NBA Owners have no hope of solving the NBA’s money problems

We’ve been reviewing the numbers about the lockout for a while here at the Wages of Wins. The owners insist on acting as if owning an NBA team is a business and not a luxury good or political move to achieve other gains. But when we look at the NBA as a business, we can see the owners are terrible at running it as such. Let’s start with just some simple math:

Profits = Revenue - Costs

Cutting Costs

The owners are claiming their profits are negative and that means that either their revenue is too low or their costs are too high. The owners have decided to focus on costs and there is a serious problem with how they’ve done that. First let’s review some of what we’ve gone over:

So the owners are “losing money” and they are trying to make up for it by cutting costs. The problem is that the costs they are addressing don’t seem to solve the problem. In fact, if trends continue, Arturo speculates that even in the ideal case the owners’ cost cutting solution will land us in the middle of another lockout in 2020…assuming that there will be NBA basketball being played by then.

Increasing Revenue

If cutting costs won’t solve the issue, then surely raising revenues will? Let’s run that one down too:

  • NBA revenue has grown by leaps and bounds
  • From 1999 (last lockout) to 2006 (last CBA), league revenue grew from $1.6 billion to $3.6 billion
  • From 2006 (last CBA) to 2011 (current lockout), league revenue grew from $3.6 billion to $3.8 billion
  • The NBA is overextended in 19 of its 30 markets
  • The top markets are 3-4 times as profitable as the bottom markets in the NBA.

Despite the owners’ best attempts at failure, the NBA appears to be a success. This is in spite of several bad business practices, including hosting a team in a city like Indianapolis, which wouldn’t be profitable even in the best case scenario. It goes without saying that the NBA has opportunities to increase revenue, yet none seem to be under consideration.

Summing Up

The owners are locking the NBA players out because their profits are too low (their claim is that they are taking a loss). Using the most simple math, a good business person would either cut the bad costs or raise revenue. Instead of pursuing these two options, the owners are trying to cut their stable costs. Instead of moving teams to better markets, the NBA wants to talk about contraction or revenue sharing. So despite the hours upon hours of talk and the back and forth, the owners haven’t even addressed the issues that led them to shut the league down. As a matter of fact, the odds of there being a season this year are looking quite low. I’ll end with a quote by the late Albert Einstein:

The thinking it took to get us into this mess is not the same thinking that is going to get us out of it.

Unfortunately for the fans and the players, NBA owners seem to be stuck in their thinking with no end in sight.

-Dre

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