Occupy Lenox Ave.

[schtevie]

Is it just me, or are others appalled at the complete lack of game on the part of the NBPA? How the players and their representatives could have gotten themselves in this completely embarrassing situation - having offered to give away a billion dollars or so and still being rejected - despite the conflict having been anticipated years in advance is more than a bit of a mystery.

Here is some free advice for the millionaires in anticipation of their next negotiation with the billionaires: acquire real leverage. Today, the owners stand pat knowing at the end of the day they will still be in possession of franchises worth $15 billion or so in total. Render this belief (highly) insecure, and the players won't need to give back anything. To the contrary. They will get what's theirs.

Why shouldn't players create a league of their own, where the union corporately owns all teams? Such a league would:

(1) Collect all revenue (TV, merchandise, gate receipts, etc.).
(2) Establish simple player compensation rules, where individual teams would be given an equal share of net league revenues that must be spent on player salaries.
(3) Then auction the rights to manage teams, with ownership of such "franchises" including the right of resale.

Would such a league be a plausible alternative, from the standpoint of the financial interests of the players? More than plausible I should think. Why in the abstract would the potential revenues of such a league be less than that of the current NBA? It surely is possible to create an organizational structure for a professional basketball league that is more compelling to the representative basketball fan. (How much do we all love all the existing rules: the intricacies of the salary cap, the resulting lack of player movement, the dead contracts, etc.?) And having the teams owned corporately by the players themselves would facilitate such optimization.

The issue of course is the transition. Players not generally being motivated by altruism for future generations, would there be sufficient revenue in the short term to assure players of their current $2 billion payout? And here, I think there is reason to believe that the answer to this question is yes.

Consider the notional auctioning of "management rights" to a 30 team league (or, better still, a 60 team league consisting of a premier league and a second league, with relegation/promotion a la British soccer. That would be more than great, from a fan perspective, but I digress). In Malcolm Gladwell's recent piece (http://www.grantland.com/story/_/id/687 ... ba-lockout) he leaves it out there to be inferred that $90 million per team are the psychic benefits of owning an NBA franchise. If that is in the ballpark, for a 30 team league, you are looking at a $3 billion capitalization through an auction. Higher still if there is additional feed-in value from having control of a franchise (Dan Gilbert's casino, and all that). And higher still if you believe that there are a lot more $100 millionaires out there than billionaires, hence you are increasing the pool of potential bidders.

Anyway, the point is not that $3 billion is a precise estimate, but if it is in the ballpark for a starting reserve, and you start with a TV package around $1 billion per year, anticipated sales of all sorts of merchandise, and the buzz of novelty, in terms of hitting a $2 billion starting target, you are in an enviable position before one ticket is sold.

Perhaps all pie in the sky. To return to the initial point, however, merely by drawing together such plans in a formal manner, you create extraordinary leverage. What is the NBA without its player base, stars especially? It is a D-league and a memorabilia shop, with no franchises worth hundreds of millions of dollars.

Another idea for capitalizing a new league, special event pay-per-view: KG, game face on, hand delivering each current hard-line owner the business plan. Priceless.

[Crow]

I have been somewhat intrigued by the possibility for some time, as far back as the last CBA negotiation.

If the union had devoted 1-10,000 man hours on the idea over the last 6 years (or last 2 years or last 9 months), it would have allowed a more realistic assessment and perhaps a more credible threat or option. How much time have they devoted to it? Any? 100 hours? More?

A new league would not have to instantly and forever achieve what the NBA has to have value.

If 150 of the top 300 NBA players formed a league, played real basketball for 1-2 years on national and local cable TV for decent fees in good cities in front of 10-15,000 fans, the remaining NBA might lose half its value or more. If the new league remained viable after 2 years to get back to the old monopoly the NBA owners would have to agree to a pretty favorable labor agreement. They might get offered a merger instead of a return to monopoly depending on various considerations.
The players would probably take a substantial pay cut for 2 years but if they are faced with a year long lockout or more and long-term givebacks it might not be that much worse and it might have the promise of a better long-term arrangement.

