The Importance of Interest Payments in the CBA Negotiations
by Storyteller on Sep 23, 2011 5:15 PM PDT
Email
PrintDuring the last couple of weeks, I've tried to crunch some numbers in an attempt to get to the heart of what the owners seem to be asking for in the Collective Bargaining Agreement (CBA) negotiations with the Players Union (NBPA), and why their proposals seem to be so far apart from each other. So far, I've posted two pieces on my own site related to this number crunching and am currently working on a third one that deals with revenue sharing - I hope to get that one up at some point in the next week.
Anyway, I read the online piece by Ken Berger at CBS Sports this morning that suggests that the two sides are about $2 billion apart (cumulative over a 6 year period) in trying to divide Basketball Related Income (BRI). And it inspired me to consider one factor in these negotiations - the amount of interest that teams pay on a yearly basis to finance team purchases. And, after looking at some numbers, it would appear that maybe this one issue might explain a big part of that difference.
Derek Fisher has publicly acknowledged that $130 million in interest payments (the amount in 2010-11 that teams paid in finance charges related to the purchases of their franchises) is not considered by the NBPA to be a legitimate consideration in these negotiations. While the owners say that this amount is a true, out-of-pocket expense, the players contend that the choice by owners to finance the purchase of their franchises has no relevance to the amount of salary guaranteed to players. After all, they argue, players don't share in the profits when a franchise is sold - so why should they share in the costs of financing the purchase? As such, instead of accepting the owner's claim that the NBA lost $300 million in 2010-11, the players argue that the true loss was closer to $170 million. As such, the players have proposed giving back close to $100 million (57% of $170 million) in each year of the new CBA, a reflection of their previous percentage of BRI.
My question is - how does either the inclusion or exclusion of this $130 million play into the difference between the two sides? Let's take a look at the numbers. And as we do, understand that, as with any analysis of numbers, I have made several basic assumptions for these projections. Since BRI increased by 3.8834% annually during the 6 years of the previous CBA, I am assuming that it will continue to increase by that amount each year in the future. Since my best guess is that BRI comprised 90.5146% of total league revenues in 2010-11, I assume that will continue to be the case. Since my best guess is that 'other expenses' (ie, all expenses other than player salaries and benefits) increased by 4.07527% annually during the 6 years of the previous CBA, I am assuming that they will continue to increase at that rate in the future. And finally, as described above, I am assuming that the owners believe that the league lost $300 million last season while the players believe the loss to be $170 million.
(Note that there are also a few other assumptions I have made in putting these numbers together. If you feel a need to understand more about each and every one of these assumptions, they are described in greater detail in the posts I've made on my site here and here. But my sense is that most will not have a need to do so.)
The players have reportedly adjusted their proposal to reduce their guarantee of BRI from 57% to 53%. Here, then, to the best of my ability, is how the next 10 years would look from the perspective of the owners if players were guaranteed salaries and benefits equal to 53% of BRI, including the figures from last season for comparison (click on the chart to enlarge):
Such a guarantee would result in a cumulative loss of -$1.120 billion over 6 years and -$2.141 billion over 10 years (6 years because the players are rumored to want a 6 year length on the next CBA and 10 years because the owners would reportedly prefer a 10 year CBA). However, from the perspective of the players, this is how the next 10 years would look (you'll note the difference in the starting point of 2010-11 because of the exclusion of $130 million in interest payments):
So, from their perspective, by eliminating interest payments from the equation, the true league-wide loss would only be -$0.221 billion over the next 6 years or -$0.511 billion over 10 years. Quite a difference between the two charts, right? It would appear to me that, because the two sides view the inclusion of interest payments differently, agreement on a 53% guarantee would be nearly unthinkable to the owners and much more reasonable to the players.
Now let's take a look at things with a different proposal.
What would be the projected picture if the player guarantee of salaries/benefits was 45% over the next 10 years? First from the owner's perspective:
Looking at things from the owner's perspective, the next decade would put the league into the black, to the tune of a cumulative $0.978 billion over 6 years or $1.647 billion over 10 years. However, by not considering interest payments as part of the picture, players would see the next CBA period more like this:
From the player's perspective, the league would make a cumulative profit of $1.877 billion over 6 years or $3.277 billion over 10 years. So, again, we have a huge difference. The owners would probably consider such a proposal quite reasonable, allowing them to make a decent profit, while the players would almost certainly see the owners making too much profit at the expense of the players under these terms.
So what's the answer?
Can a middle ground be found that would be agreeable to both sides, at least in terms of a guaranteed percentage? Perhaps. Let's look at a guarantee of 48.5%, first from the owner's perspective:
Such an agreement would appear to bring the league out of the red to pretty much break even. Over a 6 year period, the league would make $0.60 billion in profit while over 10 years they would lose -$0.10 billion. However, looking at things from the player's perspective yields this:
This would, in the player's eyes, give the league a cumulative profit of $0.959 billion over 6 years and $1.620 billion over 10 years. Is this enough of a middle ground to please both sides? IMO, if my projections are in the ballpark of reality, this is close to where the agreement can be made. Especially if you consider that, if instead of a revenue growth of 3.8834%, revenue actually increases by 4.5%, the owner's perspective will yield this projection:
Even this modest increase in projected income would put the league at a cumulative profit of $0.412 billion over 6 years or $1.021 billion over 10 years.
To summarize:
Here is a chart showing the bottom line of this analysis for each of these proposals, showing percentage guarantees of BRI that would go towards player salaries and benefits and what the result would be for the league as a whole:
So what does all of this mean?
Ultimately, I acknowledge that all these numbers are simply my best guesses at trying to frame the dispute between the two sides in a way that hopefully makes sense to most of us. But it would appear to me that each side, if they simply focus on presenting a proposal that 'seems reasonable' from their perspective, will end up far apart if they cannot agree fully on the legitimacy of that $130 in interest payments (or whatever amount they end up being in years to come). There would seem to be, then, two ways to come to an agreement on BRI percentage:
- One side could persuade the other to fully embrace their perspective on the validity of this amount in these negotiations.
- Both sides could eventually give a bit and agree to a compromise that neither would consider fully reasonable.
Honestly, I put little faith in the first. I don't think that the owners will be able to convince the players of the validity of including the interest payments in the books. Nor do I think that the players will be able to convince the owners to remove those payments from the ledgers. Meaning that I believe that resolution, if it comes, will come in some form of the second happening.
And, based on these numbers, if I had to guess on the final split, I would anticipate that such a compromise will probably be nothing more than a 48.5% guarantee of BRI to the players, especially given that the owners probably have more leverage long term than the players do in these negotiations. From what I see in this analysis, this percentage at least brings the league out of the red to satisfy owners and yet probably doesn't ensure extravagant profits at the expense of player salaries. I would not be surprised, however, if the eventual split was 48% or perhaps even a bit smaller. But 48.5% seems to split the current difference fairly evenly, in my mind. This would also seem to be in line with Ken Berger's most recent report that the owners were sticking to a proposal on Thursday in which players would "still be getting an average of less than 49 percent of revenues over the life of a new CBA,"
Note that this assumes that the owners are firmly convinced in the complete validity of the claimed losses and in a desire to bring the entire league out of the red. If the players end up with a significantly higher percentage of BRI guaranteed to them, it could be an indication that the owners were not steadfastly committed to both. Either that or they're banking on greater increases in revenue than I've assumed in my calculations....
Finally, let me point out that even if the owners are able to get the league as a whole into a state of profitability, it doesn't ensure that every team will be profitable. That, in my opinion, would require a much better system of revenue sharing. But I'll leave that discussion for a different post.....
118 comments
|
10 recs |
Do you like this story?
