NBA owners fighting wrong fight

The players used to receive 57 percent. The owners wanted to slash it to 47 percent. The players countered with a 52 percentcompromise. The owners refused to offer a penny more than 50 percent. Neither side is willing to compromise at 51 percent, and so here we are. The tug-of-war over the players’ share of basketball related income (BRI) has already cost the NBA an entire month of games (as well as hundreds of millions of dollars), and it threatens to wipe away the entire 2011-’12 season. There may be perfectly rational reasons for each side to prefer lockout to compromise. BRI, however, is not one of them. The NBA, and the owners in particular, are fighting the wrong battle.

The 2 percentgap does not reflect an insignificant sum of money. Estimates value the gap at around $100 millionannually until the end of the next collective bargaining agreement. This total represents about $225,000 for the average player and about $3 millionfor the average owner. The BRI landing spot will also be the starting point for the next round of negotiations when the new agreement eventually expires, so the gap could have serious financial consequences in the long term. But the BRI split and its financial implications are neither the problem nor the solution to the NBA’s self-reported financial woes.

The owners have actively advertised significant cash flow losses as a focal point of their stance. The league claims to have lost nearly $400 millionlast year, and Commissioner David Stern reported that 22 of the 30 teams were in the red. These figures have incited widespread debate. The league claims that they reflect an urgent need to rework the finances of the NBA in order to maintain profitability. The players, as well as most financial commentators, think the numbers reflect little more than fancy accounting footwork. For one, the players have been quick to point out that the cash flow figures are incredibly sensitive to classification of various depreciation, interest and amortization measures. Further, economists have long held that the value of a professional sports franchise comes not in annual cash flows (which are often negative), but rather in capital gains realized upon the eventual sale of the team. Finally, these figures don’t account for the substantial “psychic benefits” associated with owning a team that may justify lower profitability.

Let’s cut the 1 percenta break, however, and assume that their posturing is correct. If we accept that the NBA is bleeding money, the owners’ focus on the BRI split makes little sense. If the league is no longer fundamentally profitable, the owners should be focusing on solutions that ensure long-term financial stability. This could mean greater revenue sharing. It could mean reduced revenue sharing. It could mean contraction or perhaps even expansion. It could mean a hard salary cap, or it could mean a loosening of the soft cap. It could be new television deals or changes to the NBA schedule.

It’s unclear what precise form these solutions would take. They would, however, be fundamental reforms that would shake up basketball in an effort to return the league to profitability. A 2 percentshift in the BRI split is not a fundamental reform. A 2 percentshift in the BRI split is a simple cash transfer that adds no new revenue to the system. A 2 percentshift in the BRI split represents little more than 25 percentof the alleged cash flow losses suffered by the owners last year.

Am I happy the NBA is locked out? Absolutely not. As a fan, the coming and going of the scheduled start to the basketball season marked a chilling reminder that we may nwot see basketball until 2012. That said, I can understand the positions of both sides. The players feel as though they have already made concessions, and they are correct. The owners, meanwhile, feel entitled to profits, which seems understandable given the popularity of the sport. But if, as they claim, the league is no longer profitable, the owners should be fighting over more substantial reforms to the system. The squabble over 2 percentof BRI is not going to turn the balance sheet around. I understand battles must be fought, as tough as it is on the fans. But unless the owners are lying, the owners are picking the wrong battle to fight.

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