What Might The Owners Want? (A Look At The Numbers) Part II

Continuing some thoughts on the lockout and what the owners might want in an agreement with the NBA players, I want to take a closer look at how Basketball-Related Income (BRI) is shared by the owners and the players.  I’m continuing with the same assumptions that I made in Part I of this series, including the heavily-debated assumption that the NBA has lost over $1.8 billion during the last 6 years.

The previous Collective Bargaining Agreement guaranteed the players a 57% share of BRI.  Most experts seem to be predicting that the next CBA will guarantee the players a smaller share of BRI, but how much smaller?   I thought I’d run a few numbers to try to see what the owners might want, to try and ensure that the league itself is profitable.  Here some further assumptions are necessary:

  • BRI grew from $3.037 billion in 2004-05 to $3.817 billion in 2010-11, a annual increase of 3.8834%.   I’m assuming that BRI will increase by this exact amount in the years to come.
  • As I outlined in Part I, my best guess is that BRI represents 90.5146% of actual league-wide revenues each year.  I’m continuing with that assumption.
  • As I outlined in Part I, my best guess is that team expenses (other than salaries/benefits) grew from $1.917 billion in 2005-06 to $2.341 billion in 2010-11, an annual increase of 4.0753%.  I’m assuming that these expenses will continue to increase at the same rate in years to come.

Given those assumptions, here is my best guess as to what league-wide finances would look like in 2011-12 and beyond if the players continue to receive 57% of BRI:

In other words, if these assumptions are correct, a 57% guaranteed of BRI would seem to ensure that the NBA, as a single entity, would continue to lose money over the next 10 years, to the tune of more than $4.035 billion over that period.  Add this to the $1.8 billion in losses claimed by the owners over the last 6 years and you’re at $5.880 billion…..

54.3% of BRI

Now, it has been reported that the players offered earlier this summer to lower their guaranteed percentage of BRI to 54.3%.   Let’s say that this comes to be.   What would this look like over the next 10 years?

This would look better for the owners, but would still result in huge league-wide losses, to the tune of $2.757 billion over 10 years.  Taking the total loss figure to $4.602 billion for 16 years when you add in the claimed losses from the period under the previous CBA.

50% of BRI

Some members of the media have proposed that BRI should be shared 50/50 by the owners and players.  Let’s take a look at the numbers should this come to pass under the assumptions listed above:

This scenario looks much better for the owner’s bottom line, but still represents overall losses.   Over the 10 year period, the league would lose $0.721 billion.  Adding this to the last 6 years of claimed losses and you have a combined $2.566 billion loss during 16 years.

45% of BRI

So, what if the owners were able to convince the players to take 45% of BRI?  What would that look like?

Such a proposal would appear to put the entire league in the black, to the tune of $1.647 billion profit over 10 years.  This would almost entirely erase the claimed losses of the past 6 years.

A flat $2 billion in salaries/benefits

Finally, I wanted to take a look at the numbers based on the owners’ proposal to guarantee the players a flat $2.0 billion in salaries/benefits over the next 10 years:

Were the owners able to convince the players to agree to this proposal, it would appear that the league could become quite profitable during that 10 year period.  These numbers would indicate a $2.955 billion profit, which would enable the league to not only fully compensate for the claimed losses of the last 6 years, but still show profits of over a billion dollars for the combined 16 year period.

A Visual Look

Comparing all of these proposals visually gives us the following:

My thoughts

I have a few thoughts about all of this:

  1. If the claims about massive losses by teams over the last 6 years are true, and if the owners are serious about the league becoming profitable over the next 10 years, then they need to insist that the players take 48% of BRI or less.   Either that or figure out a way to reduce the other, non-salary-related expenses dramatically.
  2. If the league is actually losing less money than has been reported (as the NBPA is arguing), then a 50/50 split of BRI might indeed allow the league to be profitable.   It could even be possible that the players could receive 51% or 52% of BRI and that the NBA could be truly profitable.  However, it would appear that continuing to guarantee the players 57% of BRI will keep the league deep in the red for years to come.
  3. Revenues could increase at a greater rate than the assumed figure of 3.8834% in years to come.   If so, this could paint a better picture for both the owners and the players.  However, it appears to me, based on the numbers from Part I and here in Part II, that the owners might no longer be willing to ‘hope’ for great revenue increases, but are trying to formulate terms of the next CBA that will give them a better opportunity to have a league that, as a whole, operates in the black, even if revenues do not increase by more than 4% annually.
  4. Finally, even if the league could agree to CBA terms that would allow the NBA as a whole to operate profitably, this does not guarantee that every team will operate in the black.  I plan to address this aspect of the negotiations in Part III  of this series, as I look closer at the need for significant revenue sharing.   Look for that piece to come soon.
About these ads


Filed under contracts, Lockout

4 responses to “What Might The Owners Want? (A Look At The Numbers) Part II

  1. J-Bo

    How a hard cap would affect all this numbers?

    • J-Bo, implementing a hard cap wouldn’t impact these numbers much, if at all. If the players are guaranteed 50% of BRI, they will get that amount whether there are exceptions to the cap or not. If the cap remains soft, chances are, though, that (like in the previous CBA) the escrow system could easily see the owners holding onto escrow funds at the end of the year. I say this because I would guess that if the cap remains soft, teams will be more likely to offer slightly higher salaries in total than if there is a hard cap. But in the end, a guaranteed % is the same under both a hard cap and a soft cap.

  2. Crow

    The issue of average operating losses needs to be viewed alongside average capital appreciation of franchises (the main source of profit for many owners). Add that to the review and I think nearly all franchises at least broke even, most made money. What is the best guess on NBA franchise capital appreciation in the future? That will have a large impact on owner financial outcomes and impact on what CBA deal is at least feasible. The owners however want operating profit and capital appreciation. A lot of them also want to play out a fantasy and that urge may be stronger than maximizing profit for many.

    Owners in retrospect screwed themselves with the system they created in the last 2 CBAs. They could do so again this time. Shorter contracts, limit Bird rule, give fewer exceptions? Ok players from smaller markets / lesser teams will try to march off to bigger markets with more endorsement deals and other business opportunities. Fans losing “their” stars may lose interest more often and stop buying as many tickets. Can’t spend as much to pursue glory? Shorter competitive windows, fewer fans get hooked real deep for life and the lives of their children they might take to games. Smaller MLEs, no bi-annual exceptions? More guys go overseas. More former vet stars hang it up earlier. More stars get impatient with the lack of owner’s ability to surround them with enough talent to contend and move. If owners succeed in getting a big cut in total pay available, players will probably play even more selfishly to try to get theirs. And so on.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s