C2CBA part I

No pictures with funny captions this time. No frills, no self-promotional gimmicks. This is the big one. As promised, here is the first in our series of Claw2Claw debates on the most central issue in the NBA. The current Collective Bargaining Agreement between the team owners and the NBA player's union will expire this summer. Without an agreement in place the entire league will shut down operations. Season ticket holders across the league will be left with so much pretty cardboard. NBA fans will have to resort to watching (GASP!) the NHL. The negotiations (or lack of same) are all over the media and it will only get worse as the expiration date draws closer. So what's it all about? Is it just the rich and greedy fatcat owners grabbing for an even bigger piece of the pie? Or are the players, already multimillionaires, simply being stubborn, wishing to keep the system in place that they've learned how to manipulate for greatest advantage? For that matter, just what in blazes is all the arguing about?
Because of the gravity of all of this to NBA fans casual and rabid, we felt this would take more than one simple Claw2Claw debate to cover all the aspects of both sides.
Today in part I, the owners have their say. Part II will give the players an opportunity to explain their position. After that, it will be head to head debate until everything has been presented. As always, please feel free to add to the discussions with your comments and opinions. If you want to be among the truly informed click that read more button and get all the information in one handy location.

I’d like to start by pointing out something obvious and simple. You’ve all heard it and said it before yourselves. We in the NBA are in the business of fun. But no matter how much fun it may be, it is still a business. Although it isn’t something people like to think about businesses, even those that exist to provide good times, have to make money in order to continue to create entertainment. Amusement parks have no choice but to charge admission. It costs more to make quality films than ever before and the expenses keep going up, but Hollywood must continue to make movies and continue to rely on the popcorn eating public to pay for them. As costs go up, the studios and theaters have no choice but to raise the price of admission. It is no different for those of us fortunate enough to run a professional sports franchise.

The United States of America – along with many nations throughout the world, just went through the most trying economic crisis in over 80 years. During that time, everyone had to tighten their belts and make due with less. That includes NBA owners. In order to help the fans enjoy the NBA experience, the owners dropped ticket prices – the primary source of revenue – to levels that would be affordable to a nation under economic siege. Think about it for a moment. You can visit any NBA blog and people are sharing information on how to get seats at the cheapest possible prices. You can go to Craig’s List or Ebay and find amazing deals on tickets at a fraction of what should be their face value. Times got hard for Americans and the NBA owners responded with the most sweeping discounts in the history of professional sports. Overall ticket sales may indeed be up. In fact they are at record levels. But they are so deeply discounted that it often takes the sale of 3 tickets to make the revenue that one would earn in better times. Attendance may well be up, but the average fan in the stands is spending much less for the NBA experience than they did even three short seasons ago. It isn't just the seats. They are spending less at the team stores and much less on concessions. This may keep the fast food restaurants near the arenas profitable, but it has a real negative impact when 15 thousand people hit the 99 cent menu on the way to the game instead of enjoying a dog at halftime.

There is one group however, that hasn’t had to worry about making mortgage payments or meeting monthly obligations. NBA players are making more money than ever before. At a time where people saw hour cutbacks, frozen wages, and job eliminations that have almost two out of every ten Americans receiving some kind of financial assistance, the players have continued to make massive salaries. Why? Because they are under lengthy contracts often lasting for more than half a decade that guarantee them huge raises regardless of the economy. Just twenty five years ago the maximum salary in the NBA was $3.6 million dollars. PER TEAM. That was the salary budget per NBA team the last time the league had a hard salary cap.

If it were you in the player's Nikes, I’d bet you'd feel quite lucky. But it wasn’t enough. This past summer, players took advantage of loopholes and used the existing system to manipulate contracts in order to squeeze more money, endorsements, and fame out of their already lucrative careers. They even used their power to have hour-long television specials in which they not only snubbed the owners that had made them rich, but snubbed the very fans that had worshipped them as local heroes. It may seem like an isolated occurrence, but there is an almost identical situation forming as I speak. The first media circus merely exposed the route for others to follow.

Nobody likes to talk about the numbers. Let’s face it, numbers are boring. I’ll be as brief as possible. Any first-year business student knows that before any business can hope to break even it must earn at least a 33% profit above costs. It’s the only way to cover additional expenses like research, new product development, and the expansion growth that provides more jobs. You may think that the NBA product is inexpensive to produce, but you would be in error. What the average team spends on air travel alone – even with a team plane – is many times more than what it costs the average family to survive. NBA athletes are fine-tuned human machines. They are the Ferraris and Porches of the human race. They are built for speed, accuracy, endurance, and have to be able to turn on a dime. When they break down, it’s also very costly. NBA owners provide entire staffs of crack medical experts and most stadiums have built-in medical facilities that would make hospital administrators green with envy. We haven’t even gotten into the cost of providing staff to feed, assist, and keep safe upwards of 18 to 20 thousand people per night.

Another well-known rule of business is that payroll must be reasonable. Most companies try to keep payroll under 40% of total expenses. Even the players themselves admit that their current salary amounts to 57%. That’s extremely high for any business. It also, isn’t the entire truth.

