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Revenue Sharing and the NBA

The central mantra of the upcoming NBA lockout will be simple:  owners claim that a disproportionate number of teams are losing money.  Along with the usual disputing of accounting practices and revenue streams, the players are likely to fire back with an equally simple claim:  you guys aren't taking care of business right and we shouldn't have to pay for it.  The players' proposed solution will consist of two words:  Revenue Sharing.

Whether or not revenue sharing would wholly solve the league's alleged economic crisis, the players have a point.  Guaranteed contracts for injured or under-performing players can be problematic.  Outrageous salaries make for facile headlines and charts.  57% of basketball-related income may seem like a lot to share with employees.  But none of those numbers erase the inequity between large and small market teams.  That inequity isn't salary-based but revenue-based and only adjustments to the revenue stream can level the playing field and make those smaller-market teams as viable as their big-market brethren.

The holy grail of revenue sources in this day and age is the television contract.  The Los Angeles Lakers just inked a contract with Time-Warner Cable rumored (though disputed) to equal $150 million per year for the next 20 years.  The New York Knicks are owned by the same company that broadcasts their games, meaning the broadcast profit goes into their parent company's coffers.  Contractually their contract is deemed to be of the same value as the Lakers.  Admittedly these deals are at the top of the league, but that's exactly the point.  There's no way the Trail Blazers, Bucks, or Grizzlies can even sniff at those numbers.

This disadvantage is something the current structure can't compensate for.  The league has a luxury tax in place, mandating that teams spending over a set amount (currently around $70 million) pay a dollar into a fund for each dollar they exceed the tax line.  That money is then redistributed to all of the teams who have not exceeded the tax line.  In the old days the Knicks would cheerfully blow $100 million in salary, pay that extra $30 mil to the players, throw in another $30 million to the tax fund, and walk away with a profit in addition to the flashy players they bought.  Los Angeles is still doing that.  They're around $91 million in salary this year.  That's $40 million or so over the cap, $20 million or so over the tax line, for a total extra burden of $60 million.  What's their TV contract worth again?   This year it'll be even better for the Knicks though.  New York is under the tax threshold.  That means not only are they not spending extra on salary and tax, they'll actually be getting money from the luxury tax fund along with the small market teams.  So much for fixing inequities.

The luxury tax is an ad hoc, after-the-fact penalty independent of revenue streams or market size.  Teams with lucrative TV contracts face little burden in paying it and get the same benefits as anyone when they don't.  The real solution needs to be revenue-based on the front end, respecting varying opportunities and disparate economic realities, not just willingness to spend or reap.

True revenue sharing goes against our capitalistic instincts.  People in New York are going to claim, "We do the work, we massage the market, we field the team, why should we have to give up the benefits of same to people who didn't participate in that process?  In a market society the people who do the labor reap the rewards."  But this isn't a free market, at least not entirely.  People in New York are protected by the league.  If you want a free market, let the Celtics and Spurs move to New York to compete for those TV dollars and the ad revenue and lets see which team plays better and drives the others out.  You're given a monopoly (or close to it) over your territory.  

It'd be hard to argue that big market franchises make more money because they've been run better than their small market counterparts.  In a couple cases it's been the exact opposite:  teams making money hand over fist while engaging in lunacy.  The Knicks were a perpetual laughingstock under the management of Isiah Thomas.  The L.A. Clippers have been a bloated tick on the league's rump for longer than most can remember.  These teams are setting records for ineptitude.  They're not making money because they are run brilliantly, they're making money because their protected territory is New York and Los Angeles and not Indianapolis.  Put these guys in smaller cities with the same management plan and they're in red ink up to their eyeballs. The same people working the same jobs in Indiana are going to generate less revenue not because they're inferior, but because there are fewer people in Indiana to generate revenue in front of than there are in New York.   This isn't is capitalistic meritocracy, it's inherited privilege and fate broken only by the higher price ownership paid to purchase the franchises in these prime territories. 

