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The Score - Anthony Schoettle

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Sports Business

Pacers in crosshairs of NBA labor fight

February 17, 2010
KEYWORDS Sports Business

It appears the Indiana Pacers aren’t the only NBA franchise experiencing serious financial difficulty.
 
Though Pacers officials tell me things are looking up this season, it’s still an uphill battle. That has as much to do with the NBA’s business model as anything that takes place at Conseco Fieldhouse.
 
The league’s challenges as a whole have become more evident as the NBA struggles with an uncertain future and a collective bargaining agreement with its players that expires in 2011.
 
The rate at which the league is losing money is pretty alarming.

NBA Commissioner David Stern said during all-star weekend in Dallas that the league stands to lose $400 million this season, and has lost at least $200 million each of the last four seasons.

Last year, I wrote in this blog that the NBA is entering an apocalyptic era where player salaries must be drastically reduced and contracts must be restructured. Stern is calling for reducing the players’ take from 57 percent to 43 percent of the league’s total revenue, with a individual player salary cap of $13 million per season.
 
It’s a pretty radical shift, no doubt. But Stern realizes he needs to act before the league enters a desperate time.

Not surprisingly, Billy Hunter, the NBA players’ union boss, smacked Stern’s shot at resolving the looming labor issue and the league’s fiscal crisis into the third row.
 
Hunter said the players’ union will introduce its own proposal soon. We can only hope it calls for the kind of substantive changes that will make a difference—heck, maybe even make ticket prices more affordable to more people.

The most important element, at least as far as I’m concerned, in Stern’s proposal is a step to weaken or possibly even eliminate players’ contract guarantees.

Non-guaranteed contracts, much like those in the NFL, would assure that teams don’t get stuck with fat guaranteed contracts that are impossible to dump. It would require players to stay hungry—playing year-in and year-out for their contracts. That restores competitive balance in the NBA, something fans would love and the league desperately needs.

Maybe most importantly, eliminating those guaranteed contracts restores fans’ faith in the game, eliminating grumblings about mid-level players with no incentives to play all-out soaking up $10 million or $15 million annually with no contract renegotiation in sight for three to five years.

It would also eliminate fiascos like the Pacers found themselves in last year with Jamal Tinsley. In the NFL, those problems rarely exist.

As for the players’ argument that they need some protection, a system with fewer guarantees in contracts would still allow for large signing bonuses.
 
But players are only part of the problem. Look no further than the N.Y. Knicks, who are looking to break the bank with not one but two huge free agent acquisitions this off-season. Sure, there’s a current salary cap, but the NBA system is full of luxury tax loop holes that allow big market teams to pummel its mid- and small-market brethren.

Ironically, the Knicks’ train is being engineered these days by former Pacers president Donnie Walsh, whose course in N.Y. could do a lot to further the big-small market divide.

Conservative estimates post the Pacers’ annual losses at $15 million. There have been years with much bigger losses.
 
And I’m not sure any amount of winning will put the team in the black long-term under the current formula. Pacers officials said they’ve lost money 26 of the last 28 years.

I understand the players not wanting to give anything back, but there are more than a few sports business experts who wonder how long the league and its teams can continue to suffer the kinds of financial losses they are absorbing today.

Apocalypse Now? You bet.
 

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