clock menu more-arrow no yes

Filed under:

Revenue Sharing May Not Be NBA's Magic Bullet, But It's Still Vital

New, comments

In a talk last week with's Ken Berger, Pacers forward Danny Granger discussed the challenges of trying to win in one of the NBA's small markets. The need for improved revenue sharing was highlighted by Berger, who reports that the players' union may seek help from regulators and the courts to make revenue sharing a mandatory subject for the ongoing collective bargaining negotiations.

As Berger lays out, owners would prefer to decide revenue sharing among themselves. Players see revenue sharing as a tool to great a wider and deeper market in free agency; if some the Lakers' fortunes are spread around, in theory the beneficiaries of that largess will feel better about committing more to player salary. Small and mid-market owners see revenue sharing as a lifeline; the richest owners see it as the subsidization of lesser competitors and a path toward payroll inflation.

Henry Abbott of TrueHoop linked to an analysis of revenue sharing done by Adam Fusfeld of Business Insider. In that breakdown, Fusfeld finds that revenue sharing won't actually help teams compete, and that smaller markets simply need to be smarter than their big-city overlords. Abbott augments this by noting that so much in NBA dynasty-building relies on luck; see LeBron James and Tim Duncan, for starters.

But the whole analysis ignores a very basic reality about the modern NBA: market size, not success, drives profit.

Last year, I analyzed 10 years of Forbes financial data to explore how NBA teams make money. Winning helps; the analysis showed that there was a small positive relationship between winning percentage and net income. But the correlation between market size and profit was twice as large (and even larger if you disconnected the Nets from the New York market, which based on recent years is a fair thing to do).

Think about that: If you want to make money in the NBA, you're better off sucking in L.A. than being excellent in San Antonio. How is that fair? The odds are stacked against the smaller markets. It's not a matter of needing to be smarter than the big markets to thrive. The smaller markets have to do that to survive. That doesn't make for a healthy NBA.

And that's where we are today: the NBA has record ratings and great attendance revenue, but by the league's own admission half the teams are struggling to stay solvent. This isn't a matter of half the teams making bad decisions. It's an imbalanced playing field, and merit has a far smaller role than does luck.

The NBA wants to fix the issue by slashing player salary so that large and small markets alike can make more money. You'll understand why players who watch Donald Sterling rake in cash hand over fist think there's a better way.

As for Fusfeld's anecdotes: Yes, Mark Cuban loses a lot of money. He also happens to be the No. 2 luxury tax payer in history. He exceeds the salary cap by tens of millions of dollars every year. The system isn't screwing over Cuban; he's wagging a middle finger at the system every damn offseason. You want to know why player salaries outpace revenue growth? Because Mark Cuban, James Dolan and Jerry Buss have been ignoring the salary cap for years.

As for baseball? So long as the spread between NBA team salaries is $50 million and the range for Major League Baseball is $170 million, the comparison is moot. The NBA has, all told, a fairly tight payroll range -- there are no Pittsburgh Pirates. The Kings have the league's lowest payroll at $44 million, with the cap just $59 million. Sacramento paid luxury tax for six years in the last decade. Again, there are no Pirates or Royals in the NBA.

The owners are right to seek some salary cuts -- payroll growth should not outpace revenue growth. But the way to do that is in actually negotiating lower salaries with the players union, not holding the small markets of the NBA hostage.