NBA payroll rollbacks alone won't solve Pacers' problems

September 30, 2011
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As National Basketball Association owners and players’ union representatives meet in New York today to try to resolve a labor dispute that threatens to cancel the 2011-12 season, my mind goes back to 2009.

Nearly three years ago, when the city’s Capital Improvement Board was trying to decide whether to dole out a $33.5 million three-year subsidy to the money-losing Indiana Pacers, there was a lot of discussion about the NBA needing to fix its own business model.

I was told time and again that when a new collective bargaining agreement was reached between players and owners, the financial viability of small-market teams like the Pacers must be addressed.

The city and state officials who pondered the Pacers’ plight repeatedly said the forgivable loan granted to the team was only a short-term solution.

So NBA Commissioner David Stern is taking a hard line. He’s insisting on $300 million in rollbacks to player payrolls league-wide. He’s talking tough. And understandably so.

Last season, Stern said 23 of 30 NBA franchises lost money—just over $300 million combined. Independent studies by Forbes and others differ a bit on the amount lost but tend to agree on the number of teams losing money.

Stern and NBA owners want the players’ take dialed back from 57 percent of basketball revenue to 50 percent.

But a quick—and somewhat simplistic financial calculation—indicates those rollbacks won’t make the Pacers financial viable. If Stern gets the players to swallow a $300 million pay deduction, that would only equal $10 million in savings for each of the 30 teams.

Forbes’ studies found that the Pacers lost $16 million in 2009 and $17 million in 2010. Pacers owner Herb Simon has said publicly on several occasions that the team’s losses are much deeper. At one point, Pacers brass estimated the losses during a recent single season at $30 million.

Even in the best-case scenario, the Pacers could have a $7 million to $10 million hole to close if Stern gets his $300 million rollback.

Once the NBA owners finish dealing with the players, they may have their most difficult task in front of them. They’ll have to deal with each other.

If teams like the Pacers are going to survive as anything other than another Simon charity, the NBA owners will have to agree to serious revenue sharing. Despite some efforts in years past, the league has not done nearly enough.

They have the resources. While the Pacers struggle financially, the New York Knicks scored $64 million in profits and the Chicago Bulls brought in another $51.3 million in 2010, according to Forbes.

And it would stand to reason that if real losses are worse than Forbes’ estimations, as Simon contends, then those profits could be higher.

There have been discussions of a higher luxury tax for teams over the salary cap. While some of that luxury tax could go to poorer teams, it wouldn’t totally address a talent imbalance that threatens to make teams like the Pacers permanently non-competitive. What the league must consider is true revenue sharing, like what you see in the NFL.

Stern said if a deal is not done by Wednesday, the season could be lost. He is expected this weekend to threaten the players with that scenario.

But if this league is to attain a model for real long-term financial viability for all teams, Stern needs to make the same threat to the guys paying his salary.

  • NBA
    I hate to be a pessimist, but the players and union greed will prevail and it could cost the league its future. Let the union do the right thing and agree to cut player salaries by 15 - 20% across the board. That would be bargaining in good faith.

    They need to understand that they are ALL overpaid. It's time for the union to deal with reality, which is not something they are used to or perhaps even care to understand.
  • Be more like NFL
    NBA needs to adopt NFL system of revenue sharing. You never hear any talk of small market teams when you discuss the NFL. That is because revenue sharing and a hard salary cap makes every team competitive regardless of market big or small. Good competition in sports puts ticket buyers in seats and people watching on TV. I love the Pacers and hope we have some sort of a season.
  • Time's up!
    How many NBA owners are writing off "losses" on a federal tax return? When 75% of the "entertainment businesses" are losing money, it's time to pull the plug. In the current economy, using tax dollars to subsidize men playing a game is outrageous.

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  1. PJ - Mall operators like Simon, and most developers/ land owners, establish individual legal entities for each property to avoid having a problem location sink the ship, or simply structure the note to exclude anything but the property acting as collateral. Usually both. The big banks that lend are big boys that know the risks and aren't mad at Simon for forking over the deed and walking away.

  2. Do any of the East side residence think that Macy, JC Penny's and the other national tenants would have letft the mall if they were making money?? I have read several post about how Simon neglected the property but it sounds like the Eastsiders stopped shopping at the mall even when it was full with all of the national retailers that you want to come back to the mall. I used to work at the Dick's at Washington Square and I know for a fact it's the worst performing Dick's in the Indianapolis market. You better start shopping there before it closes also.

  3. How can any company that has the cash and other assets be allowed to simply foreclose and not pay the debt? Simon, pay the debt and sell the property yourself. Don't just stiff the bank with the loan and require them to find a buyer.

  4. If you only knew....

  5. The proposal is structured in such a way that a private company (who has competitors in the marketplace) has struck a deal to get "financing" through utility ratepayers via IPL. Competitors to BlueIndy are at disadvantage now. The story isn't "how green can we be" but how creative "financing" through captive ratepayers benefits a company whose proposal should sink or float in the competitive marketplace without customer funding. If it was a great idea there would be financing available. IBJ needs to be doing a story on the utility ratemaking piece of this (which is pretty complicated) but instead it suggests that folks are whining about paying for being green.