Almost no chance it happens though because I don't believe anyone has done the due diligence and under those circumstances it probably would take 3-6 months minimum to make a decent start and maybe a year to make a great start.

[skepticalsports]

90% of their own league (or whatever they could manage) would be much much less profitable for current players than 50% of the NBA. The overhead costs would be enormous, and the appeal (comparatively) limited.

Tactically, however, the players should be doing everything they can to make the *threat* of starting their own league seem as credible as possible. So, e.g., Lebron, Rose, Wade, et al. walking out of the All Star Classic last week may have cost the players 10s of millions or more.

[Bobbofitos]

Would love to see this, of course...

[Mike G]

What happens when a player-owner trades himself to another team?
Say LeBron is worth 60% of a franchise, and he owns 60% of it; and then he wants to play for a contender, where he's only 30% of the franchise.

As a 60% owner, he may have been deciding who was head coach, who his teammates were, etc.
As a 30% co-owner, he'd be part of a hiring committee. Or there would be a middleman hired to do these things. And at some point, an underling is deciding the lineup, strategy, etc. It would get complicated. Certainly it would be an amazing social experiment.

[Mike G]

From the Malcolm Gladwell article in the opening post:

... professional sports owners don't have to behave like businessmen. For every disciplined and rational operator like the Patriots' Robert Kraft or Mark Cuban, there [are] also some... who chose to behave like 14-year-olds ...

Hah! How far has Mark Cuban fallen.

Forbes valued the Detroit Pistons at $360 million. They just sold for $420 million. Forbes valued the Wizards at $322 million. They just sold for $551 million. Forbes said that the Warriors were worth $363 million. They just sold for $450 million....
And they are asking us to believe that these "businesses" lose money. But of course an owner is only losing money if he values the psychic benefits of owning an NBA franchise at zero — and if you value psychic benefits at zero, then you shouldn't own an NBA franchise in the first place. You should sell your "business" — at what is sure to be a healthy premium — to someone who actually likes basketball.

Yeah, if you can sell a property at any time and receive 60 or 80 or 200 million more than it's worth, then why do you need to invoke "psychic benefits" at all?

[schtevie]

90% of their own league (or whatever they could manage) would be much much less profitable for current players than 50% of the NBA. The overhead costs would be enormous, and the appeal (comparatively) limited.

Does anyone have a reference where such overhead costs are detailed? Yes, there is paying for referees, etc. but in terms of generating revenue, how much overhead is needed to negotiate TV and merchandising deals?

As for the appeal of a new league being comparatively limited, I know that this is perhaps the baseline reflexive reaction based upon the fact that current fans are by definition NBA fans. But I think that corporate identification does not run that deep. People who like the NBA like professional basketball (witness, by contrast, all the folks who say they like NCAAB but not the NBA). Yes, there are logo fans, but by and large logo loyalty is transient and transferable (witness fan support within leagues where franchises move and new ones with new logos replace them.)

And, again, there are the potential advantages of a new league. As mentioned, the buzz of novelty. And if you were to set up a new league with new rules abetting, rather than impeding, the transfer of players and generally democratizing the system (I can't give up on the relegation/promotion system) you don't decrease but increase your fan base.

What happens when a player-owner trades himself to another team?
Say LeBron is worth 60% of a franchise, and he owns 60% of it; and then he wants to play for a contender, where he's only 30% of the franchise.

As a 60% owner, he may have been deciding who was head coach, who his teammates were, etc.
As a 30% co-owner, he'd be part of a hiring committee. Or there would be a middleman hired to do these things. And at some point, an underling is deciding the lineup, strategy, etc. It would get complicated. Certainly it would be an amazing social experiment.

Mike, it is an interesting thought experiment to imagine the consequences of a regime where current, individual players could be allowed to own, outright or in partnership, one or more notional "management franchises". Would this be problematic or, in fact, extraordinarily interesting?