Did you ever eat at a McDonalds? How about a Burger King or Taco Bell? Of course you have. Most Americans visit one of these or their competitor’s restaurants at least once a week. The fast food restaurants break down into two groups. There are company-owned, or corporate stores, and there are franchises. This holds true for almost every single national chain from fast food to auto parts to clothing stores at the local mall. The franchise stores are owned by a local businessman. Most pay a large up-front fee for permission to use the national name and get blueprints of what the parent company wants their buildings to look like. This is why you can walk into a McDonalds in Alaska and receive the same service and dining experience you get at a McDonalds in Gastonia, NC. right down to the corporate-mandated uniforms worn by the staff. After that, the local owner agrees to pay a “franchising fee” each month. Usually it’s anywhere from 35 to 40% of total revenue. That money gets paid before staff, management, or even the electric bill. It comes right off the top.

In the NBA, the current bargaining agreement says that in essence, the owners have to pay the players a franchising fee of 57% before the first pair of tube socks is purchased. In fairness, without the players there would be no NBA, so as outrageously high as that amount may seem, the owners agreed to it without complaint. Most of the owners still made a fair profit as well. They received other revenue from clothing sales, TV broadcast contracts, etc that more than made up for any losses caused by high salaried players.

But that was before the 2^nd Depression hit. Last season, the league lost $375 million dollars. Projected losses for this season are already in the $350 million range. Owning a professional sports franchise is considered a badge of honor. It means you have lived the American Dream to its fullest. But every owner makes the bulk of his “fortune” from the businesses that made them wealthy enough to afford a team. Much has been made about Michael Jordan being the first former player to become majority owner of an NBA franchise. But even His Airness invested wisely and created solid businesses of his own after retiring from the game. The point is, most owners aren’t in it for the money, but for the pure love of the game. I don’t care who you are, losses totaling over a half-billion dollars are crippling. The NBA cannot survive long with losses that large. We realize that we are a group of wealthy men and we also realize that most of the public will be outraged and view this as our “crying poverty.” Believe me; we’re loathing the need to dig in our heels like this. But we would not threaten a lockout that could shorten or cancel an entire season if the alternative wasn’t dire.

We are only asking the players to do what all Americans have had to do in these difficult times. We aren’t looking to bankrupt them, just accept the same sacrifices we have all lived with for years. A 1/3 reduction in salary may sound excessive, but is only asking a player making $14 million a year to “get by” with over $9.3 million. If $9.3 million dollars sounds like a tremendous amount of money, that's because it is. It also doesn’t include playoff bonuses, endorsement money, and numerous other sources of revenue available to pro athletes.

This is also why the owners wish to implement what is called a “hard cap” much like the NFL. Player contracts are also filled with bonus incentives. This is extra money on top of their already substantial earnings that a player receives for any one of a number of reasons. These incentives may be performance based (exceeding a certain points per game average for example) or team based (making the playoffs) but they are above and beyond the salary reported to the media. Some of these incentives are also for your benefit as well. NBA owners spend vast amounts of money in the effort to keep fan favorite players in town. You may feel that the Cavs owner went over the line when his star left town, but it is just one example of the priority the owners place upon the feelings of the fans. After doing everything he could to keep the man whose uniform was sported by thousands at every game, it was all in vain and he had to watch people burn those very uniform shirts all over the streets of Cleveland.

It must stop. Simply put, a hard salary cap will set player salaries at a fixed amount. No bonuses, no incentives, no special considerations. If a player signs for $14 million, that’s what he will get paid. It is also why owners are asking for shorter maximum lengths on contracts. If America’s recent struggle has taught us only one thing, it’s that hard times seldom give you advance warning. The nation went from the wealthiest on earth to the verge of financial collapse in a matter of weeks. NBA owners, in anticipation of continued prosperity, wrote very generous contracts, many in excess of half a decade long and with hefty pay increases with each successive season. When the economy collapsed, the owners were still obliged to pay out those contracts for the duration. Shorter contracts would help prevent massive losses in the future because the amount paid to the players would better reflect the economic conditions of the time. It may mean that in an economic downturn, salaries will decrease sooner than they do now. But it also means that in times of prosperity, salaries will rise sooner than ever in response. At the very least it will eliminate the current situation where the players spent years fiddling while America burned.

So now you know our side of things. We aren’t being unreasonable. We are only asking the players to accept the financial realities that we, as owners, have already struggled with for a long time. If the situation doesn’t change, the NBA will not be around for long. David Stern opened a can of worms when he mentioned contracting the league by closing some of the less-profitable franchises. The fans don’t want it. The Players don’t want it. I can promise you, there isn’t an owner in all of sports that wants it. Mention the word “contraction” in front of Michael Jordan and you experience what an entire league learned to avoid – the full anger and competitiveness of one of the greatest athletes of all time. Nonetheless, Commissioner Stern's comments accurately reflect the crisis many NBA owners are now facing.

You may have heard that owners will actually make more money in a cancelled season than they will if everything starts on time. Sadly, this is almost true. The owners have to funnel money out of their other businesses and, in some cases, their own pockets when their team ends the season “in the red.” For a number of the owners, a missed season means less of a drain on their wallets than footing the cost of playing a full season. In any situation like this, the fan is the one that takes it on the chin. But the owners didn’t create this crisis alone. They are painted into a corner with only one way out. This will be, perhaps for the first time, a true Collective Bargaining Agreement. Collective means “everyone.” This time around, the owners will not give in until everyone is satisfied and in agreement, not just the players. Every American from factory worker to sports franchise owner has already sacrificed their pound of flesh. The NBA Players Union should not receive a special exemption. It isn’t fair to the owners, and it certainly isn’t fair to the people that spend their dwindling money in order to enjoy the NBA Experience. As the owners, we are dedicated to keep “Amazing” happening, and make no mistake, we will accept nothing less because you deserve nothing less.