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Guest Column: Joe McGrath on the NBA Lockout

Editor’s Note: Mr. McGrath has long and storied history in the management of professional sports franchises, most notably as the general manager of the Charlestown Chiefs of the now-defunct Federal League. Oh, and this is probably a good time to mention that Mr. McGrath’s views are his own, and do not necessarily reflect those of Dubsism, our staff, or anybody else whose house you might want to burn to the ground.

From my days running hockey franchises, one thing that has always burned my ass is when stories get reported missing major important facts. This crap going on in the NBA is a perfect example. I understand there a difference between a minor hockey league a big-time basketball operation, but the fundamentals are exactly the same.

This is how I know half the stuff you are reading about this lockout would make great fertilizer for my garden. The other half of the story you aren’t even hearing. Let me point out some of the biggest examples.

1) The Crap About A “Fair Split of Revenue”

You could fertilize Kansas with this one; there’s no such thing as a “fair split.” The only way you can do that is to develop a model in which the players’ union is included with partial ownership. The reason why you have to do this is any business which commits to a pay scale based on sharing revenue has to ensure the players have a stake in keeping the league economically viable.

Right now, the NBA doesn’t have that, and nobody’s talking about it.  The biggest problem the owners have is they have gotten themselves into a position where they are giving away far too much of the business on “max” deals which are far too long. Now, the league is in a position where to many franchises are losing money and a married to long term, high-dollar deals.

Realistically, if the players think they are being treated unfairly, then they should start start their own league. Get all the players together, create a fund to build a new league, and run it any way they see fit. Want to know why they won’t do it? Because they don’t want to incur the risks of ownership. they would rather bitch about being “under-paid” and let somebody else worry about whether the league is profitable or not.

2) What This Is Really All About

This lock-out is all about union-busting, pure and simple. The owners shot themselves in the collective foot during the last lockout.  David Stern accomplished something unimaginable in 1999 when he made the NBA the only professional sports league with a maximum salary. The problem is the owners undercut that by agreeing to the revenue split with the players which started at 55 percent and ultimately ended up at 57 percent.

And while each side is busy making the other look greedy while maintaining it’s own “victim” status, what’s being lost here is the future of the league. A business tossing 57 percent of it’s revenue toward payroll has no future.

The dirty little secret is that futures require two things; planning and capital investment. The fans should pay attention to that, because neither side in this lockout has those things. The players simply don’t care; if they did, they would understand this league has no future as long as the average ticket price stays above 40 bucks.  The owners care, but they are getting squeezed by salaries that don’t go down and ticket prices which have declined each of the last two years. In other words, the owners don’t have the capital to invest, and the only planning they are doing is how to get themselves out of the mess they’ve created.

3) The Irrelevant Crap People are Clinging To

  • The owners did this to themselves

I just alluded to this, and it may be the most useless comment one can hear in this conversation. It doesn’t matter how we got to this point, what matters is how we get out of it. If your are a fan of the NBA, you need to understand a crucial point. This league is going to be a different league when it starts again. It is simply a matter of how big the difference is going to be.

Make no mistake, the owners are going to drop the amount of revenue they spend on players, because they have to drop ticket prices. NBA players who are talking with overseas teams are doing a wonderful job of shooting themselves in the foot because ESPN loves to talk about those negotiations, which tells the NBA owners exactly what the competition is willing to pay. Face it, if you were an owner, why would you pay somebody $10 million when you know no one else in the world will pay more than $3 million?

  • The players are the ones on the floor providing the product

So what? The world is full of players. In fact, if the high-dollar guys go away, I as an owner could move into an arena with lower overhead, drop ticket prices to the point where I can attract the family sports dollar again, or even bundle tickets with concession deals or some other promotional gimmick that would actually turn a sizeable gross margin if I didn’t have to pump the majority of revenue into payroll. The NBA already created this model; don’t think these guys are looking at the D-league teams that can get 5,000 people into an arena in Bismarck, North Dakota and turn a profit because they have low payroll.

Let me put it to you this way. The players aren’t the product; they are the labor, and labor is a commodity which a business has to pay for just like any other. Basketball is the product, and there’s lots of flavors of basketball which sell tickets in this country.  The car is the product, not the workers who built it, and the owners are beginning to realize that there’s more of a profit possibility in selling 10,000 Mercedes than in selling 50 Rolls-Royces.

