NBA Lockout: Biggest Economic Questions Facing David Stern and the League

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NBA Lockout: Biggest Economic Questions Facing David Stern and the League
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Is the Revenue Split the Only Issue?

On The NBA Today podcast with ESPN Radio's Ryan Russillo on June 27, former deputy commissioner Russ Granik, ESPN.com's Larry Coon and ESPN's Chris Sheridan discussed the NBA lockout, with the revenue split (currently 57 percent in favor of the players) being by far the biggest issue on the table. The total amount of pay to players will be decided before anything like contract length and mid-level exceptions.

What type of revenue they concede will be argued over, but only in the way it affects the total cost of labor. Deadspin Senior Editor Tommy Craggs did a great job showing how owners can lose money on paper alone by amortizing financing and depreciating players.

But to believe that the raw percentage is the only real issue seems to discount the importance of divergent interests at play. The average federal tax rate is not what matters in American politics. Everyone wants what seems best for them.

 

How Will the Varying Interests of Players Be a Factor?

Dwight Howard, like most NBA owners, can go without pay for six months if it means more long-term income. This may not be the case for Reggie Williams or Reggie Evans.

However, all players have one union vote. But does that mean there are no mechanisms for the interests of rich players to prevail? It is not only rich vs. (relatively) poor. Guys around 30 will want a high cap to remain for a few more years but care little after that. Derrick Rose will care about eight years from now.

 

Are There Shadowy Figures Pulling the Strings for Powerful Players?

After this past summer we realized that William Wesley, Creative Artists Agency's "Worldwide" Wes, was not the burgeoning Boss Tweed he had been made out to be. The Super Team to emerge was not Capilari, Rose and LeBron. But that is not to say there are not other actors in the lockout powerful but not in the open like Stern, Deputy Commissioner and COO Adam Silver, L.A. Lakers owner Jerry Buss or NBPA Executive Director Billy Hunter.

During the '95 and '98 lockouts, super agent and Space Jam mastermind David Falk was blamed for using his high-profile clients to extend lockouts to prevent a hard cap or high luxury taxes, which would lessen top salaries. Michael Jordan could then make $30 million a year but the 14th man on the Milwaukee Bucks might have been late on his mortgage payments.

There does not seem to be a lot of attention on the big agents like Dan Fegan, Arn Tellem or Leon Rose. The league might have changed enough in the last 13 years that they cannot play as much of a role. Or their agencies are more diversified so they don't just care about veteran or max-contract guys.  But if the agents were getting involved they wouldn't want people talking about them anyway.

 

Will Differing Interests of Owners Be a Factor?

If labor costs are relatively fixed across the league and revenues are not shared much, big-market teams will make much more than small ones. Small-market team owners would love to have the Florida Marlins model where their league revenue share exceeds their payroll. Small-market teams turn into the Globetrotters' Washington Generals or those FCS college football programs that get $1 million to be embarrassed on a Big Ten field.

Some sort of parity seems to be in the best interest of fans and the league long term. Owners with different interests could each put up a stink to delay a deal getting done.

 

How Can We Keep Management from Being Stupid?

Everyone agrees that Gilbert Arenas making $22 million in 2012-13 is bad. The NFL is great because its socialist argument may be a bit overdone, but it seems clear there are benefits to not having teams operate completely autonomously. As a Golden State Warriors fan, I think I have to be glad that they were not allowed to trade all of their future first-round draft picks for the likes of Marcus Williams. Still, regulations are tricky.

People like the intrigue and business of sports, proven by the popularity of the NFL draft or the NBA draft, where a 26-year-old poor man's Mikael Pietrus without a jumper playing in Qatar is selected. It may be detrimental to take away fans' and Chad Ford's ability to consider the value of Theo Ratliff's contract, or the salary throw-ins that make a trade work.

Capping single-year salaries leads to guys getting contracts that pay them well past when they are worth in a given year. Caps on contract length or changes to "Bird rights" lead to the problem David Stern addresses by asking who Dave Winfield played for. The NBA has way more recognizable faces and personalities than the NFL or MLB, but keeping players from moving around too much is necessary to sustain that.

Owners are concerned about making money, dumb fans are considered about feeling good about the present and smart fans are concerned with the team's long-term success. Signing the once-and-never-again All-Star David Lee might have made the same marketing sense for the Warriors as signing Ben Gordon did for the Detroit Pistons. Like politicians to countries, management puts teams in terrible positions because of short-term horizons.

 

Is It the Fans' Fault?

Minnesota Timberwolves GM David Kahn is attacked for waiting two years to get Ricky Rubio, but wouldn't you rather have someone else pay for your PG of the future to develop and mature so you will have him on a rookie scale as he approaches his prime? Why is the future discounted so much?

I haven't thought of or heard any good ideas on how the interests of team management can be connected to the long-term success of their franchises or the league in general. Fans are certainly getting increasingly more informed and analytical; that has to help.

 

What is the Players Association Doing?

In the past the Players Association has opposed the age limit for entry, which would seemingly be beneficial to those in the league (e.g. taxi drivers don't like more taxi drivers). Still they did end up settling on the current "one-and-done" rule and may have gotten owners to give up more in return. Who knows what's genuine?

Maybe Jermaine O'Neal was passionate about the issue, but the lawyers three layers removed from him were chuckling about how they parlayed interest in a rule that would marginally hurt them to win more concessions. Maybe it's not even three layers removed.

Barkley keeps telling us NBA players aren't the unprogressive bunch we make them out to be. Maybe they aren't dumb with money these days, either.

Stephen Jackson and others sure seem like they know how to get paid, and owners probably wouldn't have half a billion in a basketball team if they didn't, either.

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