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NBA Lockout Appears Inevitable

April 16th, 2011 No comments

This Miami Heat team is positively thrilling. And while they don’t enter the playoffs tonight without flaws, they also have a legitimate shot at marching through the Sixers, Celtics, and Bulls all the way to the NBA Finals. Yet thanks to the squabbling of millionaires and billionaires over how to divide a $4 billion industry, this may be the last time for a long time to enjoy it.

Negotiations surrounding a new NBA collective bargaining agreement to replace the current six-year deal that expires on June 30 are not just in a stalemate. They’re turning nasty. A lockout seems inevitable. And it could last a while. It could wipe out the entire 2011-12 season.

The information, misinformation, accusations and counter-accusations are flying so fast and furious that you need an accounting degree and a decade of practical experience under your belt to actually be able to make sense of it all.

The two sides remain deeply divided over what percentage of revenue the players should receive and how owners should share their money.

Players currently receive not less than 57% of every dollar generated by the NBA in salaries and benefits. Players have no costs. Every dollar they make, they get to take home (excluding withholding taxes, of course).

Owners need to net their 43% share of revenues against all the costs of fielding their teams. According to Commissioner David Stern, the NBA will lose roughly $300 million this season. That’s actually better than the $340 million in losses last year and even better than the $370 million in losses the year before that. Stern has also spoken of losses of at least $200 million in each of the first three seasons of the current agreement.

That’s $1.6 billion in losses in six years. That’s huge! And the league has sent both audited financial data and tax returns to the player’s association to substantiate the losses.

The NBA is claiming the business model is broken.

Owners are seeking a complete overhaul of the league’s financial system, and have submitted proposals to the players that feature a hard salary cap, rollbacks to existing player salaries, shorter contract lengths, reduced annual raises, and the reduction of the players’ share of revenues from the current 57% to less than 40%.

But the players disagree with the story the numbers tell.

The players contend that the vast majority of the so-called losses is the result of creative accounting and tax loopholes. They contend that only a small number of teams are suffering, and that their problems can be addressed primarily through enhanced revenue sharing. Read more…