Comments
Geez Storyteller...
you’re brilliant with numbers.
This makes a lot of sense to me, especially taking into account the interest payments.
I guess I seem to have slowly come to the realization of what the owners are proposing.
Rec’d
"I was a victim of a series of accidents, as are we all."
by thankyouforblaze on Sep 23, 2011 8:55 PM PDT reply actions
no, I definitely did not create this chart
in fact, I posted it as a fanshot not too long ago, though I can’t remember where it originated from. It seemed appropriate to the conversation.
"I was a victim of a series of accidents, as are we all."
by thankyouforblaze on Sep 24, 2011 12:01 PM PDT up reply actions
One thing to point out...
As a financial person, I’m sure you realize what an inexact science it is when you project a static marginal increase over 6-10 years. :)
That being said, it doesn’t make sense to me to grow interest costs at the same rate as the other “other expenses”. Keeping it at a flat $130m would shave $119m in losses over 6 years, and $330m in losses over 10 years. But really, who knows what will happen on that front? It depends on capital expansion (i.e. new stadiums), how interest costs fluctuate, and whether debt principal is paid down. In other words, nothing that the players have any influence over.
With the way the league has been financed in the past, I agree with the players’ assertion about excluding interest costs – however, the reality is that teams are likely to be on the hook for a lot more of the stadium (and stadium upgrade) financing costs. And regardless of how bad the current financial statements are, that cost will be large enough that there will be impacts on the other expense line items (especially player salaries since they make up the largest piece and they have the most variability).
/nerdfest
"Ted Thompson's running Brett Favre out of Green Bay was the biggest mistake by a GM in the history of the league."
-Skip Bayless, November 2008
by The Cactus Leaguer on Sep 23, 2011 10:51 PM PDT reply actions 1 recs
I agree Dave, I alway enjoy Storyteller's work.
"Ted Thompson's running Brett Favre out of Green Bay was the biggest mistake by a GM in the history of the league."
-Skip Bayless, November 2008
by The Cactus Leaguer on Sep 24, 2011 12:07 AM PDT up reply actions
He was talking about you
(hehe)
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 24, 2011 8:35 AM PDT up reply actions
Great stuff = Storyteller
Nerdfest = me for sure, perhaps Storyteller as well :)
"Ted Thompson's running Brett Favre out of Green Bay was the biggest mistake by a GM in the history of the league."
-Skip Bayless, November 2008
by The Cactus Leaguer on Sep 24, 2011 10:13 AM PDT up reply actions
Yeah, inexact is an understatement
You make great points, Cactus. But I found the need to make choices or else I’d be posting 100 different charts with different possibilities.
Keeping interest expenses at a flat $130 million seemed even less realistic to me than lumping them together with the other expenses – because, as you say “who knows” what will really happen. My rationale is that with Detroit and Philly being sold in the last few months, New Orleans up for sale, and the inevitable other future sales of franchises, I can only imagine that the figure will increase over the years. How much? 4%? More? I don’t have an answer, so putting it into the same boat as other expenses was just a choice I had to make.
I don’t want to pretend to be an expert in this type of projection. Honestly, I’d rather spend my time trying to project future cap space and transaction possibilities, as I feel on stronger ground with those kinds of projections. But until the new CBA is set, I can’t even begin to do that. So…..
I hope the NBA is not making the same mistake MLB did when they allowed massively leveraged purchases of the Dodgers and Rangers.
But I think it begs the question of what the interest expense is for. At some point, the owners and the players are going to have to reduce their costs because the public is no longer going to foot the bill for these stadiums.
Thanks again for a thought-provoking post.
"Ted Thompson's running Brett Favre out of Green Bay was the biggest mistake by a GM in the history of the league."
-Skip Bayless, November 2008
by The Cactus Leaguer on Sep 26, 2011 11:56 PM PDT up reply actions
Screw the checkbook
Will you do my taxes?
0.o
Flarf nooglets oon da vinden schnitzels
What does all that stuff in this post mean?
The lockout is far more simple then you make sound.
Kwame Brown for Pau Gasol, that’s called cheating. Majority of the owners don’t get to cheat. They don’t get favorable calls by refs neither. You hear the term fair, balanced, and more competitive league by David Stern…right? Where the heck has that been for over a decade now? David Stern’s happy dance with the Lakers has exploded in his grill, and the majority of “little guy” owners have had it.
"that’s called cheating."
No, it’s not.
Besides, that trade turned out well for both teams in the end.
"I Am Mine"
Numbing knowledge and depressing numbers
These sides are so far apart. I miss the NBA so much already. Waiting for good NBA news feels like spending time in the county jail waiting for a trial that keeps being postponed with motions and filings.
Good Work
And this ties into the other issue, which is that once you set a base for the league as a whole, you then break it down to the individual franchises. It appears that the owners want to lay down a future solid base for the league, and then will look at some form of revenue sharing to balance out the franchises that may still have issues with profitability. Most businessmen don’t operate a business to simply break even, anymore than they buy the franchises solely for the purpose of making a profit when the franchise is sold. Further, this league has decided to have 30 franchises. If selling that many franchises requires that they find owners who can buy them, but need to do so with loans because they can’t all write a $300 million check, then those interest expenses are necessary to have the 30 franchises. The one thing you rarely see in these debates is the question of what constitutes a “fair profit” on annual gross sales for operating these businesses. Typically, if you tied up $300 million, then the world would expect at least a 10% or $30 million pre-tax income for a standard business model. To generate this type of income, the profit side would need to show $900 million a year. Businessmen, after all, could invest that money elsewhere and expect that same return. Further, when people talk about profits on the sale of the business, this again, would be off-set by the sale of any business downstream, many or most of which will sell for more in 10 years than they were purchased for today. Nevertheless, this could be discounted to some degree for the profit on the sale of the franchise.
Still, from what we’re starting to see and here, I think that Storyteller has laid it out very well. The owners appear to be looking for that 48.5% or so number, the players aren’t willing at this point to go there.
However, regardless of what anyone hears about the division in the owners ranks, I suspect it is very much over-stated. There are 30 owners, and the reality is that these owners are all ambitious, unsentimental, and highly successful. Any view that prevails in their ranks does so because a solid majority represent the view. Further, the idea that the large market owners are a separate interest group ignores the fact that the more money the leage gets in these negotiations, the smaller the revenue sharing that the large market teams will be asked to provide. Meaning, they will make more money – because they’ll be paying less in revenue sharing.
So, I’m one of those that believes that the only likely scenerio here is to consider that it doesn’t really matter what the players think. If the owners have made up their mind, then the season will not begin until the players accept a split figure that conforms to the position of the owners. Further, if the owners have also decided that they want a hard cap, or something close, to instill discipline and maintain some form of level playing field for paying talent, then they’ll get that as well.
by ebenc on Sep 24, 2011 4:39 AM PDT reply actions 1 recs
I've thought for a year and a half now
that the owners are dead set on major changes and are willing to lose a season to get them, if that’s what it takes. In that sense, I agree that ‘it doesn’t really matter what the players think".
excellent job clarifying a lot of complex information
However, I think you’re right that there’s precious little chance that either side will convince the other side of its view on the “validity” of these deficits. On one hand, it’s true that the players didn’t force the owners to pay so much for their teams and by implication add all those interest payments to the books. On the other hand, it doesn’t really matter all that much, since really the owners are the owners of the assets, they do get to decide how to finance their business. Until the players become partners, they don’t get to decide this stuff.
As the Coon article said, and as you sort of imply, arguments in principle don’t matter at this point.
i keep dancing on my own.
No, on that I agree with Larry Coon
It’s not an issue of ‘who should win’ as much as ‘who will win’.