First of all, as an aside, my guess is that current players wouldn't have adequate wealth to assume majority control of any franchise in a notional, initial auction.

But taking your example, suppose there is a team in the new league called "60% LBJ" that by no coincidence happens to employ LBJ, paying him some fraction of the 1/30 of net league revenues. And in the instance, given the privileges of ownership, it is LBJ who has hired the coach and GM and who therefore can compel them to trade him to another team willing to hire him at an agreed upon price. I think that idea is great. How cool. There would have to be rules, of course, for fair competition, e.g. you would probably want to have a trading cutoff date, to preclude the formation of all-star teams the day before playoffs begin. And there would also have to be rules for the portability of contract terms - allowing transfer fees and the like. In my conception of things (not expressed in the initial post) there would be nothing precluding an owner with deep pockets from spending freely in excess of the 1/30 salary fund received from Lenox Ave. Again, this is to be a players league run for players advantage. If Mark Cuban wanted to buy in to the new league and garnered excess psychic benefits from buying up talent, more power to him.

Would such economic arrangements render the league unpopular? I dunno, soccer seems to have done OK in this world.

[EvanZ]

Does anyone have a reference where such overhead costs are detailed? Yes, there is paying for referees, etc. but in terms of generating revenue, how much overhead is needed to negotiate TV and merchandising deals?

Somebody has to pay for the arena?

[schtevie]

In my whimsical accounting exercise, I ringfenced arenas, assuming that gate receipts and rental/labor costs, league-wide, net to zero. No idea if that is true. If anything, my guess is that that there are net revenues on this account.

The game is whether there is an expected $2 billion per year to buy off current insiders. My conjecture is that given ordinary expected revenue streams (TV, merchandise, etc.) plus the initial capital received from franchise auctions that there would be.

But to return to the negotiating point of this ridiculous, current impasse, if you are an NBA owner and you see a plan in motion that could devalue your asset from something worth half a billion, or so, to approximately nothing, the dynamics become something different. In such a circumstance, the $2 billion transfer requested from the players in this CBA instead becomes an internal NBA negotiation between the "haves" and the "have nots". Let the Lakers/Bulls/Knicks etc. call out their fellow club members on their phony accounting, make the appropriate side payment to the small market teams, and generally spare basketball fans the gift of missed games and the absurd lectures and high-handed arrogance of the NBA front office.

[skepticalsports]

If anything, my guess is that that there are net revenues on this account.

Just because the NBA is able to break even or make money off of something doesn't mean that a theoretical player's league could—at least not for a long time.

It's a little naive to think that a brand new player-league would be able to get anywhere near as much revenue—much less profit—as the NBA gets now: Not even counting overhead, in an absolute best-case scenario, the hypothetical league might be able to cut corners and bring operating costs down from 40%-50% of league revenue as it stands (depending on who you believe) to 25%. But the pie would be so much smaller that the total compensation wouldn't approach what they would get from accepting the offer on the table. If their goal was to build a league to be competitive and profitable over the next 30 years, it might be achievable, but this group of players wants to get paid now.

A more realistic option (for many reasons) would be something like starting an 8-team league with only top-tier players. Of course the player's association would never actually go for this, but it's in their best interest for the owners to believe that it might happen.

Anyway, there is no right and wrong in this dispute, there is only leverage.

[Crow]

Arturo at Wages of Wins states that the NBA claims 1.941 billion in overall operating expense besides player salary.

http://wagesofwins.net/2011/10/20/how-t ... n-dollars/

Being able to "deduct" it off BRI has made it easier for that expense to rise rapidly.


A new league, in its first few years, would probably make more sense with 12-16 teams than more. Less than 12 probably wouldn't seem like a national league- to fans or potential national TV (and potentially global) networks willing to pay a decent sized fee. The ABA started with 11 and that was a bit light. Where to put them is not completely straightforward. There would be choices, depending on arena use and sponsorship and local and national TV deals, the strength of the NBA nearby and the strength of the new team and its appeal to fans in that area.

