Blog Entry

NBPA economist undresses the issues

Posted on: October 27, 2011 12:55 pm
Edited on: October 27, 2011 1:08 pm
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Posted by Royce Young

The NBPA went out and got pretty much the best they could. Kevin Murphy is the players' economist and has been awarded with a MacArthur "genius grant" and is a professor of economics at the University of Chicago.

He's been mum so far in all these negotiations but gave a rare interview to NBA.com and pretty much will blow your mind when you read what he has to say. For example:
NBA.com:Management cites rising costs in marketing, ticket sales and other areas.

KM: Ask them to show you how much their costs have gone up as a percentage of BRI [basketball-related income]. Our moving from 57 [percent] to 52.5 covers more than 100 percent of any cost increase they’ve had.

Again, that's not coming as some spin from Billy Hunter or Derek Fisher. That's one of the counrty's most respected economists saying that. That's someone that has a reputation to keep and that isn't going to just blow smoke.

The league though doesn't see it just as "covering losses." The owners want irrefutable profit. Which is why that tricky little 2.5 percent is a big because that's something like $50 million. And that's a big number between guaranteed profit and just having a shot at it.

And take notice of this:
KM: The other thing is, there is some relationship between pay and success but it's not nearly as strong as people think it is. Even if you were to completely equalize pay across teams, there still would be an enormous variation in strength of teams. In a statistical sense, the level of payroll of a team explains somewhere like 5 percent to 10 percent in the variation in outcome

[...]

I did a little experiment. All you have to do is take the overall distribution of win-loss percentages. Let them tell you what they think the relationship between salaries and wins is. They tell you 'This much spending is worth this many wins.' So then you take everybody's salary down to the mean or up to the mean. Then if you tell me you get an extra win for every $3 million you spend, I'm going to give everyone I'm moving up an extra win for each $3 million. Everybody I move down, I'm going to give one fewer win for each $3 million.

The relationship between salaries and the number of wins in a season is positive, but it's pretty weak. It certainly is not going to have a dramatic change in the distribution of outcomes. It might change who the winners are and who the losers are, but you're still going to have some teams that are much better than others. Because some people spend their money much more wisely than others do.

That's it. It's so simple, but it takes a really smart person to say it for it to get through sometimes. Because some people spend their money much more wisely than others do. The Spurs, the Thunder, the Grizzlies -- those small market teams have found success in spending wisely.

Not to say spending doesn't work. There's a reason the Celtics and Lakers have a combined 36 championships. There's a reason the Mavericks won the title last year with a payroll ballooning over $90 million. IF you spend, you give yourself a better chance to win despite a dumb front office. That's really the rub there. Instead of having a tactician like Sam Presti or R.C. Buford, you can just pay the next big free agent a bunch of cash and get there that way. Presti has managed the salary cap brilliantly, even taking advantage of other strapped teams to acquire players. That's what Murphy's talking about.

I can't really blockquote a 2,000-word interview, so just go read the entire thing for yourself. Since Kevin Murphy's probably the smartest guy in the room, reading his take will at the very least, make you a bit more intelligent.
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Category: NBA
Comments

Since: Jun 25, 2009
Posted on: October 27, 2011 8:02 pm
 

NBPA economist undresses the issues

Im so wrong its not even funny, yet you have not listed anything to back up your weak argument. Where are the numbers that support your ignorant tirade? The NBA is stating that they are losing money based on a formula which is completely disingenous.  

Weak argument?  You believe A MASSIVE UNION, THE NBPA is happily agreeing to take a 10 percent pay cut for nothing?  You believe a massive union like the NBPA would allow the owners to profit, lie about losses and just hand them 10 percent for the fun of it?

There is no way in hell ANY UNION IN THE WORLD would allow any company to do that to them.... not now and not ever.

And finally, one last thing you need to recognize.  You union slappies and player supporters can't have it both ways.  During the NFL lockout you all cried when the NFL refused to open their books.   Yet in this case when the NBA DID open up their books and get a complete financial audit and provided that to the union, that's not good enough either?

Here's the bottom line.... the NBPA is screwed.... they have been beaten down like the punks they are.  They are giving in, and they are covering almost every penny of the 300 million dollars the owners lost last season....

Oh, one more thing.... when you resort to deadspin.com to back up a point that's pretty crazy.... 



Since: May 17, 2008
Posted on: October 27, 2011 6:15 pm
 

NBPA economist undresses the issues

The central point of the article is that the owners have been misrepresenting their financial situation. And the economist uses facts and reason to support his point of view.