The financial bluebloods of the league are going to feel a sense of privilege, frankly somewhat justifiable.  All things considered the franchise in Memphis probably isn't as important to the league as the franchise in New York.  Marquee towns generate marquee interest.  The four-letter-network will always want to show highlights of a Knicks game more than a Jazz game.  It's good for the league when big-market teams shine.  But there's a flip side.  It's bad for the league when small-market teams have to be purchased by the league like New Orleans, or have to leave perfectly good markets with passionate fan bases like Seattle and perhaps Sacramento.  We're starting to see a polarization of the league, the era of the Super Team.  Where are those Super Teams going to end up?  Dwight Howard isn't rumored to be leaving the Magic in order to play for Cleveland.  Nobody begrudges any franchise an excellent roster.  But when people perceive that the excellent roster was not built through skilled drafting, shrewd trading, and great decision-making--when they perceive it's instead a function of a certain towns, certain uniforms, and certain permissive revenue streams enabling consequence-reduced largess--malaise starts to creep in.  Why even bother having other franchises?  Why bother supporting a Portland or Denver or Charlotte?  The gap gets wider.

And therein lies the rub for the owners.  Even franchises with the most plentiful fans will have trouble drawing them when the marquee says, "Tonight:  Knicks vs. Nobody" (as opposed to what they're starting to get too often now, "Knicks vs. Nobody That Matters").  The league may not need all the teams it has currently but it surely needs more than New York, L.A., Chicago, Boston, Philly, Miami, and Houston.  The mid- and small-market teams make the difference between a national pastime and a niche activity.  They bring both diversity and scope, coloring reality and making it more tangible.  Could the NFL do without the Jacksonville Jaguars?  Probably.  Would the NFL be the NFL without the Pittsburgh Steelers, Green Bay Packers, Denver Broncos, Oakland Raiders, Cincinnati Bengals, and Indianapolis Colts?  It would not.  The big-city teams need opponents...viable, healthy, interesting opponents.  Without them they don't have a league.

The NBA is at an interesting crossroads here.  Are they going to become a fractured, big-market-centered entity, losing even more smaller franchises?  Will they uphold the rights and privileges of a few at the expense of the rest?  Or will they be a league, defining their health collectively, understanding that what's good for all ends up being good for the individual in the end...that a rising tide lifts all ships?

The unspoken subtext to this crossroads has been the shift in the nature of ownership.  Once upon a time owners were businessmen investing for profit but forced to work together to ensure that the league and their investments were sound.  Nouveau ownership comes in two stripes:  corporations looking for bottom-line profit and exposure over and against the profit/exposure of others and billionaires looking for shiny toys and a thrill.  If they want to take a true business mindset you can't begrudge the owners for fighting hard for their investments and their right to turn a profit from them.  But if this is true then they also have to recognize the above, that franchises in a league don't profit at the expense of each other but by creating an equitable umbrella under which all (who are not completely foolish) can profit.  That means serious discussion of pre-expense revenue sharing should be on the table during these negotiations.  But if the new wave of thinking holds sway--if the real goal is instant profit for some, prestige and fun for others, all at the expense of anyone not ME--then this is a game for which the owners should not mind paying.  Players become status symbols, advertisements, trading cards if you will.  Everybody knows if you want the ultra-rare, gold-stamped foil card you have to pay for it.  Everyone knows that ads during the Superbowl cost more than ads during the Rachael Ray Show.  Billionaire owners and corporations should have no problem paying for what they're getting.  If that means some getting left out while others prosper and your league is weaker thereby, well that's the by-product of doing business this way.  

Either way, let's be honest about it and our goals here.  The agenda will not be demonstrated by any concessions the players make but by the way the league defines itself during this process.  Real businessmen with connections to their product and customer base understand that with greater benefit comes greater responsibility.  Paper corporations and careless billionaires understand only their immediate bottom line or immediate gratification respectively.

If the owners care about the viability of this league they will implement legitimate revenue sharing along with the draconian (or maybe slightly less draconian by virtue of said sharing) cuts they're asking the players to take.  If the owners don't care about anything but themselves and how their individual franchises do--if the New Yorks and Los Angeleses of the world turn to Cleveland and Denver and say, "We're going to enjoy our privileged position and leave you hanging" causing the Clevelands and Denvers of the world to say to the players, "We're going to take this out on you"--then it's hard to see why the players should care about the league or concede a thing to it.  It's also hard to see why anyone not already rooting for a large-market team should take these guys seriously or believe that they matter even when play resumes.  A team that's barely in the black and getting screwed is still getting screwed.  Fans and viewers never see the books but they can sure see the results.

--Dave (