I guess the real question is: Is owning an NBA franchise really a business?
or is it a prestige purchase …like a mansion? If it is truly a business, the bottom line always matters and the interest on the purchase stays on the books and is offset by any means necessary. On the other hand, if it is a prestige purchase, like a mansion, then you just have to bite the bullet and pay the interest and hope you get it back after the sale of said mansion. If you tried to go to the builder and tell him “Hey …turns out I had to finance this….I am gonna have to ask you take a 15% pay cut” …the builder would tell you to “get bent”.
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 24, 2011 8:56 AM PDT reply actions 2 recs
Good question...
I have never believed owners when they cry about losses. It only comes up a year or two before CBA negotiations and they keep spending money even while crying about it. Why do new owners keep popping up whenever a franchise is for sale if there isn’t a benefit to owning a team that “loses money”? These guys are not stupid.
I don’t care about the millionaire vs billionaire aspect of the negotiations. It is still labor vs management and management always looks to labor to bear the burden of changes in the marketplace and mismanagement of the company. Conversely, labor plays dumb about the need for changes in order for a company to be able to compete or in this case for the league to continue on.
So if I am looking at this from a labor perspective, I am asking a version of your question: Is the NBA really in danger of folding if the owners don’t get what they are asking for? Do the players really need to take a huge pay cut so these “businesses” can run in the black?
PTB Liberation Day - 2/10/04
ultimately though I don't think it matters
the builder can tell you to get bent because presumably he’s got other customers he can work with, or he can spend that time marketing his business or whatever. The players have nowhere to go. Kobe’s offer in Italy was about 1/5 what he was making for the Lakers, for example.
i keep dancing on my own.
well, how many times have you heard players say 'It's a business"
The players certainly expect to make money, and certainly do so, and will continue to do so even under the owners proposed plan.
At the same time players are talking about ‘love of the game’, ‘just want to play’, etc.
So the owners, who obvilously had some succcess in business, are supposed to do it ‘for fun’ but the players, whol actually play need to squeeze out every penny for a ’ fair deal’ ??
The owners got burnt with a bad CBA before, and aren’t going to again. I can understand that. There is enough for all to clearly profit. I am not feeling the players ‘oppression’, at all.
Wake me when the game is on.
My comment really only pertains to the finance charges being added to the bottom line
If those finance charges have to be offset from player salaries directly ….then I understand their gripe. Why should they be the ones to pay it when the majority of NBA owners bought their franchises for vanity purposes and are not their primary business. To me that falls into the “Mansion” category.
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 24, 2011 3:00 PM PDT up reply actions
That whole line of logic fails IMO
1.You are trying to discern the motive or intent of the owners in their purchase of teams.
2.
are not their primary businessWhat bearing does that have on anything? Should Investors only make money on their primary business and happily shovel money into bad investments because they shouldn’t expect to make money doing that anyway?
3. I build houses for a living so your whole “mansion” analogy is humorous to me. I would be “bent” if a client adjusted the payment that was owed me mid contract because they had to “finance” the project. I would not be bent If a client came to me at the end of a project and said “hey I’m not making as much money as I would like so this next house I would like to pay you less” Why should that bother me? I’m free to go find another client if I want. But if my previous client is still paying better than anyone else I would be a fool to leave.
by vullkem116 on Sep 24, 2011 9:46 PM PDT up reply actions 2 recs
So if you don't like "mansion" anologies ...try any other luxury item
The fact is anyone who buys an NBA franchise as strictly a money making venture is foolish. NBA franchises historically haven’t performed all that well outside of LA, NY, and Boston…ect.
They should really have the same disclaimer as lottery tickets
“For entertainment only. Not meant for investment purposes”
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 25, 2011 9:16 AM PDT up reply actions
There's no reason they can't change that though.
There’s no reason owning an NBA team has to mean playing the lottery, and that’s what they’re trying to fix. If this is somehow fixed, all sides make money, or at least a majority of well-run teams.
That depends how you look at the return on the investment.
Maybe the way to look at it is more like a sort of nice rental house.
Let’s say you finance the purchase of a rental house that costs $500k, and have a monthly payment to the bank of $2500. The most you are able to get in rent is $2000/month, so you are “losing” $500 a month. But 5 years later, you sell the house for $1mill.
So for 5 years, you lost $500/month, for a total loss of $30,000. But when you went to sell the franchise, er, rental house, you grossed a $500k gain. Maybe you did $100k in maintenance and upgrades over that 5 years. Even with that, and renting it for less than your monthly payment, you still net $370k.
I think the key to this lockout is that the owners no longer expect franchise appreciation to continue
At least not at a high enough level to offset losses and make it profitable long-term. Especially for the franchises on the wrong side of average.
I think the market drop spooked them, and they’re looking objectively at the long term, and they don’t expect future results to necessarily mirror past results.
Missing the point.
Owners have the right to run the business for profit. You may not like that but there is no reason that they should not gain from their business.
In reality mansions or any other luxury item that I can think of is a poor analogy simply because none of them generate income. The NBA generates incredible income but often is not profitable for the owners.
The fact is anyone who buys an NBA franchise as strictly a money making venture is foolish.
They are only foolish if they continue to pay the players way way more than market value.
If it were all about 'prestige'
they wouldn’t charge admission…..
There’s some prestige factor, of course. But the fact that they charge money – and a lot of it – to watch the games tells me that it’s more ‘business’ than ‘prestige’.
by Storyteller on Sep 26, 2011 5:18 PM PDT up reply actions 1 recs
"Head explodes"
This is like seeing nuns. It’s comforting knowing that they are around and that someone is doing the little things and keeping the world spinning. But at the same time, you have no wish whatsoever of getting into their business.
Keep up the good work!
by Batumshakalaka on Sep 24, 2011 9:23 AM PDT reply actions 1 recs
Ha! I feel the same way...
But about scientists, rather than nuns. I don’t want to sit at the control panel in the Cern laboratory, but I’m glad it’s there.
I saw that Storyteller had a front page story, and I thought Here we go…must read…must read…skip to the conclusion. I think I got the point, but I wouldn’t be surprised if I get directed back to this page in a future discussion.
Thanks for all that you do, Storyteller.
Doers & Makers > Movers & Shakers
by Adam Randall on Sep 24, 2011 11:03 AM PDT up reply actions
Great analysis Storyteller
I don’t know what the final figures will be, but being a union man all my life, I know it will be about compromising and giving and taking. I don’t know where the negotiations are at, but they should be close to the end or both sides will lose. Saying either or both sides has got to put a final offer on the table and be prepared to walk. As long as they are negotiating and getting the two sides closer together, it won’t end until one side says that is it and mean it.
hg
The inclusion or non-inclusion of the costs of team purchases and interest payments are an interesting aspect of this, though not "game changing"
As Storyteller stated, the players in theory (at least morally) can argue that since they also don’t benefit from profits an owner pockets in the sale of a team, the costs of swapping a team from one owner to the next shouldn’t figure into how much money is available to pay them year by year (i.e. be used to decrease the size of the pie that can be distributed).
On the other hand, looking at the US Generally Accepted Accounting Principles, it’s completely fine for the owners to include those initial investments/incurred debt and the interest payments in their calculations. No accountancy and no court will throw that calculation out. Heck, it would even be legal for a new owner to completely finance a purchase with debt, and then hand that debt to the acquired company (here the NBA franchise). It’s the common mode of operation e.g. for private equity and hedge funds in leveraged buyouts.
