Posts tagged ‘Contraction’

November 8, 2011

NBA: Where contraction happens??

Ramblings by JL

Is contraction good for the NBA?

This is not a post about the negotiations that are currently going on for a new NBA Collective Bargaining Agreement. I’m not going to take sides. I don’t care who gets what. At the end of the day, everybody involved in this process is going to go from filthy rich to filthy rich. But please, as a die-hard NBA fan who just wants to see some basketball, allow me to rant for a minute before getting on to my main point. Just SHUT UP! The NBA, the players associations, the owners, the union lawyers … all of you!! SHUT UP! We’re now entering the 128th day of this lockout. I’ve heard the rhetoric “We feel sorry for the fans, the stadium workers, and the team employees.” countless times from both the owners and the players. Each time I hear it, I get more peeved. You don’t care about fans or the people whose livelihoods depend on NBA games being played! This is all about greed! If you really did care, you would’ve realized how lucky you already have it, put your egos aside, and settled on a deal that would’ve started season on time! Look, I understand both of your perspectives. The owners, you want to lock players out and get a better deal because you can. That’s fine! I agree that you have the leverage in these negotiations. So why not get the best deal you can? That’s business 101! The players, you think you’ve already made all the concessions in these negotiations. Your egos will not a lot you to cave any further. You can even paint the picture that you’re holding the line for future generations of players. Fine! That’s an understandable position! So just be honest and tell us that this all about maximizing your profit, your income, your earnings potential, or whatever words you want to use! Don’t insult the intelligence of the fans by telling us how sorry you feel for us! Stop trying to play the public relations game. It just makes you look even more disingenuous. By the way, another rhetoric I’ve heard almost as much, mainly from players, is “This is about standing up for what’s fair”. It seems the players are confused about the distinction between market value and fair value. Don even get me started on what’s “fair value” for people who play a game for a living that has no tangible contribution to society other than entertainment.

All right. Rant over. Now, onto my main point. While I’m not a fan of how both the owners and the players have handled this CBA negotiation process, I do agree that the changes need to be made to the current NBA system. There are definitely teams that are losing money. Smaller market teams do have a competitive disadvantage compared to large market teams. Things that are being discussed right now during the new CBA negotiations will improve the situation. The lowered Basketball Related Income (BRI) split will put more money into owners’ pockets and make the league as a whole more profitable. The more punitive luxury tax rules will further discourage large market teams from simply outspending the small market teams. However, none of those changes really address the real issue that’s causing this lockout: We have too many teams that are losing money. Even with the discussed CBA changes, we will still have too many teams that will lose money.

If the media reports are correct, there is a significant split in position amongst the owners over the CBA changes that are currently discussed. So, if the CBA is agreed to as currently constituted, it will have been with a very small majority on the owners’ side. What this says to me is that if and when the new CBA is agreed to, a large number of owners will not be happy with the deal. So, in 5-6 years, or whenever the new CBA expires, we’ll be in the same place, going through all the same things we just went through over the past couple months. This cycle will rinse and repeat as long as we have a large portion of the NBA ownership losing money. So here is a different way to look at it. Instead of coming up with a CBA agreement that will ensure profitability for every NBA team, why don’t we just keep the teams that can be profitable under the new CBA? Yes, I’m talking about contraction.

I’m not going to take credit for this idea. It has been suggested by many different outlets throughout the years. But the more I think about, the more it makes sense. The way I look at it, NBA teams can be divided up into 3 different categories.

1) Big market teams that will profit no matter what (Lakers, Bulls, Knicks, Mavs, Clippers, etc.)
2) Mid to small market teams that will profit if they produce quality products (Heat, Magic, Sixers, Spurs, Nets, etc.)
3) Teams in markets that just don’t support pro-basketball unless they luck into a superstar (Bobcats, Hawks,
Kings, T-Wolves, Cavaliers, etc.)

Minny drafted KG but they couldn't surround him with enough talent ...

Roughly over the past 20 years, the NBA has expanded into the following markets: Miami, Orlando, Minnesota, Vancouver/Memphis, Toronto, Charlotte. Not all bad decisions. However, the expansions are not without unintended consequences. The NBA talent pool became diluted. The quality of the average NBA game declined. This not only affects the expansion teams, but every team in the league. As the average NBA talent declined, team success became increasingly dependent on having a great player. Based on the points I just made, a team’s financial health became dependent on 1) being in a big market, and 2) lucking into a great player. Since we all know where the major US markets are and there are only so many great NBA players, a large number of NBA teams simply aren’t fortunately enough to achieve consistent success and, therefore, aren’t profitable.

So what can we do to remedy the current landscape? Contract the teams in markets that just don’t support pro-basketball. As harsh as this sounds for fans in Charlotte, Atlanta, Sacramento, etc., it is just too difficult for an NBA team to turn consistent profits in those markets. You simply can’t have “hoping for the next Dominique Wilkins, Chris Webber, Kevin Garnett or LeBron James” as your business model. I believe 20-25 teams is the ideal position for the NBA to be in. Now, let’s look at how contraction will address the 2 major issues of the current CBA negotiations.

Profitability

Not only does contraction directly improve NBA’s overall profitability position, it also concentrates the player talent pool. Overtime, the average NBA team will be able to put a better product the floor. Teams in markets like Philly, New Jersey, Phoenix, Detroit will be able to improve their revenue with increased fan interest. In addition, there are less teams cutting up the revenue sharing pie. If we keep going down this road, the smaller market teams that are left will have better revenue sharing, better NBA product to attract local fan base and an improved profitability position. I think this one’s pretty straight forward. You get rid of your least profitable teams. It’s like a corporation closing down its least profitable subsidiaries to improve its financial position.

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