  • The owners claims about losing money aren’t credible

There’s so many reasons why this doesn’t matter. First of all, this claim generally comes from “that guy” who doesn’t trust anybody who has a dollar more than he does. “That guy” will write me some long, rambling comment about how there’s a gross inequality in the way wealth is distributed in this country, or about how Wall Street screws the average American, or some other tie-dyed, patchouli-reeking bullshit. Don’t be “that guy.”

I’ll be the first to admit that you can cook the books to read anyway you want them to, but there’s one fact which precludes that in this case: The league pay scale is based on 57 percent of basketball-related income, which means that number has to be agreed upon by both the owners and the players, otherwise there would be no pay scale.

That means you can take the league’s total player salaries and compensation and know exactly what the total basketball-related income total was because of the contractually-obligated 57 percent revenue ear-marked for salary. Once you know that, it is simply a matter of combing through the numbers the NBA publishes and seeing which claims add up and which ones don’t.

Most importantly, it doesn’t matter if the numbers are true because it is the strategy with which the owners entered this conflict. Think about it, do you think there is a scenario in which the owners hold a press conference to announce they’ve been negotiating on “wrong” numbers? That will happen right after I become an Eskimo fighter pilot. It’s their story, and they’re going to stick to it.

After all that, here’s what you need to know if you are an NBA fan. It is time to stop worrying about which side you believe. It is time you stopped watching David Stern and Derek Fisher fighting over slices of a pie that you as the fan can take entirely away from both of them.

It is time you let them know that.

About J-Dub

What your view of sports would be if you had too many concussions

4 comments on “Guest Column: Joe McGrath on the NBA Lockout

  1. You know what really grinds my gears? This NBA lockout.

    Here’s the deal.

    At least the NFL owners were proactive about ending their lockout. Heck, with the passing of his wife right around the same time, Kraft was largely credited for pushing things through.

    Where are the vocal and visible NBA owners? Hiding their heads in the sand, that’s where. The only NBA owner with any cojones to get things done is Mark Cuban and he’s not losing money on his team because he knows how to run a business.

    Oh, how I’d like to be an NBA owner.

    Like

    • JW
      October 16, 2011

      I’m not sure you want to be an NBA owner. Let me tell you some things I discovered researching this.

      I started with the goal of verifying the owner’s claim they’ve lost $370 million in the last year. It began with the method outlined by Mr. McGrath above, but in addition to that I found numbers from other sources including public records and Forbes Magazine. I don’t know where the $370 million figure is coming from, but I do find it interesting that number happens to be the average value of an NBA franchise. I don’t know what it means, if anything, but I’m not a big believer in coincidences. It could mean the owners are counting the impending league ownership of the Hornets as a part of that $370 million, but I can’t find anything to support that.

      Let me tell you what I did find. I don’t think that number holds water, but that also doesn’t mean this league doesn’t have some big problems. First of all, Mark Cuban is losing money – but it is a short-term loss because he’s paying for an arena. He’s not saying anything about this lockout because he’s got the pockets to weather the storm AND cutting the percentage of revenue slated for salaries pays off his arena problem that much sooner.

      Having big debt due to arena issues is common. Of the 30 franchises, 11 have total debt greater than 40% of the franchise value.

      By my count, here are a total of 17 franchises operating at a loss, and by cutting the amount of revenue spent on salary, 11 of them could easily be back in the black.

      However, there are also 5 potential financial meltdowns out there, and that’s not counting New Orleans. Orlando, Charlotte, Indiana, Denver, and Sacramento are all headed toward the drain. These five franchises together account for over 55% of the league’s operating deficit.

      In other words, again this is all about busting the union so they can A) cut salaries to improve profit and B) contract/relocate some franchises that are draining the league.

      Like

  2. www.diehardsport.com
    October 16, 2011

    Very interesting and an excellent read. Thanks for posting this. He definitely has a broad sport knowledge and the experience running his own team. Can’t imagine all the pressure of what that would be like. Hopefully the NBA can get this deal right and make all side beneficial.

    Like

  3. Pingback: Open Letter To Bryant Gumbel: You Are A Race-Baiting Parasite « Dubsism

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