As the NBA enters what looks to be an extended lockout, team owners want fans to believe a few things. They want us to believe that the league’s economic structure is fundamentally broken, that 22 of the league’s 30 teams are losing money, and that the league’s core economic problem is player compensation. In other words, they’re saying the players make too much money.
There is a word for what they’re doing on that last point: They’re lying.
They might not be lying about losing money — but the extent of those losses is a matter of considerable debate. The owners claim they lost $370 million last year. But, when amortization and interest are removed, $250 million of those “losses” vanish.
According to collective bargaining agreement guru Larry Coon, amortization shows up in the balance sheet, but doesn’t represent actual money going out the door. It’s an accounting device to help owners on their franchise acquisition costs. Interest payments to finance franchise debt similarly should not be the players’ responsibility since they don’t have an ownership stake in the team.
The remaining $120 million in losses — which also may not fully exist because teams don’t have to account for the full value of sweetheart deals they get (and give) to allied businesses — represent $4 million per team. This is something that can be fixed by revenue sharing, which is something owners need to resolve among themselves — not heap on the backs of players.
Despite what Commissioner David Stern and owners are saying, financial challenges the league faces are not caused by out of control player compensation. In fact, the league has had fixed labor costs since the last CBA went into effect in 2005. That’s when the NBA implemented a league-wide hard salary cap. Let me repeat: The NBA has had a league-wide hard salary cap since 2005.
In that last CBA, players and owners agreed that player salaries would be limited to 57 percent of what’s called “basketball related income” (BRI). To give them some wiggle room, 8 percent of player salaries are withheld and put into an escrow account. At the end of the season, accountants calculate player compensation in relation to BRI. If player salaries exceed 57 percent of BRI, the owners get money back from the escrow account in the amount necessary to reduce player salaries to 57 percent. If player salaries are less than 57 percent, then the players get money back.
Individual teams can spend more (or less), but for the entire league, labor costs are capped. If league revenues skyrocket, the players get no more than 57 percent. If league revenues drop, the players get no more than 57 percent. If league revenues remain flat, the players get no more than 57 percent. It doesn’t matter if a player contract call for an annual raise — their actual compensation is automatically adjusted so that league salaries don’t exceed 57 percent of BRI. Under the current system, it is impossible for player salaries to be out of control. And this is before we get to the league’s luxury tax rules, which place a further drag on player salaries.
To put it a different way, any financial losses by NBA teams are the result of overspending in areas other than player compensation. Reported losses are the result of accounting shenanigans or bad management — not out of control salaries.
As an NBA fan, I want to see a few things from the new CBA. I want team expenses — including player salaries — reduced so that ticket prices can be reduced (yeah, I know that’s not going to happen). More seriously, I’d like to see a system in place that will allow all teams the opportunity to be competitive, for owners to make a profit, and for players to receive a fair share of the revenues they help generate.
The owners’ latest proposal places the entire burden for achieving those things on the players. That’s unfair and it’s not constructive. Owners need to decide how they’re going to share revenue between teams, then negotiate how much players should receive and come up with a system to address the competitive imbalance. The longer they maintain the ruse that they’re suffering because of player compensation, the longer it will take to address the real issues, and the longer the lockout will endure.