You on the other hand are throwing crap on the wall to see what sticks. The Spurs and most other teams arent losing money. I repeat most teams are not losing money. Even the New York Times called shenangans on the NBA's claims that most teams are losing money.
Simply not true.  The economist, in the quoted parts of the article only says that the players' proposed decrease in their percentage of BRI would cover the increase in the costs of marketing, ticket sales and (vaguely) "other areas".  He does NOT dispute, nor have the players, that the NBA overall has been losing money under the last CBA (they do dispute the amount of the annual losses, with the NBA saying $300mil and the players around $200Mil).  On top of that, the NBA has also hired very qualified economists and I bet if you interview them they will support the NBA's position as much as this guy supports the player's position (I have represented enough clients in lawsuits involving business valuations, income/losses, etc, to know both sides can have well respected, qualified experts who come to different conclusions when reviewing the same facts and figures).  Simple fact is the dispute is over (1) how much money the owners have been losing (again, no dispute that MOST teams are losing money and that the losses in total exceed the profit made by a few teams, the question is by how much) and (2) how to address those losses as no one will, or should be expected to, continue to operate a business at a loss.



Since: Mar 23, 2009
Posted on: October 27, 2011 5:51 pm
 

NBPA economist undresses the issues

Im so wrong its not even funny, yet you have not listed anything to back up your weak argument. Where are the numbers that support your ignorant tirade? The NBA is stating that they are losing money based on a formula which is completely disingenous. 

Forbes also debunked the myth that NBA is losing money. Im not going to waste any more of my time trying to explain something to a brick wall, but I will leave some links in case you want actually learn about the topic rather than pontificating about something you clearly dont know much about.




http://deadspin.com/5816870/exclusi

ve-how-and-why-an-nba-team-makes-a-

7-million-profit-look-like-a-28-mil

lion-loss




Since: Jun 25, 2009
Posted on: October 27, 2011 4:51 pm
 

NBPA economist undresses the issues

Wow.  Are you also in denial about global warming?  Everyone, even the players and their economist, agrees that the league lost money last year.  Sure they dispute the amount.  The league claims 300 million and the players claim the losses were only 200 million.  The wide gulf between those two figures is largely over a disagreement of how to treat interest payments on loans the owners took to either purchase their team or the arena.  

It's hilarious, isn't it?  These guys must be the biggest die hard NBA fans to ever walk the earth.  The union isn't saying the NBA didn't lose money last year.  Not even the economist the players hired is saying the league isn't losing money.   Yet the fans that support the players in this lockout don't believe the owners lost money??  WOW is right !!!!!

As for Oaklahoma City and what they profited, that's a big joke.  First of all the "profit" is not really profit, it's operating revenue of around 23 million dollars, and only because taxpayers had to fork over 100 some odd million dollars for stadium improvements. Of course the Thunder being there creates a lot more then that in revenue for the city, hundreds of jobs, etc  but that 23 million dollar profit isn't what it appears to be.   Now that Durant is going to make a few million more and as you pointed out Westbrook as well a couple years later, there won't be much left.  And the owners when there is a positive operating profit under the current system can't exactly just write themselves a check for the entire amount....

The numbers the NBA provided were AUDITED NUMBERS... and not by somebody they hire on their own either, by a neutral party. Do player supporters not wonder why the union isn't arguing the owners are losing money?  Unlike the NFL that never pretended to be losing money, the NBA was obligated by law to open up their books... and they did.  I don't get people on these boards anymore.. I don't understand some people.   Some of you guys are arguing with the people you're supporting, the union.  



Since: Jun 24, 2011
Posted on: October 27, 2011 4:28 pm
 

NBPA economist undresses the issues

Wow.  Are you also in denial about global warming?  Everyone, even the players and their economist, agrees that the league lost money last year.  Sure they dispute the amount.  The league claims 300 million and the players claim the losses were only 200 million.  The wide gulf between those two figures is largely over a disagreement of how to treat interest payments on loans the owners took to either purchase their team or the arena. 


Only five or six teams made money last year: Lakers, Clippers, Bulls, Knicks . . . are you seeing a trend here?  OKC also turned a profit laregly due to the rookie scale.  Next year Durant's max contract will take effect.  Will they make money next year?  Maybe.  But what will they do with Westbrook?  He has earned a max deal.  If they give it to him there is no way, at least under the current structure, that OKC could make money.  If they don't he will walk and OKC will suck like they did in Durant's first two years.  Thats the dilema.  Its a no win situation for too many teams. 



Since: Jun 25, 2009
Posted on: October 27, 2011 4:05 pm
 

NBPA economist undresses the issues

There is nothing illogical about the analysis put forth in this article. 

Nothing illogical?  Sure, whatever you say. The person the writer is quoting is a person hired by the NBPA for God sakes... do you really think the guy is going to make his client look stupid?  He's going to say anything they tell him to say, regardless of how big or important he is.  He's the NBPA's b**ch..... 



Since: Jun 25, 2009
Posted on: October 27, 2011 4:03 pm
 

NBPA economist undresses the issues

The Spurs and most other teams arent losing money. I repeat most teams are not losing money. Even the New York Times called shenangans on the NBA's claims that most teams are losing money. Owners are simply trying to take advantage of poor economy to get the players to agree to a crappy deal. The fans who are siding with the owners on this lockout are going to be in for a rude awakening. Owners arent holding a hard line so that they can lower ticket prices, they are holding their line because they want to be guaranteed financial success even when they manage their teams irresponsibly. Keep drinking that kool aid.

