How the Owners Plan to Steal a Billion Dollars

Arturo Galletti is the Co-editor and Director of Analytics for the Wages of Wins Network. He is an Electrical Engineer with General Electric in the lovely isle of Puerto Rico, where he keeps his production lines running by day and night (and weekends) and works on sport analysis with his free time.

Editor Dre’s Note: Arturo has written a great piece for you with a killer twist ending. I like to play spoiler though. So here’s flipping to the end of the post:

  • Recap – The owners are likely lying on their books and actually earning a profit of hundreds of millions rather than losing millions.
  • The owners Stand to make hundreds of millions of dollars even if they lose a season if they change the BRI rate (even to the players’ proposed level)
  • If the owners stand firm they could gain over a billion dollars over the next six years if they win the lockout.
  • And of course here’s a great Arturo graph to sum it up!

And now like an episode of Lost I’ll let you see how this surprise twist came to pass!

Follow the money. Always follow the money.

-All the President’s men

In 1998 at arguably the height of its popularity , the NBA locked out it’s players. At issue was a clause allowing NBA owners to cancel the contract with the player’s if more than 51.8 percent of “basketball-related income” (BRI) went to player salaries. The NBA, at the time, claimed 15 of the 29 teams posted losses that season. The NBPA claimed that only four of 29 lost money. The NBA went to a vote after the season and locked its players out.

Tony Kornheiser summed up public perception by describing it as a labor dispute  “between tall millionaires and short millionaires.” Much like nuclear war it was a short, unsatisfying conflict which nobody won.

Fast forward to this year

On June 30,  after arguably it’s most successful season since 1998, the NBA locked out it’s players. At issue was the fact that 57 percent of “basketball-related income” (BRI) went to player salaries. The NBA, at the end of the season, claimed 22 of the 30 teams posted losses . The NBPA has disputed this claim. Negotiations took place between The NBA and the players union but both sides failed to reach an agreement prior to the expiration of the CBA .

Four months later and at the risk of losing an entire season we seem to be at an impasse. The NBA and its players seem to be locked in a deadly stalemate which no one can win.

Weirdly, this all sounds eerily familiar.To quote Karl Marx: History repeats itself, first as tragedy, second as farce.

Pundits are frothing at the mouth decrying  the folly of a possible lost season. How, they ask, can the NBA even consider throwing away what had all the potential of being a historic season? Why in the world would the NBA want to go through this crucible of torment again?

The answer as with most things comes down to the incentives. To put it simply, by tearing up the CBA, the NBA stands to make scads of money even if they lose the entire season.

For the NBA this is a financial no-brainer. Let’s prove that shall we?

Let’s break down the money first. The league claimed a loss of $300 million for 2010-2011. I’ve  in gone over these numbers in detail before (see herehere and here if you’d like to peruse them) and what I’ve come up with looks like so:

So a claimed loss of $300 million becomes a profit of about $200 million. Now that we know the numbers for 2010-2011 we can work out the effect of the lockout on the finances of the NBA owners. Let’s start with numbers using that NBA claimed loss of $300 million:

If we use the league’s own numbers, by locking it’s player’s out and lowering the BRI by any amount the owner’s stand to make money even if they lose the entire season. If the players had accepted a 47/53 split they’d stand to make an additional $380 million a year (or about 2.2 billion for six years even if they lost the season). At a 50/50 split the numbers are $267 million per year and $1.6 billion for 6 years. Even the player’s counter offer for 53/47  has the league making a tidy profit of $153 million per year and $1 billion for 6 years (and all this is without accounting for a new, increased tv deal for the 2016-2017 season) .

What if I use my corrected numbers for the league with a $200 million profit for the NBA teams for the 2010-11 season?

Again, the league comes out ahead in all the proposed BRI split scenarios even with losing the 2011-12 season. The player’s 53/47 proposal nets them $563 million over 6 years, A 50/50 split nets them $1.1 billion over 6 years and their own 47/53 proposal has them netting $1.7 billion over 6 years.

Sadly for the fans of the game of basketball, while a bad karmic decision the lockout is an incredibly sound financial decision NBA owners.

To quote scripture: “The love of money is a root of all kinds of evil”

-Arturo

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