Monthly Archives: October 2011

NBA Players Haven’t Really Hit the Jackpot

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I want to call foul on the mainstream media. As I mentioned, a majority of the players in the league make less than $2 million, and yet people like Stephen A. Smith throw around that $5 million figure as gospel. We keep hearing the NBA lockout being described as “millionaires versus billionaires”. But most NBA players won’t become big earners like Kobe and LeBron. Here’s a fun breakdown:

Since the 1990-1991 season 1461 players have entered the NBA and of those:

  • 490 — or 33% — never earned $1 million in career earnings*
  • and that means… 971 have earned at least $1 million in career earnings*
  • 752 have averaged a salary of at least $1 million per year*
  • 643 have earned at least $5 million in career earnings*
  • 165 averaged a salary of at least $5 million per year*

As we can see, less than half of all NBA players in the last 20 years — the period of time where NBA salaries have been at their highest — have hit that $5 million mark over their entire careers. Just over one third — 33% — of all NBA players in the last 20 years have not even hit the $1 million mark in career earnings. And these numbers have been adjusted for inflation!

Here’s a fun comparison: on average, 1600 people win a lottery of at least $1 million every year! That’s right; the lottery has produced almost twice as many millionaires in the last year as the NBA has in the last twenty years!  The popular perception is that once a player enters the NBA they will earn millions and millions of dollars. The truth is that many players don’t hit that high mark.

More importantly, for many of  these players, this is their primary source of income and it has cost them many years of hard work. Not only that, but once a player’s playing career is over, that income stops. The number of open announcing and coaching jobs is far fewer than the number of retired players capable of filling them. It’s not as if a 35 year old ex-NBA player can just go back to school and get a new degree that will allow them to re-enter the NBA. No, when an NBA player retires, they either have to find a new source of income, or start taking from their savings.

When people say NBA players are lucky to be paid to play a game, they’re right. You have a much greater chance of becoming a millionaire through the lottery than you do of playing in the NBA. Even so, the payout for getting into the NBA is simply not as high as people think, and there are many obstacles – rookie contracts, injuries, and NBA owners – that may prevent an NBA player from getting paid. So yes, NBA players are lucky, but the truth is they haven’t really hit the jackpot — at least not as big of a jackpot as people think.

-Devin and Dre

*Numbers adjusted for inflation and from Basketball-Reference

Did Tim Duncan and LeBron James cause NBA lockouts?

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There are lots of explanations for the lockout: parity, small markets being able to compete, and owners losing money are at the forefront of what we’ve heard. But when I was looking over NBA history, an interesting thing stood out:

  • In 2010, LeBron James was coveted by multiple teams; getting LeBron meant being a contender. Instead of going to an expected destination, LeBron made a surprise move and ended up in Miami. He immediately turned the team into a contender. The next season the owners locked the players out.
  • In 1997, Tim Duncan was coveted by multiple teams as a number 1 pick; getting Duncan meant being a contender. Instead of ending up at an expected destination, Duncan suprisingly ended up in San Antonio. He immediately turned the team into a contender. The next season the owners locked the players out.

In fact the same story goes back even further!

  • In 1982 Moses Malone demanded a trade from Houston (this was before free agency). Getting Malone meant being a contender. Instead of staying with his old team, Malone ended up in Philadelphia. He immediately turned them into a favorite. The next season the owners enacted the first salary cap on the players.

In the history of the NBA, when an MVP has made a surprising or unexpected move near negotiations, the owners have been very punitive toward the players. In the case of Tim Duncan, this even happened when it wasn’t the fault of the player! Every owner wants a title, and that requires an MVP candidate. When one enters the market, they feel entitled to the player, and when they don’t get them, they can get very upset. And when the owners get upset, the fallout can be excessive.

During the lockout we’ve heard a lot of theories. The problem with things like parity and the owners losing money is that they don’t hold up to scrutiny. Owners feeling entitled has been going been going on for decades, as has owners being upset at missing out on top players. So when we ask what caused the lockout, the answer may be simpler than we think — maybe the owners are just angry that they didn’t get LeBron. And you won’t like them when they’re angry. . .

