So recently the NBA and NFL have had some issues with owners and players negotiating pay. This week the NBA missed its deadline and now is placed in a lockout. This is not the first time the NBA has suffered a lockout. As I write this could be the 4th NBA lockout. The last one took place in 1999 and lasted from July 1998 to January of 1999. The NBA Players Association (NBA union) wanted higher raises for players and minimum salary set for the NBA. Currently, in the NBA if you are a rookie the minimum you can get paid is $490,180. This is easily in the top 1% of all income brackets and it is only the minimum. After just 1 year of being in the NBA your salary is bumped up to $788,872. After 5 years the minimum you can make is $1,027,424. After 10 years and over the worst you can do is around $1.4 million. Clearly, even a below average player can make above average income in the NBA. On the other side of the equation there are also maximums for how much a player can make in the NBA. For the first year of NBA the maximum can make is $13 million. Even though the salary a player can make in their first year is between close to $500,000 and $13 million this amount is still fixed. What is also interesting is that athletes in general tend to sign contracts for many years. Even CEO’s are compensated on their performance for the year. In sports if you have one good year you can get paid well for many more years. Salary represents future benefits and not past benefits unless you are a tenured professor.
The NBA has some other problems as well. One major problem is revenue sharing. The NBA has $4 billion in revenue to share. Not only does the NBA have issues with sharing revenue but nearly all the teams are losing money. The NBA has 30 teams. 22 teams out of 30 are losing money. So in essence only 8 teams are earning money. It would be interesting if the same teams lose money in some years while making it in other years. One problem is the idea of revenue sharing. Revenue is not what you keep after costs or profit. Profit sharing would be a novel idea for the NBA. One way to decrease costs is to get rid of the collective bargaining power of the players association and allow every player to be a free agent. Some players may only be able to produce $200,000 to a team. Some players might be worth $30 million. This salary is still very good yet the player’s union tells owner “The only way we are showing up on the court is if we making close to half a million dollars”. If the NBA season is only 82 games a rookie makes $6,000 a night. After just one year the amount per game $9,600 per night. What is the point of having a union for the NBA when players get an agent?
If a lockout does occur players will no doubt have some cash flow issues. Athletes in particular do spend a considerable of money and are not savers by any means. A Sports Illustrated story by Pablo Torre shed light onto the spending habit of athletes. Within just five years of retiring around 60% of NBA players are broke. Five years is a short amount of time to be spending money that should a lifetime.
The NBA has some other problems as well. One major problem is revenue sharing. The NBA has $4 billion in revenue to share. Not only does the NBA have issues with sharing revenue but nearly all the teams are losing money. The NBA has 30 teams. 22 teams out of 30 are losing money. So in essence only 8 teams are earning money. It would be interesting if the same teams lose money in some years while making it in other years. One problem is the idea of revenue sharing. Revenue is not what you keep after costs or profit. Profit sharing would be a novel idea for the NBA. One way to decrease costs is to get rid of the collective bargaining power of the players association and allow every player to be a free agent. Some players may only be able to produce $200,000 to a team. Some players might be worth $30 million. This salary is still very good yet the player’s union tells owner “The only way we are showing up on the court is if we making close to half a million dollars”. If the NBA season is only 82 games a rookie makes $6,000 a night. After just one year the amount per game $9,600 per night. What is the point of having a union for the NBA when players get an agent?
If a lockout does occur players will no doubt have some cash flow issues. Athletes in particular do spend a considerable of money and are not savers by any means. A Sports Illustrated story by Pablo Torre shed light onto the spending habit of athletes. Within just five years of retiring around 60% of NBA players are broke. Five years is a short amount of time to be spending money that should a lifetime.
The NBA has issues no doubt. I have a feeling that the NBA season will be extended and a combination of players taking cuts in pay in order for teams to have an easier time to make payroll. Local municipalities also need to stop funding stadiums that are not even used for the full year. In the past 20 years taxpayers have provided more than $10 billion to fund new stadiums. I would rather see corporate sponsorships and having private donors or organizations donating to create a new stadium. Players should also go to contract on a year by year basis. A system like this would reward players who consistently do well and punish players who have one good year.
The NBA and the NFL could learn from a market based system. If 22 companies in the S&P 500 were constantly losing money they would be out of business. Not only that the companies in the S&P 500 would never dream of sharing revenue because they know they have to produce profits or value that is added.
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