In the end, I don’t think this is the issue that will make or break the negotiations. It’s rather academical, and the negotiations are long past the point to figure out who is “right” about this issue. The owners have the longer lever, and no side will convince the other of its view on this one topic.
by Norsktroll on Sep 24, 2011 1:13 PM PDT reply actions 2 recs
Well said
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 24, 2011 3:03 PM PDT up reply actions
On the other hand, looking at the US Generally Accepted Accounting Principles, it’s completely fine for the owners to include those initial investments/incurred debt and the interest payments in their calculations.but they also have other measures such as EBITDA where they look actual returns on operations, as opposed to net returns after financing and other carrying costs.
Heck, it would even be legal for a new owner to completely finance a purchase with debt, and then hand that debt to the acquired company (here the NBA franchise). It’s the common mode of operation e.g. for private equity and hedge funds in leveraged buyouts
Actually the leagues carry credit facilities which limit the ability of franchises to carry too much debt. One look at the mess with the Dodgers and you can see why those things are crucial. It’s kind of like when everyone else on your street buys a house with 0% down and then immediately does a cash out refinance and then a few years later they are foreclosed on. Not good for the value of your home, or in the case of the owners, the value of the franchise.
"Ted Thompson's running Brett Favre out of Green Bay was the biggest mistake by a GM in the history of the league."
-Skip Bayless, November 2008
by The Cactus Leaguer on Sep 27, 2011 8:22 AM PDT up reply actions
Wow. Awesome. One question: How does the TV deal relate to BRI?
With the NBA getting a TV deal roughly half-way through the span of this next CBA (assuming it is 10 years again), how does that affect projections of BRI?
/s
by Hipster Olympic Team! on Sep 24, 2011 2:36 PM PDT reply actions
Good point
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 24, 2011 3:03 PM PDT up reply actions
Right now, the national television deal represents about 20% of league revenue
And about 22% of BRI. An increase in the national deal absolutely increases both. But the great majority of league income still would come from other sources.
Are you really calculating to the 100,000th of a percent?
i.e. "4.07527% ". I think some significant digits might be in order here.
by JasonCantDunk on Sep 24, 2011 5:37 PM PDT reply actions 1 recs
Heh heh
I rounded % in a post a couple of years ago and got called out for it. Guess I got ‘trained’ by that experience to be precise….
The concept of return on investment must be included
Funds expended for purchase of a franchise are called equity. Amounts borrowed to keep the franchise in working capital and for capital expenditures (items with value over more than one year) is legitimate business interest. It is included in expenses by the business, deductible as an ordinary business expense and is actually paid out of pocket by the business. SO some (perhaps most) of the interest is not for buying the business but for business operations.
Taking the players’ claim that the interest is not deductible for acquisition of the franchises as correct, the next step is to determine the return on investment that any business must have to be a viable business. Someone asked if these are businesses or just hobbies. Forbes magazine reports that the average value of a franchise in the NBA is $356M. For all but a couple of the owners this represents a material and significant portion of their personal wealth. If you have $356 dollars (no millions for most of us) that you want to invest, would you not look at return vs risk to determine how best to invest it? If you were to invest in the entertainment industry you would have to consider the notoriously fickle nature of popularity and the risk that the interest in the game can decline significantly (as it has in many cities) with the likelihood that the franchise value will go down and not up. The return on investment by putting money in the bank is only 1% but mostly without risk. In US Treasury bills, 1.98% return. But money invested in Apple might yield more in the order of 10-20% return.
In the NBA with a $356M of investment even a 5% return would yield profits of $17.8M per franchise or $534M for 30 teams. Now add that $534 to the players’ number and you actually have a business plan that can work. Even using your players’ perspective 45% number over 10 years you come up $2,063M short of that 5% return. An owner can do better owning US Treasury Bonds than buying an NBA franchise business considering the risks involved.
The whole idea of paying the sums paid in the past for employee wages is way out of whack. While older owners had low personal investment amount in their franchises they were willing to slog along. These last two CBAs have opened their eyes (and their pocketbooks to contribute cash to the businesses) to realize that they can sell the franchise for more than it is worth under these returns. The newer owners are more pragmatic businessmen who look at the franchise value to determine the return on investment and demand an opportunity for an amount more in keeping with the risks. Movement like we had in the summer of 2010 is not sustainable for the league as Cleveland, Toronto, Atlanta, Memphis, Chicago and New York all made unsustainable financial commitments or sustained lost franchise value from free agency movement. The risks are plain to see and they need to be balanced with return on investment.
by lee3022 on Sep 24, 2011 6:02 PM PDT reply actions 2 recs
but isn’t the point sort of that if they were such pragmatic businsessmen, they would not have paid way, way, way above fundamentals for the teams in the first place? That’s particularly the case with someone like Gilbert, who talked all about the value of running a team beyond the bottom line back when his team was sexy, but now is only concerned with making money.
Anyway, it’s basically moot because like Norsk said the owners have the longer lever, but if they’re really concerned with ROI, shouldn’t you consider the investment?
i keep dancing on my own.
Yes....if you are looking for a generous return on investment
sports franchises probably aren’t the way to go
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 25, 2011 9:18 AM PDT up reply actions
This is the best reasoning for why finance interest is the owners' responsibility.
The new owners paid way too much for their teams. That’s nobody’s fault but their own.
/s
by Hipster Olympic Team! on Sep 25, 2011 11:46 AM PDT via mobile up reply actions
You are right.
It is the owners fault. But that doesn’t mean that they can’t lower salaries to make up for it.
The players have no leverage here.
The players have plenty of leverage.
The owners do need NBA level players. They have to compromise at some point. They can’t run their league on scrubs.
/s
by Hipster Olympic Team! on Sep 25, 2011 9:11 PM PDT up reply actions
The owners can collectively walk away from the NBA and still be obscenely wealthy men.
The players need this set of rich, affluent owners to pay them the handsome salaries they’ve grown accustomed to over the years. Without these owners, every player would be looking at a gargantuan, canyon-sized cutback. That even includes Kobe Bryant, who’s salary offer from Virtus Bologna in Italy is just approximately 1/3rd of what he’s been earning annually with the Los Angeles Lakers.
"I Am Mine"
The owners won't walk away. Not ever. Two reasons:
1. They have way too much money invested.
2. They have way too much ego at stake.
The league will have to get much, much worse financially before owners fold shop. But no, there are billions to be made in the next era, and this lockout is all about the owners angling for a larger piece of it.
/s
by Hipster Olympic Team! on Sep 26, 2011 8:56 AM PDT up reply actions
Owners walk away?
Hipster, I agree with you. No matter how much money they have folks that get to the wealth level of being able to buy a franchise will never walk away from $356M (Forbes) average value. The issue is well defined by the smoke about playing overseas but very few players and starters actually following through.
Players, indeed, are staring at cutbacks. The owners will either force agreement to non-guarantee contracts (at least future contracts) or worst case, reduce current contracts by some percentage. The leverage is with the owners because the players have painted themselves into a corner. Some powerful player agents reportedly have called for decertification of the union. Hunter and Fisher know that they lose control over such an action with the anti-trust attorneys burning through fees like a flash fire in a wilderness. The 8th Circuit already gave the NFL a win on this issue this year. Now they are in New York which is notoriously conservative and the NBA will likely win. Of course this action would also stall the negotiations completely for 4-6 months, ending the chance at a season.
The union may insist that they will never accept a hard cap but there is little reason for them to make this the break point. Hard cap or soft cap, the players make the share of the BRI agreed upon. The difference is to reduce the movement of players which the NBA sees as a good thing and the players’ union wants to prevent. No matter what happens the owners will not walk away.
"No matter what happens the owners will not walk away."
Agreed, without question. Yet, if the owners did take their proverbial ball and go home, they’d still be in fine shape financially outside of professional basketball, while the players would be in dire straits.
Basically, the owners hold most of the cards. Not all of them, but most.
