Tag Archives: NBA Lockout

Podcast: You say Monopoly, I say Monopsony

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Where to find us:

You can play our podcast with the player above. If you don’t want to wait to hear a new podcast though you can subscribe to our RSS Feed: http://www.bigcontact.com/wagesofwins/rssaudio

Podcasters

Companion Reading
The podcasters referenced the articles linked below during the discussion.

Enjoy! As we mentioned we’re burning out on the lockout. If you can think of a fun topic you’d like to hear two or more stats geeks talk about let us know and we’ll see what we can do.
-Mosi and Dre

Major League sports are not as big as sports fans like to think

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Sports are supposed to be a great help to the economy. That’s the story we’re told when cities add taxes to build stadiums and arenas. The problem, though, is that when we look over the numbers, we don’t see many people that sports actually help.

The Ideal Scenario isn’t that Ideal

The problem with Sports as a business is that most days your stadium or arena will be empty (at least with respect to the sport that motivated the construction of the building). Let’s take a look at a city that has managed to do it right. The Staples Centers in Los Angeles is an arena that most cities should strive for. But here’s what the numbers say.

  • The Staples Center host three major sports teams (The Lakers and Clippers for basketball and the Kings for the NHL)
  • If the Kings, Clippers and Lakers all played the maximum number of playoff games there would be a major sporting event in the Staples Center 166 days out of the year.
  • If the Kings, Clippers and Lakers all sold out every game they would have filled approximately 3.5 million seats
  • The Los Angeles area has over 12 million people. That means only around 25% of the population could go to a sports game a year, and that’s only if no one attended multiple games.
In an arena with three major teams (the ideal scenario) an arena doesn’t help much. After all, even in the ideal scenario above, the building can only seat a tiny portion of the population.   And this building is still not hosting a sporting event the majority of the time.  Furthermore, even if somehow the Staples Center could find events for the rest of the year, it would still only increase the number of tickets sold to about 7 million annually.

Numbers for Major Sports in the NBA

Here are some rough estimates for league wide attendance during regular seasons*
  • If every MLB game sold out approximately 121,500,000 seats would be filled
  • If every NBA game sold out approximately 25,000,000 seats would be filled.
  • If every NHL game sold out approximately 25,000,000 seats would be filled.
  • If every NFL game sold out approximately 35,000,000 seats would be filled.
  • Total for all four leagues is about 200,000,000
Here are some rough estimates for league wide attendance in the ideal case for playoffs for each league (7 game series in NHL and NBA and 5 game and 7 game series in MLB)
  • If every MLB playoffs went the distance and sold out approximately 2,000,000 seats would be filled.
  • If every NBA playoffs went the distance and sold out approximately 2,1000,000 seats would be filled
  • If every NHL playoffs went the distance and sold out approximately 2,100,000 seats would be filled.
  • If every NFL playoffs sold out approximately 770,000 seats would be filled.
  • Total for all four leagues is about 7,000,000
Here are some fun comparions
So when it comes down to it every major league sport in the United States would be about two thirds as effective as Netflix if each had maximum popularity. The playoffs all put together amount to one busy day of shopping for Wal-mart in the US. It’s easy to get impressed by large numbers when speaking about the NBA but when put in context they are just not that big.

Summing Up

The numbers I showed above say that sports just can’t seat as many fans as we’d like to think. One other issue with all of the fans listed above is this: they will spend their money else where if sports go away! The research has shown that sports don’t help local economies. Part of the reason is the limited nature of this.  The size of the venues are quite small relative to the local population.

Next, even if local fans can’t see NBA games it doesn’t mean they stop doing anything for entertainment. Maybe they don’t go to the Hooters next to the American Airline arena. That doesn’t mean they don’t go to a different restaurant after doing something else such as going to a movie. The end story is that the NBA doesn’t help as many local fans as we’d like to think and it turns out those local fans are perfectly capable of having fun without the NBA

-Dre
*For NBA and NHL arena capacity I estimated 20,000 per arena. For MLB stadium capacity I estimated 50,000 per stadium. For NFL stadium capacity I estimated 70,000 per stadium.

Some Good Looking Links

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Here at the Wages of Wins our analysts’ opinions are highly valued. Our resident General Manager and expert Sports Economist David Berri has been answering questions about the lockout and beauty all over the web.

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

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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

The Bottom Line on the NBA Finances Part 2: The BRI Strikes Back

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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 on 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.

In Part 1, I used all available public sources to break down the finances of every NBA Team (check it out for the full explanation)

The truth of the matter is that the bottom five teams come out as losers for their owners on the bottom line. For the most part this is is a function of location (7 of the bottom 10 are in my list of franchises in overextended markets), which again is not the player’s fault even though their being asked to pay for it.

Let’s talk new deals.

The owners wanted a 47/53% BRI split in their favor. That looks like so:

Weird, the league makes money as whole here, but 17 teams lose money on their tax returns.

Let’s try the current proposal, the proposed 50% split:

Huh. I still get 19 teams in the red. Something must be wrong; why in the world would the owners propose something that costs them money? Oh wait, I only used the Tax Return Numbers!

If I go by league claims the numbers make no sense. Add in all the other benefits to the equation and everything suddenly does. A 50/50 split sees 29 teams in the black.

The one question left on my mind is: how would this table look like at the players’ proposed 51/49 BRI split?

That still leaves 29 of 30 teams in the black. Add in some relocation and some revenue sharing and you are done (but this also is not up to the players). Relocation, I’ve already explained. Revenue sharing is a tougher cookie, which I’ll get to tomorrow.

-Arturo

Disclaimer: I do not have access to the NBA’s books. Everything in this article is put together from public statements or logical inferences. I do not claim to have this perfectly right. However, I do feel like I am in the ballpark. The sources I used are listed, please update me if there is a better location to get my data.