Blog Entry

NBA Lockout: Where did the money go?

Posted on: July 18, 2011 9:24 am
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Posted by Matt Moore

So here's a quick question.

Where did the money go? No, I mean, seriously, where did the money go?

The NBA is in the midst of what may end up being its longest lockout in league history. The owners are claiming losses of up to $300 million and attributing it almost entirely to the players (and, apparently, staff as they've become fire-happy).  But this isn't the dark days of the late 70's and early 80's, where games are shown on replay late at night and the league is skating a fine line between survival and bankruptcy. The league isn't trying to find its niche. The NBA is one of the largest sports entities in the world. 

How about a $7.4 billion media deal ($930 million a year) extended in 2007? How about $50 million a year in revenue from China alone? How about all that money from concessions, sponsorships, ad sales on the floor and in every spot you can find in every arena? How about suite seats, custom lunchboxes, jersey sales, deals with some of the biggest companies in the sports world like Gatorade, Nike, and AutoTrader.com (that last one was a joke). How about NBATV, which exists on most cable packages. How about League Pass Broadband, League Pass Mobile, League Pass Digital Calculator (again, last one, jokey-joke)? How about BRI being estimated at $3.8 billion for 2010-2011 alone? 

No, for real now, where did all the money go?

Well that gets to the heart of the NBA lockout. The owners believe not only that the players' slice of that revenue pie, the 57 percent of the $3.8 billion (Berger estimates it at $2.17 billion) is what does the damage. From there, it's costs. Costs, costs, costs that pull them under, and all of those costs are things which they feel are not a result of their own decision making, but of all these greedy people wanting too big a cut of what they feel is their pie. 

Before my blood gets boiling, go check out how I feel about those non-player cuts of those "greedy people."  

Here's an interesting question. Reports came out last week from the New York Times and Forbes about how the NBA had cooked the books. Those reports earned a swift rebuttal from the league regarding their accuracy. Naturally, the Times was pretty skeptical about the league's denial of the claims. It should be noted that in the pieces discussing how profit/loss was estimated, one blogger with a financial background took the reports to task independently. I would explain it to you, but my head would explode. 

Lost in all the shuffle about how the losses are calculated, what the ticket sales revenue is, or other complex accounting claims which would pretty much bore you to tears, there was one factor which was overlooked by most of the traditional media outlets. The "mystery meat."

Tom Ziller of SBNation.com wrote a piece earlier this month outlining an intriguing element included in the Forbes data (which may, or may not be Ziller fashion, the man made a chart so you can process it more easily. Republished with permission here. 



It's that "Other" percentage that has Ziller so up in a huff. From SBNation.com: 
In 2007, 2008 and 2009, "other expenses" grew more than revenue or payroll did. From 2006 to 2007, revenue and payroll each grew 6.6 percent. Given the NBA's claimed losses, non-payroll expenses grew 9.8 percent between those seasons. That's a massive uptick in comparison. The gap exists in 2008 and 2009, as well. Strangely -- very strangely -- the 30 NBA teams actually shrunk non-payroll expenses in 2010, despite modest upticks in revenue and payroll. Non-salary expenses had been growing at 4-10 percent over the previous years ... and the NBA cut it by almost 1 percent out of the blue.
via NBA Lockout: Have Owners Spent Themselves Into This Mess? - SBNation.com.
 
 Allright, so the question's got to be asked. What's in that "Other" percentage? Maybe it was partially those employees the league's been laying off that we've been complaining about. But if so, why did it take them so long to figure it out? And if that kind of problem is so big, shouldn't that be the focus of the league and not the players? Maybe they're unavoidable expenses. But if that's the case, why werent' those factored into the last CBA negotiation? The questions go on and on. 

Now, the League's going to say it's irrelevant. They say the data isn't wholly accurate, therefore no conclusions can be gleaned from it. Which is fine. Setting aside the Times' point that there's no way to confirm the league's claim that the data is inaccurate without the league releasing its own data (which will happen on a day when Satan has to break out a parka due to a severe temperature drop), the point's still going to be there regardless of how the data is formulated. Where did the money go? How did the NBA make this much, and wind up losing it? 

You would think the massive amount of income from the profitable teams would cover it. And you would be wrong for thinking so, so sayeth the league.