"I Am Mine"
Some owners will find themselves in cash flow difficulty
with the loss of a franchise value. For all of them it would wound deeply their ego.
I know the owners won't walk away, but my point is that they've got much more ...
leverage than the players based on them being able to cancel a season (or two) and wait things out without it crippling their bank accounts.
The collective group of owners possess by far and away the most leverage here, pure and simple.
"I Am Mine"
No, I don't agree that the value is above fundamentals
The fundamentals put labor costs below 40% for most businesses. The owners who have recently bought in have likely received assurances that the labor costs would be severely addressed in this CBA. I don’t believe the owners like Gilbert, Allen and Cuban are the norm. Those particular owners have far exceeded the cap to win. On the other hand the Knicks and the Lakers have also exceeded the cap but still make a large return. Nearly all the rest (See Peter Holt) have carefully walked the area between the cap and the tax and still make money while winning.
The idea of investing is to buy low and sell high. Alternatively, to create a good cash flow return. A secondary draw for investments is the interest of the investor in the industry. For example, most restaurant owners lose money but love the idea of owning a great restaurant. The problem is most do not create great restaurants so they lose money and they come and go. Basketball is not dissimilar in its draw to be an owner. But the owners still believe they can make a difference and make money where others have not.
NBA players are "labor" in name only.
They are “labor” in similar fashion to how actors are labor in movies. I’m sure movie studios have percentages they try to hit for talent cost per film. But no, owning an NBA franchise is a lot different than running, say, a small high tech company or a construction business. The NBA is entertainment and the players are the talent.
/s
by Hipster Olympic Team! on Sep 26, 2011 8:59 AM PDT up reply actions
The few top players in the league are talent
They draw people to see them when they visit. But there are fewer than a dozen of those and hundreds of extras who are labor in every sense of the word. The negotiations for actors guild labor contract do not affect the top actors but it sure sets the stage (sorry for the pun) for the rest of the membership. The real problem in the NBA is that they are paying extras at the talent level. Rashard Lewis, Eddie Curry, etc. have never been a draw for fans and have no business getting huge contracts. They are extras.
by lee3022 on Sep 26, 2011 12:07 PM PDT up reply actions 1 recs
Hahaha. So true.
Regardless of the cap size, a team will always suffer when it pays Tom Cruise money for Orlando Bloom talent.
/s
by Hipster Olympic Team! on Sep 26, 2011 8:04 PM PDT up reply actions
I would have gone with someone like Johnny Depp vs. Tom Cruise.
I remember watching Top Gun as a teenager. All the girls loved him. I thought he was a tool and watching his make out scene was like he used his tongue and mouth like an automatic weapon. Tom sucks, except in Magnolia and Tropic Thunder.
by Kevlar Rocket on Oct 1, 2011 5:13 PM PDT up reply actions
I'm not a Tom Cruise fan but
he was also pretty sweet in Minority Report, War Of The Worlds, and performed his role in the Mission Impossible movies a lot better than Bloom would.
Depp is awesome, of course. Different kind of actor though. Bloom and Cruise both play the sleek action ‘hunks’ with intelligence. Cruise has a personality on camera, Bloom does not.
/s
by Hipster Olympic Team! on Oct 3, 2011 10:01 AM PDT up reply actions
"The real problem in the NBA is that they are paying extras at the talent level. "
You hit the nail on the head, as that’s 100% correct.
"I Am Mine"
But the concession the players made is that "talent" is being underpaid greatly to compensate
This is where creativity comes into play. Here’s an idea: There is a Hard cap at say 48% BRI. Owners should be allowed to sign one player to any amount not exceeding that cap. However, a percentage (say 50% of what exceeds 20% of the hard cap) of that players salary is redistributed to all of his teammates evenly.
It makes Free agency fun in that owners can offer whatever for one player contract. But if you spend too much on a player the most his teammates will get less money. It also prevents hoarding of high talent players as each team should be able to poach one high level player from teams that drafted well.
Alternatively you can have 3 exception players and all other teammates make a percentage of the 3 exceptions players salary. For example a team would have one 10, 15 and 20 million dollar player. The rest of the team shares the rest (for a hard cap of 60 million) evenly for salries of 1.25 million each assuming a 15-man roster). If you pay your stars too much you won’t get as much talent in supporting players. however paying you top 3 at 7.5, 10 and 15 million gives the other players almost 2.3 million each.
Agree.
The old models are under attack in the NBA and the NHL. Word out over the last two years on the new owners was that they extracted promises from Stern and Company that the new CBA would be a different animal from the old. Without those promises, the escalator of added value to these franchises may not have ridden up as it has. And keep in mind, Forbes says the “average value”. By definition, 1/2 or more are at or below that value, and I suspect it’s more than 1/2 given the value of the top franchises. Right now, the NBA has taken over one franchise, and you don’t see buyers eagerly lining up for it. As much as owning a franchise for the ego of it seems attractive to some, the league’s ownership increasingly appears to be shifting to the business side. Even if the players manage to come out of this with 48% or so, which doesn’t remotely put that 5% profit on the table, rest assured, that the reason the Owners aren’t too interested in a six year deal that would enable to the players to reach for the likely additional income from a new TV agreement, is because they’ve already looked at it.
by ebenc on Sep 25, 2011 1:56 PM PDT up reply actions 1 recs
The floor appears to be around $300M (New Orleans)
The average does not diverge from most franchise’s values with many (as I remember the list in Forbes) closely packed between $325 and $375. Part of the difference is ownership of the building.
I don’t know anyone who can say what the owners are holding as their bottom line. I have read that they want a 10 year deal and the offer in May (now apparently off the table) was for 10 years at $2B per year. The players claim the right to be partners in any new income while not carrying any risk or investing and capital. I would say General Patton’s statement would be about right from the owners: “Nuts”.
Except that owners want a 10 year deal
with no opt out explicitly because the new television deal is set to come into effect 5 years from now, and since the last deal was negotiated at the low point of NBA popularity as compared to now, so the new deal is expected to be vastly more lucrative than the current one. Owners want to lock the players in at a level that’s profitable with the current baseline which will presumably be ridiculously profitable with a new baseline.
The players do seem to be willing to compromise to a level profitable for the owners now as long as they have the option to renegotiate when the baseline changes, presumably to roughly the same level of overall profitability for the owners. Given that everyone knows this revenue stream is going to massively change, it’s not really an unreasonable request from the players.
To be honest, though, I really don’t understand why the owners are holding so firm here, it’s just not long term thinking. If they get the players to accept a deal now that allows all but the most spendthrift franchises (Mark Cuban is clearly not running the Mavs as a business) to be profitable, any future deal with start from that baseline, and allowing a re-negotiation keeps healthy labor relations as opposed to fostering resentment among the NBPA, and it seems obvious that a healthy relationship between labor/ownership is much more important to the long term bottom line of the owners than having a simple 5 year period where they clean up. Owners seem to forget that they’re going to be a lot less willing to miss games/seasons due to work stoppages once they have profitable franchises again, giving the players a whole lot more leverage than they currently have.
The key point you make
is “at roughly the same level of overall profitability” for the owners. Just what is that figure? As was pointed out, if these franchises were expected to make 5%, then even a 45% revenue share of the players wouldn’t remotely get the owners close to that 5%. What seems to be missing is that the revenue split doesn’t talk about profitability – it talks about not “losing” money. And that’s a very different thing. Do you invest money to break even and then try to get something back when you sell the business, or do you invest it to have some “normal” return? On the one hand, if the owners aren’t reasonably profitable year to year, they essentially must sell the team – ensuring turnover among the ownership for the league – in order to realize any return on their investment. If it is reasonably profitable, then you give them a reason to keep the team longer. And this is always true when estates enter the picture, for example.