-Dre

How the Owners Plan to Steal a Billion Dollars

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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 here, here 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

Dave Berri Talks the Lockout and How Socialists have taken over the NBA

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Dave Berri hopped (or skyped) across the pond to talk on the BBC show “Wake up to the Money” about the NBA lockout

Dave has been like Stern and Hunter and has been making the rounds on the media circuit.

In all of his talks perhaps the best of his accomplishments is to get a British host to call the NBA owners socialist. For all their talk of capitilism and free markets, the truth is when viewed from the outside it’s all a bunch of hot air.

-Dre

Update: One issue raised in the BBC interview was that players in the Premier League receive more than 70% of league revenue.  Apparently the Premier League is not going out of business.

Are the Owners using a Cheat Sheet to beat the players?

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Arturo kindly decided to make a cheat sheet for the NBA Players that are currently in negotiations. Above is chart showing the different pay grades in the NBA and how a new BRI split would alter each player’s pay. Arturo also kindly phrased this in another way for the players: “How much of a pay cut will I take if we accept this deal? ” (shown below)

You’ll notice that I’ve highlighted the 47% column (the owners initial offer), the 53% column (the players’ counter), and the $2,000,000 salary row. Why is the $2,000,000 salary row important?

Table 3: 2010-2011 Player Salary Tier breakdowns

Current Salary Players at or below salary % Affected

$500,000

100

22%

$1,000,000

196

44%

$2,000,000

240

53%

$3,000,000

279

62%

$4,000,000

314

70%

$5,000,000

337

75%

$6,000,000

354

79%

$7,000,000

369

82%

$8,000,000

378

84%

$9,000,000

386

86%

$10,000,000

397

88%

$11,000,000

409

91%

$12,000,000

412

92%

$13,000,000

423

94%

$14,000,000

431

96%

$15,000,000

432

96%

$16,000,000

436

97%

$17,000,000

444

99%

$18,000,000

447

100%

$19,000,000

448

100%

$20,000,000

448

100%

$24,000,000

449

100%

While it is often floated around that the “average NBA player” makes around five million dollars, that is a little skewed. Because certain superstars like Kobe Bryant make lots of money it brings up the average for the whole. According to Basketball-Reference, 449 players were paid to suit up last season. Just over half of these players made less than $2,000,000.  Again, the $5 million average is very misleading.

When we look at how much of an impact of the player giving into the owners (accepting 47%) versus getting what the players want (i.e. 53%) we see for the $2,000,000 group it’s only a difference of $170,000.  And for the lowest tiered workers — who make $500,000 or less — it’s only $50,000!

This reminds me of an interesting story from Freakonomics about real estate agents. When selling a $200,000 house a difference in $10,000 seems huge. Leaving a house on the market longer can actually be worth as much as $10,000. A real estate agent though only gets a 1.5% cut (6% commission split between the buyer and selling agent. The agent then splits their commission with their firm) so an extra $10,000 for the seller only gets the agent another $150. For several weeks of work this in not a lot for the agent. As such, the real estate agent actually has an incentive to sell lower for a quicker sale even though it hurts the seller — who is supposed to be on the same side as the agent!

Back to the NBA… the current BRI is around four billion dollars. That means every percentage point is worth around $40,000,000 for the players collectively, and the difference between the 47% and 53% offers is a quarter of a billion dollars! However, for a majority of the union it’s less than a few hundred thousand dollars. As the NBA union argues collectively we see that most players merely have an incentive for the lockout to end as opposed to fighting for tens of thousands of dollars (again, even though hundreds of millions of dollars are at stake). The players talk of standing strong may not hold up as many of them have an incentive to cave.  And it’s entirely possible the league knows this. So in the fight between the players and the owners, it may be that the owners are using the same sheet as Arturo and that may be why we could still see basketball this season.

-Arturo and Dre