Tuesday, June 21, 2011

Lockout: Owner vs. Owner




As a a basketball fan the impending lockout looms large. The summer league has already been canceled, and there is sure to be a shortened NBA season as the owners and player's association butt heads over player compensation. Although the lockout is portrayed as a conflict between players and owners the origin of the lockout is the inherent competition among franchises.
A number of basketball teams are losing money and the owners are blaming bloated player salaries. The owners wish to create a more profitable environment by settling on a collective bargaining agreement which would lower salaries across the board. What is usually ignored in this very convoluted situation is that owners choose how much they play their players. If they wanted to pay less for a player they could simply offer them a contract for less money. In fact, franchises are given incentives to keep player salaries under the current salary cap, yet franchises continue to pay players to the point of financial ruin. The new collective bargaining agreement will become the league wide law which keeps compensation in check for all NBA teams, so no team will be able to shoot itself in the foot on a bad contract. So the real question is: Why do NBA teams make voluntary decisions to lose money? 

The Orlando Magic paid their players about 89 million dollars for the 2011-2012 season. Gilbert Arenas is the highest paid player on the team, at near 18 million dollars a year. Gilbert Arenas was one of the worst players on the Magic. He was out of shape bench player that disparaged the coach and made flimsy excuses for atrocious games. The reason Arenas can soak up a millions of dollars without contributing to the team was because, amazingly, acquiring Arenas and his horrible contract made sense for the Magic at the time he was acquired. Teams cannot be understood as a normal businesses, which pay their employees based on their contributions to team. Every single NBA team competes for the prestige of a championship, once a team gains a championship money pours in and any money spent on players is small change compared to new money gained from new sponsors, merchandise, and season tickets.
Some teams are immune to these worries. The New York Knicks would make money if they won twenty games a a season. They are located in a big enough market that a ring is not necessary to establish their fan base. The New Orleans Hornets, on the other hand, need a legacy to attract a fan base. So, when teams compose their teams they desperately seek to remain relevant in the playoffs and eventually win a ring. That requires all kinds of teams to take chances with their players. If Gilbert Arenas happens to be the piece that catapults the Magic to a championship his worth to the team is greater than 20 million. If not, he becomes a black hole for the owner's money. Teams all over the league make the same bets with the likes of Rashard Lewis, Joe Johnson, Elton Brand, and Brandon Roy. Once these bets fail (as most will) teams lose money and franchises are imperiled.
If the NBA is to spread beyond New York and L.A. it must allow other teams to take a gamble on a ring (it took Dallas 31 years and the third highest payroll in the NBA). The CBA has to allow for the existence of overpaid players. That is why the owners are pushing for a hard cap (a salary cap that cannot be broken) at a lower range (48 million was one rumored number). A new system would allow every NBA team to become a contender without threatening their existence.

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