There seems to be an attitude among journalists and many fans that these franchises should be treated differently by businessmen than all other forms of investment. If Stern had come to the table to talk not only about losses, whether interest is included or not, but about profits, and proposed a profit figure in line with all business investment, then the spread would be far wider, as in the range of $700 million to $850 million per year.
Keep in mind, after all, that even traditional low risk real estate investment in good commercial and apartment assets will always pay 5% to 6% to the pension funds
who buy them, and that has nothing to do with Apple or other options.
Whether it transpires with this CBA or not, eventually, the sports franchises will be increasingly pushed to the profit side. And players will eventually have to take salaries in line with those profits. Now, granted, some of this can be picked up with revenue sharing, but by no means all.
Blazer fans have a lot more at stake here than some seem to realize. Paul Allen is the exception, not the rule. He’s far wealthier than most other franchise owners, but he’s also not going to be around forever. Even now, some fans complain about the Vulcans because they are perceived as wanting to hold the line on salaries in order to ensure that the business is profitable. At some point, Allen will be gone, and the idea that a new owner will spend as Allen spends to try to build a winner will be gone as well.
Wallace was available to any number of teams – not just Portland. A new owner would have been unlikely to have signed him given the reality that with Roy and the resigning of Oden, the Blazers will almost certainly be losing money. Indeed, another owner might not be willing to even resign Oden as well – given the risks.
For the Blazers, a small market team, it’s critical that the league create a much more level playing field on the salary side. If you want to remain competitive, then think beyond Allen. Otherwise, the Blazers will be a a permanent disadvantage – and so will the fans.
return on investment =/= profit margin. Because of the scarcity of NBA franchises their value, and thus the owners’ ROI, has increased astronomically despite the declines in profitability.
i keep dancing on my own.
Besides, given how some owners treat their franchises
You can’t really talk about overall/average profitability/ROI of franchises when owners are clearly not running franchises to maximize the money they’re making (with the possible exception of Jerry Reinsdorf and Donald Sterling, coincidentally considered the worst owner in the NBA). Paul Allen, Mark Cuban, Michael Heisley, Richard DeVos, Dan Gilbert (ironically) and to a lesser extent Wyc Grousbeck have been operating their franchises for the longest time in order to maximize wins, not the money made, and the sad reality is that, for the most part, wins and profitability are only tenuously linked for most franchises. And the fact of the matter is, adressing that link.“leveling the playing field” is almost entirely going to happen from revenue sharing, NOT the overall deal between the NBA and NBPA which is almost entirely just about the general division of revenue between players/owners.
So what happens with a more owner-friendly CBA and no different revenue sharing is the same as the current setup. Institutionalizing a competitive advantage for high revenue teams to have much higher player salary costs whereby they share revenue with low revenue teams through the luxury tax (similar to baseball), or else a hard cap that keeps player costs for all team at a level where low revenue teams can afford them and high revenue franchises make enormous profits. I don’t think either of those would be considered as a “level playing field”, but the reality is that’s all that we’re talking about when we talk about player concessions in the CBA. The rest is between owners.
As to the idea that these are just like any other businesses, it’s a tired point that frankly isn’t true. I don’t buy all of Gladwell’s point about psychological value, but it’s not completely ridiculous, and I think you’d have a tough time arguing that owners are running their teams like business (i.e. to maximize profits). Heck, Mark Cuban was sued by the previous owner (current minority owner) of the Mavs because the financial decisions he was making weren’t maximizing his returns as a shareholder. Realistically, you could do the same thing with any of the guys I mentioned before, and as long as you have the majority of owners treating their franchises like toys, whining about how they’re not making typical business profits is a little rich for me, even speaking as a grateful fan of one of those owners’ teams.
by Royster on Sep 26, 2011 7:38 AM PDT up reply actions 1 recs
+92
Me after hearing of a Rudy Hardwood Classic Jersey going for $45:"Take the "RNANDEZ" part off....and sew on a "LTON and you are good to go"."
by 92wastheyear on Sep 26, 2011 10:23 AM PDT up reply actions
The revenue sharing issue is completely aside from the labor issue
Spread the revenue any way you want and there is still $1.8B in losses over the past 6 years. Rather than return on investment, owners have had to inject that money into the franshises (negative cash flow.)
The owners are businessmen. There are a few that throw money at a team in hopes of buying a championship and the tangibles and intangibles of winning can give a team a real shot in the pocketbook. But most are needing a return on the investment which for some is their largest asset (or liability in the old CBA.)
I actually agree
which is why it’s so irritating when people like ebenc and the owners keep conflating the two by arguing about things like “level playing fields”. The fact of the matter is that even with our current setup with minimal revenue sharing, it’s entirely possible to run a profitable franchise in all but a select few of the NBA’s current cities. You just can’t do it while spending equivalent salaries to the top spending teams. Baseball fans seem to accept this, and Rays/Royals/Pirates fans know that they’ll never be able to compete with the Yankees/Red Sox/Phillies financially, so they have to find ways to smartly spend their money. Given a similar revenue sharing system, basketball fans resort to whining about how unfair it is. ANY luxury tax system functions as a competitive advantage to high revenue teams, so if parity were really a major concern, we’d be talking about a completely different paradigm here.
I’m using Forbes numbers here, so take them what they’re worth, but the Orlando Magic lost the most money in the NBA last year, despite having higher revenues than 11 other NBA teams, including the Clippers who were profitable. The biggest difference, Orlando had the second highest payroll in the league while the Clippers had the second lowest. If the Magic had a Clippers level payroll, that $37MM difference (plus another nearly $20MM in luxury taxes) would have been more than enough to put them in the black, even if DeVos would have had to write a check to the players for his share of whatever the owners fell short of in the 57% of BRI for total player salaries. It’s not that Orlando can’t be profitable, just that they’ve made many financial commitments in pursuit of a title that completely wiped out those profits. Compare that to an extremely low revenue team like Milwaukee which was barely in the red despite bringing in $15MM less in revenue than Orlando. Under even a slightly more favorable CBA, the Bucks would probably have been profitable despite their small market/low revenue status.
Everyone agrees, even the players, that the league needs to move towards profitability and I haven’t looked at the numbers recently, but I believe that something like a 50-50 or 51-49 split rather than 57-43 covers that $300 billion/year fairly easily with a little left over to put the owners comfortably in the black, and the statements I’ve read from the NBPA is that they’re willing to go along with something along those lines as long as a softish cap/guaranteed contracts/5 year opt out are included, which all seem fairly reasonable to me, especially considering the vast ancillary benefits to owning a franchise (spelled out nicely for the Nets in Gladwell’s piece I linked to below), which doesn’t even take the often maligned “psychological benefits” into account.
the owners want to put every team in the black on the backs of the players, then use revenue sharing to make the small market teams even more profitable.
i keep dancing on my own.
True, that much is pretty obvious by this point
As much as we want to talk about what “should” or shouldn’t happen, and what’s fair, it pretty much all just comes down to whatever the owners are willing to hold out for. At this point, the best hope would seem to be that the owners who would automatically be profitable under a slightly better CBA exert pressure on the other owners to agree to a deal, but that looks doubtful.
Welcome to democracy
Employees make companies and businesses function in every industry, some more than others. The employees want security, benefits, salary and no risk. The owners want a return on their investment and have taken enormous risks to get it.
The phrase “on the backs of players” is misleading. It is not slave labor. Who among us would not drop our current job for an NBA player’s minimum salary? The average NBA salary is more than $5M. One year is more than most of us make in a lifetime. One year is enough to provide a decent investment income every year for the rest of our lives. Players leave their countries all across the world to come here to get that. If the average drops to $4M are the owners slave owners? The need is to have profits averaging ~$14M per team per year (4% return). This is not a good return but it is a return. Since we are dealing with averages even that number will not make half of the teams profitable without revenue sharing. Revenue sharing means nothing when the league is losing money. To get to average $14M per year profit takes $727M shift reduction in costs. Even this is not doable since the % of BRI drops to 34%.
