As my readers know, I am not a fan of the NBA, in large part for the reasons that will form the body of this article. That said, with the NBA, NFL, and soon MLB all on the cusp of negotiating new collective bargaining agreements, I find the case study of a league possibly on the brink of bankruptcy fascinating—a primer if you will on how not to run a league for the NFL (who probably doesn’t need it) and MLB (who just might). And as usual, this guy thinks he knows what needs to be done to fix it.
This may or may not come as a surprise to the reader, but the economy isn’t so good these days. As Americans find it harder and harder to make ends meet, they have been forced to become very careful with their discretionary spending, meaning fewer and fewer trips to watch those athletes that do those things that at times leave us speechless. But while some have zeroed in on the problem, many still are not aware of just how dire the problem is for the Association, confused by television ratings that are overall higher this year in the NBA (those people are ignoring the splits that exist in the secondary markets and the B games, a trend that I argue will be overall detrimental to the sport).
A 2009 NBC story states the NBA’s problem pretty succinctly:
Many NBA teams have been getting steamrolled by the economy — sponsorship deals are down, buildings are half empty and the line to buy that $8 small beer is a lot shorter these days. Teams that were barely getting by or losing a little money three years ago are bleeding red ink now.
While some of this can be blamed on the country’s economic woes, not all of it can, as the NFL is presently fighting over how to spend its record $9 billion dollars in profits. Much of the NBA’s problem can be explained by a failed business model—the over-saturation of the market given the scarcity of quality product available. More than any other league, the NBA’s success is based on star appeal. This is due to the nature of the game of basketball—only five men play on the court at one time, meaning that one or two guys can control the action. The NBA’s problem is that they simply don’t have enough stars for teams in 30 markets.
This has lead to a disturbing trend, one where star players have gravitated to mostly major media markets as the players see this as their best chance to win. Witness the following:
- Memphis trades Pao Gasol to the Lakers, who already had Kobe Bryant, in what most would deem a bogus trade. David Stern, the nefarious commissioner, looked the other way, probably because it was seen as a good thing for the Lakers to be a NBA powerhouse again.
- Already having Paul Pierce, Ray Allen and Kevin Garnett formed a trio in Boston that brought the Celtics their first championship since the days of the “hick from French Lick”.
- Lebron James and Chris Bosh conspired to join DeWayne Wade in Miami, leaving two franchises, Cleveland and Toronto, without marquee players (yeah, I know Bosh really isn’t good, but he qualified as a marquee player for the hapless Raptors).
- After Amare Stoudemire exercised his free agent option and left Phoenix, Carmelo Anthony hijacked the Denver Nuggets and essentially strong armed his way out of Denver and into the Big Apple. Rumors that Chris Paul, the star of the New Orleans Hornets, will eventually join them once he gets paroled, abound.
- One of my favorite players, Carlos Loozer (I mean Boozer), already having reneged on a hand shake deal with the Cavs to ink a bigger contract with the Jazz, then left the Jazz high and dry so he could join Derek Rose in Chicago.
- Just today, guard Mike Bibby forced his way out of his $6.2 million dollar contract with the Wizards one day before playoff rosters could be set. Rumor has it, he wants to take his talents to South Beach as well with hopes of collecting some “free” jewelry.
There are probably many other examples, but I think you see where I am going with this–stars are clustering in a handful of cities, mostly major media centers, decimating their former franchises that no longer have superstars necessary to compete and draw fans. This has resulted in declining fan interest in many secondary markets, and scores of B type games that have little or no broadcast appeal. As NBC put it, “For every game where Kobe Bryant and Lebron James are playing to packed houses and national television audiences, there are six games between the Washington Wizards and Oklahoma City Thunder on a Wednesday night in a half-full arena.”
No this isn’t the attendance for a Wizards-Grizzlies game, though arenas have often been only half full this year in many of the smaller markets.
That same article detailed how the NBA was set to borrow $175 million dollars to prop up 15 teams that were operating in the red, it’s own version of the Federal Government’s TARP Heist (I say heist because it should be noted that the NBA’s media contracts serve as collateral for these loans. Am I the only one that believes declining ratings for the bulk of your games may erode the value of said collateral? Maybe these loans can be packaged up and sold on the NYSE as derivatives? Nah, something like that could never happen in the good ol’ US of A). While that’s all good and well, what’s the long term solution for a franchise like the Cleveland Cavaliers, who have suffered through an 11-48 season to date after Lebron’s famous defection? Until another star or three finds there way to the Cleveland, and it doesn’t appear that one is going to be coming in this fairly weak college draft, let’s just say it won’t be all that difficult for fans to get tickets for Cavalier home games, not that anyone is really looking mind you (there is no truth to the rumor that with mail in rebates, the Association will pay you to come watch the Cavs and Bucks play in an upcoming game). Fans aren’t stupid— a league that has made its money marketing stars will not be able to fool fans forever with teams that have no stars and really no reasonable expectation of competing for a championship.
The answer to this problem is both obvious and simple—contraction. Simple market analysis tells us that when the market is over-saturated with a product, cut production to the point where it isn’t over-saturated. Since the stars are defecting to a handful of teams anyway, take the bottom eight or so teams in secondary markets and buy them out. There simply never should have been teams in cities like Toronto, New Orleans, Sacramento, Washington, Memphis, and Oklahoma City (though while I note this team is actually on the short list of viable teams in terms of competitiveness, it’s in a relatively tiny market in a football first state) but to name just a few. What is particularly troubling for the NBA, though, is that it isn’t just these small market outliers that are struggling under the current NBA model–teams in cities like Detroit and Indiana, considered stalwart franchises in the NBA for decades, now find themselves operating in the red. The benefit of contracting clubs is that talent will further be consolidated with those teams that remain—something that just might save teams like Detroit and Indiana that traditionally have had good fan bases but find their teams unmarketable without the requisite superstars. The side benefit of consolidating talent will be that you will be left with more teams that can actually compete on the basketball court as well, improving the product as a whole for the consumer.
I will admit that I am not a financial guy, and thus, the details and complexity of eliminating eight teams or so escapes me. That said, I will still maintain that such an approach, which squares with basic economic concepts of supply and demand, would be best for the health of the NBA in the long run. Having seen how men like Stern operate, individuals who believe that one’s legacy and wealth can only be satiated by following the bigger is better model, I think we’ll see contraction about the same time we witness a Cleveland Cavaliers –Memphis Grizzlies NBA Finals. That is to say, it ain’t gonna happen.
Categories: All things Sports