You are so wrong it's not even funny. The union ADMITS the owners lost money, there is no doubt about that at all.  The union has agreed to take an instant 200 million dollar paycut before even missing one paycheck, you think they are doing that just to be nice?Unions NEVER offer to take pay cuts when their employer is making money.  And they certainly don't do that before they even miss one paycheck as the NBPA offered to take a pay cut months ago. You obviously don't understand how unions operate in the world we live in, there isn't a union world wide that would EVER agree to a pay cut working for a profitable business.

And tell me one more time why an owner of an NBA franchise shouldn't be guaranteed profits in a league that grosses around 4 billion dollars per season and in a league where the players took home almost 2.3 billion dollars just last season alone.  Give me a break... your argument stinks.  What you don't understand is the players would have walked out and never again met with the owners if they were profiting and demanding pay cuts.... it's that simple, the owners ARE losing money.... that's not debateable.  



Since: Jun 24, 2011
Posted on: October 27, 2011 3:26 pm
 

NBPA economist undresses the issues

Don't forget that the league originally wanted traditional revenue sharing.  It was the players who insisted that the revenue sharing be a part of the labor negotiations via the luxury tax. Its just another in the long list of concessions that the players have received while refusing to acknowlege it as a concession.  

The player's economist concluded that payroll was only a 5-10% factor in predicting success.  Only?  Six or seven extra wins a year and an extra ring every 15 years?  Umm . . . yes please, I'll take two.  


A huge economic factor that here is the losses and resulting write-offs.  In the past owners had no problem taking losses on an enjoyable hobby because it was better than just writing the IRS a check.  Now those write offs are not as valuable because they have fewer gains to use them against.  It was a gravy train.  Is that the player's fault.  Absolutely not.  Its just the current economic reality.   Oh and by the way that hobby isn't quite as fun as it use to be with players choosing to play on teams because the city has nicer beaches or hosts fashion week.


For years the players were on a gravy train.  Two years ago the owners told the players the gravy train was over.  The sad part is that the players have been riding it for so long it they don't even realize it is a gravy train.   


Whether you think a slightly harder soft cap and a bigger luxury tax will improve competitve balance or not, can anyone name one proposal the players have made with the intent or effect of improving the NBA?       
;




Since: Mar 23, 2009
Posted on: October 27, 2011 3:19 pm
 

NBPA economist undresses the issues

There is nothing illogical about the analysis put forth in this article. The problem is that you dont want to accept the facts and have made some asinine arguments to prove that. The point of the article is not that payroll doesnt equal wins. The central point of the article is that the owners have been misrepresenting their financial situation. And the economist uses facts and reason to support his point of view.

You on the other hand are throwing crap on the wall to see what sticks. The Spurs and most other teams arent losing money. I repeat most teams are not losing money. Even the New York Times called shenangans on the NBA's claims that most teams are losing money. Owners are simply trying to take advantage of poor economy to get the players to agree to a crappy deal. The fans who are siding with the owners on this lockout are going to be in for a rude awakening. Owners arent holding a hard line so that they can lower ticket prices, they are holding their line because they want to be guaranteed financial success even when they manage their teams irresponsibly. Keep drinking that kool aid.




Since: Sep 20, 2006
Posted on: October 27, 2011 3:05 pm
 

NBPA economist undresses the issues

WHY does everyone avoid discussing THE REAL PROBLEM ?

Get to the point.  

BRI percentage isn't why the NBA lost $300 million last year, and it won't be this year either. 

The NBA lost $300 million DIRECTLY because the owners spent too much on PLAYERS salaries...they simply made too much money, in a system that promotes guaranteed increases to players regardless of profitabilty of the franchise, the league, or their individual performance.  The "max contract" is too high, and too many undeserving players (Rashard Lewis) get them, especially when the best players make MUCH more in endorsement money than salary anyway- THAT is a better motivator than guaranteeing someone $50-$60 million over 3 years regardless if the team wins or makes a profit or not.  The AVERAGE NBA player makes $5 million a year, but the average NBA player isn't drawing enough income for the NBA to pay him, and the percentage of business expenses he costs them.

It's SIMPLE math, NO ONE seems to want to discuss. 

"Competitiveness" is a relative term...before the days of unrestricted free agent mega salaries, Boston and LA dominated for decades. Chicago had a run. No coincidence, these teams had elite talents, signature players- Russell, Bird, Chamberlain, West, Jabbar, Magic ,Jordan, etc. ...now imagine if Bird, Jabbar and Magic were allowed to all play on the same team against Jordan. How is THAT good for the NBA, or Jordan ?  

There needs to be more balance, but the bottom line is, sharing revenue or restructuring is pointless if the NBA loses hundereds of millions of dollars a year. It's a BUSINESS. Without making a profit, it FOLDS, and there is nothing to share or restructure.

The ONLY way the NBA can make a profit, is if players make LESS...and the only way there will be any competitiveness is if teams are forced to BUILD more winners instead of BUYING them.

Those are both issues players REFUSE to concede on...and until that changes, NO ONE in the NBA is making any money.


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