I don’t think anybody disagrees with you that the owners have the longer lever here, and obviously since like you point out, this is the free world, so a company owner can set wages for his employees. It’s also likely this is academic since the owners will get whatever they want. They do have the longer lever. Even conceding all this, I don’t think there’s anything wrong with pointing out that the owners are being disingenuous about (1) the best way to make sure their all franchises are profitable (by refusing to even talk about a revenue sharing structure before reaching a CBA with the players) and (2) the fact that the true value of the franchises extends well beyond the bottom line profitability of the basketball operations, because of as Royster said “the vast ancillary benefits” of owning a team.
i keep dancing on my own.
If you read the Gladwell piece I think you will seriously have to reconsider your usage of the term “return on investment.” Return on investment isn’t just the operating losses. It’s the entire bundle of sticks that the owner acquires with the team. In Ratner’s case, he was able to use the team to win a billion dollar real estate deal over a competitor, and allow for the use of eminent domain against a bunch of perfectly functional homes and businesses so he could sell the land to richer people. Other owners surely participate in similar cush deals to develop real estate around their arena. Also, under the new reality of the NBA, cities basically have to publicly finance new arenas every 20 years, or else another city will. That amounts to a 200-300 million dollar facility upgrade for the benefit of the owner. This is bottom line stuff that affects the value of owning a team, not just psychic benefits.
i keep dancing on my own.
I did read Gladwell's piece
First he isolates one club in the richest city in America
Next he uses real estate business which uses the NBA team to its advantage to make money
Then he quotes Bruce Ratner and Prokhorov talking mostly about the real estate. Prokhorov mentions $30M as the profit goal (far less than his cross town rival Knicks). This boasting is likely to be aimed at his investors to keep them on board. But it means nothing much in respect to the entire league’s picture.
Finally he extrapolates from that the idea that all franchises are making money that is hidden.
Sorry, that dog won’t hunt. Just as isolating LA or the Knicks is ridiculous as an example of the league, so is using Brooklyn. The absolute truth is no team can earn profits and compete for the championship from a small market. As fans our goal should best be the ideal of every team competing most years and remaking a team should not take a decade or more.
Then you must have missed the footnote
With Dan Gilbert’s now famous quote talking about how owning the Cavs is such a boon for his Quicken business in Cleveland
To me, NBA franchises are like pieces of art. There are only 30 of them. They aren’t always on the market, especially a franchise that would have been such a natural fit. … If you just looked at the Cavaliers in terms of revenues, profits and balance sheets — and you paid this amount for it — people would say ’You’re insane! You’re nuts.’ But if you look at all the tentacles, the impact on our other venues, it makes tremendous sense. We have now opened a Cleveland office [of Quicken Loans] and that’s tremendously successful. Our employees love it that we’re associated with the Cavs and can come to games — that helps us attract and keep better people. There are a lot of nonprofit things that can be done with pro sports. It brings an unbelievable amount of excitement.
People have tended to focus on the first part of that where he compares it to a work of art, but he explicitly spells out multiple business advantages that may not cover his all his NBA-related losses, certainly mitigate them, and it’s hard to get much farther from “real estate in NY” to “financial software in Cleveland” as far as different business models.
The fact is, owners have, for the most part, treated their franchises as loss leaders for other sections of their portfolios, be it real estate development, broadcast media, stadium ownership, whatever. Saying that the losses are unsustainable is one thing, asserting that they need franchises to be suddenly all profitable or else they’ll have to sell the franchise is another.
As to your last sentence, again, it’s all about revenue sharing there. If a hard cap was set at a level that would allow even the lowest revenue team to be profitable without significant revenue sharing (i.e. completely level financial playing field, and no luxury tax since it’s a hard cap), even 45% of BRI probably isn’t doable, and no one is suggesting that. Beyond that, it’s up to the owners to sort it out amongst themselves.
Mind numbing.....
We should let the fans decide….
After all, we pay them.
The salaries are still astronomical, no matter how you slice it.
I believe the owners should make a profit, if they do their business correctly.
So there you have it in simple text.
Let the fans decide….
Now, can we play ball?
suprisingly, no one noticed that 48.5% does not split the difference
small point but 49% is half way between 45 and 53%.
I’d also like to add that players are not just labor “making the product” we watch but rather could also be considered as a direct expense—ie. the good which is directly resold to the customers. Since they are negotiating salaries as a percentage of BRI then thinking of players salaries as a direct expense is more appropiate than thinking of players salaries as a labor cost. Direct expenses get passed along and do not really matter to the bottom line; indirect expenses (such as financing costs) do not and matter when considering profitability of a business. This line of reasoning would help the players reframe their arguement in a way the owners would understand helping to support option #1 from storyteller where the two sides start to see eye to eye.
That was my subtle way of saying
that I believe that the difference will be split, but not equally….the players, IMO, will have to ‘give’ more than the owners in order to reach a deal.
Good pick up – I probably should have clearly stated it in my original post.
I am sceptical that the owners will change their perspective based on semantics.
The reality is that the owners cannot occur direct expense and pass it on to the consumers. They are already balancing ticket prices with demand and ideally are setting those prices to maximize income. If the Blazers pay Greg Oden $14M next year rather than $9M will that create more people (besides Greg’s mother) who want to come watch? Since the RG is in sellout the additional $5M is not a direct cost but goes right to the bottom line losses.
Sure but
bags of Doritos can’t form a union and bargain for better bagging conditions. The players are labor, product, and talent. It’s entertainment, and they are the performers. What is a ‘fair’ % for them to make? I don’t think anyone can really answer that. It has to be negotiated.
I think the union and the owners see eye-to-eye perfectly, it’s just, if the house is catching fire, it’s a really poor time for a staring contest. They should have found a compromise months ago.
/s
by Hipster Olympic Team! on Sep 26, 2011 11:37 AM PDT reply actions
Question about the $130 million in interest payments
Are you sure all $130 million in interest payments were related to purchase of the franchises?
About half of the NBA teams were borrowing money to pay operating cost during the season. Money borrowed to paying players salaries on time.
Here is a link to an AOLnews story.
http://www.aolnews.com/2009/02/26/half-the-nba-borrows-money-to-offset-costs/
BTW, The Federal Govt. allows all companies to deduct interest payments as a legitimate business expense.
I'm getting the $130 million from Derek Fisher's statements
So, if he’s intermingling interest types, then so be it.
Regardless, it’s $130 million that he says that the NBPA does not consider valid in these negotiations.
by Storyteller on Sep 27, 2011 11:55 AM PDT up reply actions
Oldfishermen makes a good point
Fisher is union and uses hyperbole to try to score PR points. He does not get traction with that argument in the negotiations, I would think. It does make a difference because the operating income debt has nothing to do with the purchase of the franchise and its interest expense goes to manage the business. Without working capital no business can survive.
Storyteller
Will you do my taxes?
Pretty sure you could find an extra hundred grand or two in there…
I don't give a damn for a man that can only spell a word one way.