Potentially the players could talk to principals of the Euroleague about some form of affiliation. As a largely autonomous division with probably just 1 game regular season amongst each of the teams of the two divisions (alternating location by year) but with a shared playoffs and title. It could be 2 games (home and home every year) if they want to go whole hog with the collaboration. Such cooperation might be a way to get up and running faster, have a greater appearance of a full league with legitimacy (maybe less specter of being an upstart sketchy to survive novelty) and get big TV deals and probably really big global merchandising.

If the new league got half or more of the above average players and had an affiliation with the Euroleague and put on a World Championships for on-going teams that might be pretty competitive with the remaining half of the NBA. If they did well or very well they might have the option to reject an eventual merger and try to slowly starve the NBA out. Of course it would depend on the size and quality of the business opportunity created and player loyalty & equity stakes (individually and / or as a group).

[EvanZ]

I think the problem right now is the poorest owners are really holding up a deal. What the league/Stern should do is threaten these owners with contraction or force them to sell their teams to owners who can afford to be in the game. That would end this thing real quick.

[Crow]

The current principal owners of 12 teams have been in the league 10 years or less. Only 4 of these relatively new arrivals are listed as billionaires. The NBA is currently a place holder for one team. The average net worth of the other 8 principal owners is only about $350 million. Pretty low, may not have been fully the ideal choices of new league owners / partners in the recent context (but maybe it ends up helping them with this CBA and the future I guess). The total for billionaires is now up to 13 but the negotiations and outcome might have had a different complexion if the NBA had been able to recruit more billionaires to buy the teams sold in the last 10 years. Will more billionaires want in the league after the deal? Will that affect the next deal? Change takes its course, somewhat directed but it has its own momentum too.

[Crow]

Does anybody know of a writer well qualified in the analysis of negotiations (a practitioner or not) who a) has accessible work that could be applied to what we know about the CBA negotiations or b) might be interested & willing to write about it now or after the deal is done ?

[schtevie]

If anything, my guess is that that there are net revenues on this account.

Just because the NBA is able to break even or make money off of something doesn't mean that a theoretical player's league could—at least not for a long time.

It's a little naive to think that a brand new player-league would be able to get anywhere near as much revenue—much less profit—as the NBA gets now: Not even counting overhead, in an absolute best-case scenario, the hypothetical league might be able to cut corners and bring operating costs down from 40%-50% of league revenue as it stands (depending on who you believe) to 25%. But the pie would be so much smaller that the total compensation wouldn't approach what they would get from accepting the offer on the table. If their goal was to build a league to be competitive and profitable over the next 30 years, it might be achievable, but this group of players wants to get paid now.

I get that the conventional wisdom is that for a player-owned league to make equivalent money would take a "long time". That doesn't mean that the conventional wisdom is correct. If one believes that it is really NBA logos that drives the league's popularity, then the conventional wisdom holds true. If however, one believes that it is the quality of play and star talent that is the golden goose and that the NBPA has access to sufficient marketing tools for self-promotion (the latter surely being true) then the conventional wisdom is incorrect.

The relevant question, in either case, remains timing. What about six years? Would that be enough? Let Billy Hunter sign a deal giving the owners what they want, 50% of BRI and whatever else. Then the next day, have a press conference saying that this is the last CBA that will ever be signed by the NBPA and upon its termination a players-owned league will come into existence. Six years to plan, organize, and promote. In such a circumstance, I wonder how long it would take for the just concluded CBA to be reopened?

A more realistic option (for many reasons) would be something like starting an 8-team league with only top-tier players. Of course the player's association would never actually go for this, but it's in their best interest for the owners to believe that it might happen.

As a technical point, I think this is incorrect. To commit to such a coup means going all in. If you are going to go to the huge organizational effort to start a new league, you need to offer opportunities to all NBA level players and there is no reason to alienate/not cater to existing local professional fan bases.

Anyway, there is no right and wrong in this dispute, there is only leverage.

If monopsony doesn't annoy you, fair enough....