putting on a season ... and whatever else is hidden in the still-unexplained mystery meat that is "other expenses."
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Non-payroll expenses
Non-payroll expenses out of control? Come on Tom, how hard is it to spot some of the obvious culprits.
Fuel prices have soared. The airlines can get that back with fuel surcharges and other fees, but fuel is a direct pass through on charter flights. So is increased labor costs.
Health insurance. All employer health care premiums are soaring, so why not the NBA which offers a Cadillac plan to not only players but other personnel? This ain’t rocket science, buddy.
New media. Almost all teams have branched into social media and other new communications channels to try to market their product and connect with new audiences. There is no direct payoff here, not upfront anyways, just costs.
by sebring on Jul 7, 2011 11:48 AM EDT reply actions
Nope, it ain't rocket science
But if it can all be explained by oil prices, health premiums and the cost of social media initiatives, the NBA would do well to say so.
by Tom Ziller on Jul 7, 2011 12:25 PM EDT up reply actions 4 recs
Thank you mr ziller
If the owners cant afford the cost of ownership while growing their teams media and keeping the team traveling and living throughout the season that is not the players fault and the owners need a better system to work under, but they have to do that temselves. That really isnt a player issue
by central harlemite on Jul 7, 2011 3:12 PM EDT up reply actions
I didn't realize Twitter & Facebook charged teams to set up accounts with them......
No mistakes in the tango, Donna. Not like life. Simple. That's what makes the tango so great. If you make a mistake, and get all tangled up, you just tango on.....
by pookeyguru on Jul 7, 2011 6:35 PM EDT up reply actions
Moreover, Tom, the floor for many NBA expenses is set by the CBA. If a team wants to downgrade to scheduled commercial flights for some road trips or for four-star instead of five-star hotels, it can’t. I think the analogy of Mark Cuban spending more on a hotel towel is flat out disingenuous.
by sebring on Jul 7, 2011 11:50 AM EDT reply actions
I agree that the towel example was not helpful. Similar to "our deficit is a trillion dollars – look at that 2 million they give to NPR.
"Victory goes to the player who makes the next-to-last mistake."
- Chessmaster Savielly Grigorievitch Tartakower
by lietothegirls on Jul 7, 2011 3:04 PM EDT up reply actions
it is not similar
your example of 2 million they give to NPR is analogous to the hotels and flights for athletes. The towel example is analogous to the bridge to nowhere in alaska
by central harlemite on Jul 7, 2011 3:15 PM EDT up reply actions
The difference is ...
… mine was one line in a 1,000-word column. Not the focus of a rant.
by Tom Ziller on Jul 7, 2011 3:24 PM EDT up reply actions 1 recs
The solution is the owners need to buy hotels for their teams to stay in then
The answer isnt taking money from players and blaming them. Invest in the things needed to lower the cost of operation. just like many people need their cost of living lowered
by central harlemite on Jul 7, 2011 3:14 PM EDT up reply actions
What gets me is the owners are not trying to negotiate.
They are trying to drive down the player salaries but are not giving anything back nor trying to come to a median position. I understand some of these salaries like those of Eddie Curry are ridiculous but somewhere in the negotiations, that can be addressed.
Let’s get back to the table owners.
by StevieG. on Jul 7, 2011 12:35 PM EDT reply actions
This has never been about player salaries
@Stevie, this is about club profits. Take the profits from clubs solely, not the owners, and you the reality is, with what Miami did last season, if the big teams follow their lead, which they will do, small teams will never make a lot of money, unless they do serious changes to the structure of the league. The small teams dont want that, they want to be equal with the big teams and they are pushing the players to pay the bill for that.
what do you think?:
http://www.associatedcontent.com/article/8186519/economic_divisions_and_extra.html
by central harlemite on Jul 7, 2011 3:18 PM EDT up reply actions
Are they really losing money?
Interesting Deadspin article on the way the NBA owners keep their balance sheets and list player salaries as a depreciable asset. Makes you start to realize why the NFL wont fully disclose their books to the players union as well…
http://deadspin.com/5816870/exclusive-how-and-why-an-nba-team-makes-a-7-million-profit-look-like-a-28-million-loss?utm_source=Deadspin+Newsletter&utm_campaign=67a883822e-UA-142218-13&utm_medium=email
by rchardy on Jul 7, 2011 12:47 PM EDT reply actions 2 recs
Arturo Galetti at Wages of Wins
made this point a week ago. Now he makes another point — perhaps most of these “other expenses” are really a tax break.
I’m glad the bloggers are on this, you included. I’m amazed at the difference it makes, though, when the blog is sponsored by the NY Times. Suddenly the NBA takes notice. I do hope 538 doesn’t drop the subject, or maybe that one of the other NY Times blogs takes it up.
by Tim S. on Jul 7, 2011 12:51 PM EDT reply actions 1 recs
Good point Tim
The difference in respect for certain blogs in the media is very telling with all this.
Question, what do you think of this idea?
http://www.associatedcontent.com/article/8186519/economic_divisions_and_extra.html
by central harlemite on Jul 7, 2011 3:19 PM EDT up reply actions
I've said it before and I'll say it again here.
Owners are doing this so they can justify a higher asking price in selling their franchises. Some of them, Dan Gilbert, Robert Sarver especially, bought mid-tier franchises (at best) for exceptionally high value. Now they are feeling the pinch of that, and the only way to convince someone else to buy at a high, or even higher, value is to illustrate to new potential owners that costs are in line. This is a PR ploy no more or less.
You brought up the point about outside expenses. Until David Aldridge pointed it out in his June 20th column, I was always under the belief that the international broadband was part of the reason BRI did not drop off a cliff. But, apparently, this new revenue is not part of BRI. (Or, maybe international broadband is part of BRI.)
If outside expenses are what’s really gone up, why isn’t the proceeds (and there has to be plenty since many fans love the NBA outside of the US/Canada) going towards those expenses?
Either way, believing the owners when they cry poor is silly. That isn’t anyone’s fault but their own that they chose to buy a vanity project, saw the economy tank at an inopportune time for them (like it’s opportunistic for just about any of us really) and realized how badly a mistake they made in their individual purchases of franchises.
Somehow, that’s all on the players someway. I don’t think a decrease in BRI is unreasonable. But, the players don’t deserve to take a bath because owners are feeling the heat and pressure in many corners of their financial health. Screwing the fans over in a league that is still predominantly black, to an audience that is still predominantly not, is always a PR challenge combined with an impossible to match degree of difficulty.
While I don’t really think the players are owed a paycheck in the NBA, I definitely will never agree that the owners have right to profit. Profit is done through good business sense, and, frankly, some owners simply aren’t very successful NBA businessmen. Being a good owner is not the same as being a good CEO; everything an owner does is in the spotlight directly or indirectly. Everything a CEO does is not necessarily well known by a mass majority of fans.
The idea that because owners “want” to profit does not mean it is their inalienable right to do so. I agree with what Woj said a few weeks ago: It’s about pain tolerance. If the players meet the owners in canceling the season, I wonder how much realistic staying power the NBA will have long term with owners who are hellbent on getting something that the players simply are willing to draw a line in the sand to keep a nearly impossible precedent to overcome.
The good news is if you have other interests, and are addicted to the NBA, the lockout is a great time to ween you off your addiction.
No mistakes in the tango, Donna. Not like life. Simple. That's what makes the tango so great. If you make a mistake, and get all tangled up, you just tango on.....
by pookeyguru on Jul 7, 2011 6:23 PM EDT reply actions
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