Mark Twain
Read more: http://www.brainyquote.com/quotes/authors/m/mark_twain_4.html#ixzz1IE4sPu16
by Tyler Durrden on Sep 26, 2011 7:49 PM PDT via mobile reply actions
If you want to bring your shoe box of receipts
to the next get-together, I’ll see if I can take a look at them in between Pop A Shot games….
by Storyteller on Sep 27, 2011 11:57 AM PDT up reply actions
Ken Berger on the owners' proposal status
http://ken-berger.blogs.cbssports.com/mcc/blogs/entry/11838893/32284158
Sources say the owners’ latest economic proposal amounted to an average 46 percent of BRI for the players over the life of the deal, which the union deemed “unacceptable.” But the revised proposal represented a 2 percent increase from the owners’ June proposal of a flat $2.01 billion annual guarantee for the players in the first eight years of a 10-year deal. That proposal started at about a 50-50 split of BRI in the 2011-12 season, but with revenues projected to increase about 4 percent a year, the players’ share would shrink over time — to about 39 percent in the eighth year of the deal.
So, the owners appear to be offering 46% of BRI every year or else a sliding scale that starts at 50% but decreases over the length of the agreement. Either way, the owners seem to be offering 46%.
Which brings up this option for the players – a sliding scale of BRI. If they don’t want to take a huge drop in salaries immediately (for example, taking 48.5% of BRI would result in about a $250 million reduction in salaries/benefits in 2011-12 from the 2010-11 figure), the owners seem content to give them a bit more than the ‘average’ percentage up front in exchange for a lower percentage later on.
Interesting differences being reported about today's meeting
Ken Berger of CBS Sports says that the owners offered to drop their demand for a hard cap (at a price, of course) and may offer a 50/50 split of BRI tomorrow.
The flexibility in the owners’ longstanding insistence on a hard team-by-team cap, first reported by Yahoo Sports, comes with significant strings attached. Among the many concepts league negotiators proposed Tuesday were a more punitive luxury tax and adjustments to two key spending exceptions that teams had under previous agreements: the Larry Bird exception and the mid-level exception…According to the sources, among the additions could be a proposed 50-50 revenue split, which to this point the league has not reached in terms of the players’ average share over the life of a new CBA in its previous proposals. As for the system changes the owners proposed Tuesday in exchange for relaxing their stance on the hard team salary cap, one of the people briefed on the talks said union officials regarded them as “alarming.”
Meanwhile, Adrian Wojnarowski of Yahoo Sports is reporting that the owners’ offer might still be interpreted as a functional hard cap, and that the BRI offer still hasn’t reached 50/50:
The owners’ proposal on Tuesday "would still have the affects of a hard cap," one source with knowledge of the talks said.
The owners didn’t budge on a desire to change the basketball-related income percentage (BRI) to a split that takes the players from 57 percent to the mid 40s, sources said.
How is a system that gets rid of Bird rights and the mid-level exception not a hard cap?
What other ways are there in the current system that allow you to exceed the cap?
Adjustments, not eliminating
The two proposals that Zach Lowe threw out were limiting Bird Rights to only one player per year and then a smaller/shorter salary for the mid-level. That wouldn’t quite be a hard cap, but it would eliminate a lot of flexibility that exists under the current system.
Limiting Bird rights to only one player per season would be a big adjustment for teams to make.
For the Portland Trail Blazers, that’d probably mean having Bird rights for only Nicolas Batum in the summer of 2012. No Early Bird rights for Raymond Felton next summer, either, so he’d likely bolt. If Gerald Wallace opts out after next season, then it becomes even more tricky. Does the team use its Bird rights on Batum or Wallace?
"I Am Mine"
So it is alarming to the players that the owners include with a sweetened offer a counter to help offset?
This whole negotiation thingy must be terribly scary to these vulnerable young men. Perhaps they might be better to outsource the process?
So a few things
1. The owners have included the loss in value to the teams in loss figures and that is just wrong. To be fair take the teams original purchase price and minus that from current value divide by number of years owned fair. That makes most owners having positive equity in there teams.
2. Also they included insurance cost as expense are they taking in to account the insurance payments to players when they are hurt the owners are not responsible for doubt it. There are many players hurt long term and teams do not have to pay them.
My take on this whole thing is the owners need this deal to go through as soon as possible because a delayed or cancelled season will set the league back years in growth. At this point the players shoud walk away flood the over seas league for 2-3 years. I love basketball but the owners are out of line. they are trying to set rules to control them own from making dumb moves at the expense of the players. The best thing I could see coming out of this is David Stern getting fired if that is even possible and place with someone who will not so obviously side in these negotiations.
"At this point the players shoud walk away flood the over seas league for 2-3 years."
They can’t flood it, as the overseas market is bone dry.
"I Am Mine"
I have not read that the loss in value of the teams is part of the negotiations
It is not loss in value but actual operating losses that they are dealing with and negotiating from. The market value of the franchise cannot be reflected in audited financial statements which require assets to be stated at cost less depreciation or amortization. So changes in that market value are irrelevant unless the underlying assets are at risk (such as a drop in revenues so drastic that the league cannot maintain its viability.)
Your second point seems puzzling. Teams insure their players’ contracts from permanent disability as league policy. The policy pays off if the player cannot play anymore and it pays the remaining amounts due on the contract to the player directly. The owners are relieved from paying dead contracts but without the play receive no benefit from the policy directly. It is not much different than fire insurance. If your building burns down the policy pays to rebuild it. The owners freed from disability payments have money freed up to rehire a replacement player.
The owners know pretty close to precisely how much shutting down the league will affect the revenues. Some may simply lose less money shut down than they did while operating under the previous CBA.
The discussion of BRI split is the essential issue to be resolved
If the owners have been truthful about their losses (audited financial statements are said to support these) than any number they agree to above 45% would put them in a continuing loss situation. However, the owners have now advanced two proposals which allow the BRI split to decline over time, thus allowing for current contracts to be honored. Ultimately the owners need 66% to obtain a 4% return on investment. Will they get that low? Hard to imagine but 45% is not hard to imagine and could be done. Included in such a split would have to be more severe limits on max salaries, length of contracts and even guarantees to re-establish some fiscal discipline in the league.
The split of 50-50 is not viable to cover the current losses. There could be a PR-established mechanism to announce a number whereby the players save face but actually get far less because of other clauses in the CBA. I will watch this to see if the owners really are losing that much ($300M per year) or blowing smoke by what they settle for. The owners do have the advantage of planning 15 or 20 years down the road while the players are much shorter shelf life.
I think they can get into the black
with 48.5% of BRI going to the players, even if the claimed losses are truthful. Not far into the black, but into the black nonetheless.
This is eerie.....
So two weeks ago I wrote this:
if I had to guess on the final split, I would anticipate that such a compromise will probably be nothing more than a 48.5% guarantee of BRI to the players, especially given that the owners probably have more leverage long term than the players do in these negotiations.
Today, I read this in Yahoo’s piece on the labor battle:
The NBA owners never wanted to go north of 48.5 percent for the players’ share of the basketball-related income (BRI), league sources say, and commissioner David Stern had lean support when he pushed the most recent offer to 50 percent. There hasn’t been one source in ownership, in management, who believes the players will get that offer again – at least no time soon.
Comments For This Post Are Closed
Secondary Sidebar
User Tools
NBA Playoffs Content Module
FanPosts
Community blog posts and discussion.
Recommended FanPosts
Recent FanPosts
FanShots
Quick hits of video, photos, quotes, chats, links and lists that you find around the web.
Recommended FanShots
Recent FanShots
In Association With
Ball Don't Lie - NBA - Yahoo! Sport
- Behind the Box Score, where the Boston Celtics are moving on to the conference finals
- NBA Playoffs Fan Fiction: San Antonio Spurs vs. Oklahoma City Thunder
- The Indiana Pacers? Gone till November
- Shaquille O’Neal is in a Chinese beer commercial, too (VIDEO)
- ‘Deep Thoughts’ and Cheap Thoughts: San Antonio Spurs vs. Oklahoma City Thunder