From the NBA's statement:
The Knicks, Bulls and Lakers combined net income for 2009-10 does not cover the losses of the 23 unprofitable teams. Our net loss for that year, including the gains from the seven profitable teams, was -$340 million.
via NBA responds to NYTimes.com blog based on inaccurate info | NBA.com.

So despite a system that allows big market teams to set their own prices, including what can only be considered an obscene new deal for the Los Angeles Lakers, your costs are still so high that you can't make a profit despite all that?

The league responds, "Of course not! Player salaries are too high!"

As if it were that simple. As if that accounts for why there isn't enough to go around, or why we still saw opulance this season and every season. Are we really to believe that the owners made every decision in good conscience and the system simply wouldn't allow them to profit? That they designed a system that denies their ability to profit?

If we're going to take the stance that failing teams get to fail (as the current revenue sharing system allows), shouldn't we take the same ideals for the league's approach before we start backing their demands to simply be gifted what they want?

These are the questions you ask as the lockout only really gets started, that leave you perplexed about why we're here in the first place.  And if we want to get to the bottom of those questions, there's only one way out. for the league to reveal its financials. They're under no obligation to do so. They have every right to keep their data to themselves as private businesses, and to simply keep swatting at these reports that pop up like gnats. But if they really want to tell us that they deserve the support of the media and fans, they need to be open and honest about what's happening and why. 

Otherwise we're just watching kids get sick in the cafeteria, munching on mystery meat and blaming the salad.  
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Comments

Since: Apr 8, 2011
Posted on: July 21, 2011 11:49 am
 

NBA Lockout: Where did the money go?

Have they considered shutting down the WNBA? That league takes a lot to opperate and brings little-to-nothing to the table IMO.




Since: Jul 18, 2011
Posted on: July 20, 2011 4:57 pm
 

NBA Lockout: Where did the money go?

NBA players are not school teachers, they are the product. they are the reason that revenue is generated; fans to pay money to see owners suit up.

YOU as an employee are not drafted -- you can control where you work
YOU do not have to grant your employer an anti-trust exemption that allows them exercise monopoly power in the product market



Since: Mar 22, 2008
Posted on: July 20, 2011 1:43 pm
 

NBA Lockout: Where did the money go?

Let's see what do company's do when they are losing money. That is a fairly safe question considering the economy right now. They get rid of bad investments, keeping only the money making pieces of their portfolio. Some company's lay off their workers until they are profitable. Other company's ask their workers to take pay cuts until they are profitable once again. If I am a teacher asked to take a pay cut (which I am not) do I have the right to ask the Governor to show me the books? The owner decides on their own acceptable profitability. The players can choose whether to play in the NBA or not. The owners are trying to get the most profitability and put the best team on the floor, which generally leads to higher profits. Unfortunately not every owner can get the best players. So they try in vain and over pay for the mediocre talent they can get. The players are trying to.......get the most money. They care little about anyone other than themselves and their families. I'll side with an owner trying to give me something of value to watch at the end of a hard day. As for the players, how about diving for a ball, work on your three point shot, try to block something, and lay off the doughnuts.



Since: Feb 3, 2009
Posted on: July 19, 2011 9:51 pm
 

NBA Lockout: Where did the money go?

I know what doesn't generate money.  Having teams in dust bowl towns like yours Royce.  Breaking a small profit in a terrible TV market doesn't help the NBA at all. 



Since: Jul 18, 2011
Posted on: July 19, 2011 2:57 pm
 

NBA Lockout: Where did the money go?

@Redsfan1507

The players currently make more than the market will bear. It's a business, and a business doesn't have to go broke to close, but it's the quickest way.

That's Republican logic. The problem is not the salaries (fixed expense) it's the variable expenses and OTHER. What good is your plan if you don't account for the REAL problems?

The owners can not expect to be protected from expenses that have increased on a global economic scale like plane flights, fuel, acommodations, food, etc.




Since: Jul 19, 2011
Posted on: July 19, 2011 2:46 pm
 

NBA Lockout: Where did the money go?

