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.