This is crazy.  I normally side with the owners thinking they should get a return on investment.  But if the owners won't open their books, they shouldn't make claims like that.   How can anyone be expected to believe Stern or the owners?  Obviously, they don't have to open their books.  But then no one should be expected to believe them either.  We lost 300 million.  Just believe us.  Please!
  Obviously, they don't have any reason to lie or misrepresent the numbers.  Unless, they are trying to get money back from the players.  Oh yeah, that is what they are trying to do.  I guess they do have reason to overstate losses.

I don't care.  I think they all make too much money.  I just think the owners and Stern should just shut up.  If you're not going to show your cards, don't make unsupported claims.  If your going to make such claims, then show some evidence to back it up.  The owners want to have their cake and eat it too.



Since: Jul 18, 2011
Posted on: July 19, 2011 2:19 pm
 

NBA Lockout: Where did the money go?

No offense to College Basketball fans.... but anybody who says NCAA is better than the NBA does not know basketball.

NCAA = No Way
1. Players skillset = Supremely lacking
2. Glorified 3-point contest. The hottest team usually advances in the tournament
3. Very few post players


61 - 57 score does not equal good defense, it's weak offense.

Very few leagues will expose you like the NBA. Your deficincies will come to light.

Adam Morrison anyone?





Since: Sep 20, 2006
Posted on: July 19, 2011 2:13 pm
 

NBA Lockout: Where did the money go?

The NBA's revenue makes it obvious, there isn't much wrong with the product. It's what it costs that is the problem.

There is NO attendence problem that can't be bettered by lower prices, but you can't do that if there isn't enough money left over to satisfy the owners and investors- you know, the people that actually have investment dollars at risk, AND have OTHER opportunities to make money.

It's simple.

The players currently make more than the market will bear. It's a business, and a business doesn't have to go broke to close, but it's the quickest way.   

Ultimately, the owners (who ALL made their money OUTSIDE the NBA) have a viable option: Make a satisfactory profit on the team, or remove their investment and put it into something else that will.

..and the players (NONE of which made their money outside the NBA) also have a SINGLE option- play for less money or find another occupation to replace that income with. The players options are uh, somwhat more limited, I'd say, than owners.

Players- Go back to work, and be happy you're making 100 times more than you could doing anything else that was legal.



Since: Aug 25, 2006
Posted on: July 19, 2011 10:46 am
 

NBA Lockout: Where did the money go?

mtro69, you have rose colored glasses on.  a few playoff games with defense doesnt make up for almost a hundred games of no defense.  players dont even give a marginal effort until the playoffs begin.  it is a bad product.  chicago, boston, new york, la, miami are the only teams with a following.  the refs are some of the worst officials in all sports.  ncaa basketball blows the nba away in every facet.  i couldnt get excited about any nba game this year and i tried. 


and no way does nba have more compelling and marketable stars than the other 3 u.s. sports combined.  that is just a silly statement. 


1. nfl

2. ncaa basketball

3. ncaa football

4. baseball

5. nba/hockey




Since: Feb 8, 2008
Posted on: July 19, 2011 10:19 am
 

NBA Lockout: Where did the money go?

WHO CARES? Face it. BAD BASKETBALL isnt worth watching let alone paying to watch. this has been a long time coming. I for one work too hard for my money to spend it watching marginal players who wouldnt know a pick and roll from a buttered roll. And when was the last time defense was actually deployed in a game plan? not since Ewings Knicks played the Jordan Bulls put this league out of its misery already. bad product doesnt sell.


Bad basketball?  Marginal players?  No defense?  What on Earth are you talking about?

The past few seasons, the NBA has had huge ratings surges.  There are more compelling and marektable NBA stars than the other 3 major American sports leagues combined.  There are certainly a few marginal teams in cities that probably don't need NBA teams (Charlotte, New Orleans, Sacramento), but the league right now is almost as popular and probably more interesting than it was during the Jordan era.

No defense?  Every series the Miami Heat played in in the playoffs featured elite defending.  An offensive juggernaut like Dallas struggled to put up 90 points on them in games during the finals.  You can't go deep in the NBA playoffs without playing good defense. 

The NBA isn't a bad product, in fact, it's selling great right now with numerous superstars.  The owners are really just dumbasses who mismanage some teams and give role players and quasi-all stars huge, guaranteed contracts...


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