Will There Be An NBA Lockout in 2011?

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The 1998-99 NBA season was reduced to 50-games as a result of the NBA’s owners locking out the players until a new collective bargaining agreement was reached. Out of the more than 450 players that have played in the NBA in 2009 season, only 55 experienced the 1999 lockout.

Is the NBA about to enter another period of significant labor unrest?

The NBA’s CBA will expire after the 2010-11 season. Unless a new agreement is reached, the second NBA work stoppage in about a decade would take place in September 2011.

NBA Revenue

The NBA had approximately $3.57 billion in revenue during the 2007/2008 season.

It is rumored that as many as 20 of the 30 NBA teams will lose money in the 2008-09 season. As bad as that sounds, the league’s prospects look worse for next season than they were this season. Prior to their run to the NBA Finals, the Orlando Magic anticipated losses of between $15 million and $20 million this year and won’t open a new arena until 2010. Sacramento is expected to lose up to $25 million.

The league has an existing $1.7 billion credit facility. Twelve teams have accepted the league’s offer to borrow $200 million from JPMorgan Chase ($13 million to $20 million per team).

“They told us there’s no chance of any additional funds being raised for any sports league, and indeed, the credit facilities that had come up for other leagues were being termed out rather than renewed,” Stern said. (More…)

Attendance was down in 2008/09 and the league won’t feel the full effects of the recession until season tickets are sold for next season.

Increasing ticket pricing is fairly common as teams look to build revenue year over year. But with the recession, the NBA is projecting that just three of its 30 teams will raise season-ticket prices for the 2009-10 season. Nineteen teams are expected to freeze prices, while seven are projected to decrease prices next year. (More…)

As a result of declining revenue, the NBA’s salary cap is expected to shrink for only the second time next season. The cap is expected to drop $2-3 million from its current $58.6 million and there is a strong possibility of an even bigger decline in the 2010-11 season.

How did we get here? The economy turned in August, well after deposits had been sent in for season tickets, courtside seats and luxury suites. The league would love for you to believe that attendance hasn’t been affected, but the NBA’s official tally counts only total “customers,” counted as paid tickets, comps (seats given to celebrities, sponsors, friends of the team or whomever, a number that can be fudged any way you want), discounted tickets and no-shows. The numbers don’t reflect any falloffs with parking money, concessions, merchandise and restaurant/bar revenue around arenas. (For instance, at least half the concession stands have been closed for every Clippers home game this season — except when the Lakers or Celtics were the opponents.) They definitely don’t reflect aggressive giveaways like Chicago’s recent buy-one-get-one-free promotion or Memphis’ Pepsi Family Plan Pack (four tickets, four Pepsis and four hot dogs for $48). When you hear the Grizzlies are averaging 12,600 a game, that’s like Amazon.com bragging, “We sold 12,600 books this week” and glossing over the fact that 65 percent of them were bargain books for $3.99 or less. (Amazing but true fact confirmed to me by multiple people: Memphis makes about $300,000 per home game. That’s gross, not net. Even more amazing, four or five other teams are within $100,000 of that number.) (More…)

The NBA’s CBA Issues

The main problem with the NBA’s collective bargaining agreement is that it allows NBA GM’s to give too much money over too many years to mid-level players. The result is a familiar economic problem: labor cost growth which exceeds revenue growth.

Teams have handed out max contracts to players that grow at 10 to 10 1/2 percent per season and gave out mid-level exception deals that grow at 8 to 8 1/2 percent. At the same time, revenues have been growing only at lower, single-digit rates and may actually be flat this season. (More…)

These guaranteed contracts, especially when the players don’t perform to expectations, become financial albatrosses which prevent the team from committing to other players.

Raef LaFrentz’s Expiring Contract. That thing got mentioned so many times it could have hired a PR staff and an agent. Here’s the kicker: Raef can’t play. He’s a basketball invalid. He has been injured since something like 1973. Portland’s insurance company repays the Blazers 80 percent of his salary, making him a cap figure and little else. In the No Benjamins Association, that makes him a freaking commodity. Teams wanted to dump clearly superior players on Portland at the deadline just to get Raef’s insurance money. Phoenix would have traded Shaq for Raef and Channing Frye’s expiring contract in a heartbeat. Jersey supposedly offered Vince Carter and two protected No. 1′s for Raef’s contract, and Milwaukee supposedly would have given up Richard Jefferson and either Joe Alexander or a future No. 1 for it. Incredibly, the Blazers turned everyone down. And this is a team bankrolled by Paul Allen. (More…)

The number of “bad” contracts has been declining over the last few years however. NBA teams are slowly beginning to figure out how to operate more like the San Antonio Spurs and less like the NY Knicks. But, if the owners have the leverage to wring further concessions from the players, why not eliminate altogether the possibility that your GM is going to turn into Isaiah Thomas. The NBA wants even shorter maximum contract lengths in order to minimize the risk of dead contracts in the future.

Lebron has Given the NBA Payroll Flexibility

Lebron is saving the NBA in more ways than one.

For the most part, the NBA doesn’t have a crisis of guaranteed contracts. Partially, this is because teams have gotten their financial houses in order. But part of the credit should also be laid at the feet of Lebron James.

In the 2008-09 season, the Knicks had the highest payroll in the league at $94.8 million. Detroit was number 11 at $72 million. Golden State was number 21 at $68 million. Only four teams have payrolls less than $65 million.

The summer before the CBA expires is the summer that Lebron James, Dwayne Wade and many other marquee names are expected to become free agents. It is anticipated to be the biggest free agency summer ever and many teams have been carefully planning their payroll obligations to make sure that they are far under the cap by that time.

The Lakers have $67 million committed for 2010. The Bucks, who must suspect Lebron is never going to sign there, $55 million. The Wiz ($53.8 million), Pacers ($56.1 million), 76ers ($55 million) and Mavs ($49.5 million) also have significant payroll committments.

But beyond those big spenders, most teams have present commitments for 2010/11 that are significantly smaller than their current payrolls. The Knicks have only $18.1 million committed for the 2010/11 season. The Trailblazers, with an $80 million payroll this season, have only $11.2 committed for 2010.

Some of that salary cap space is sure to be used this summer. Even after that however, the 2010 free agency period will see more teams than usual with cap space for and abundant crop of free agents. Against that backdrop, NBA GM’s will know that they are one season away from a collectively bargained insurance against their own ineptitude. Some NBA owners might roll the dice to go for a ring. Others are likely to roll back their payroll because of the expected financial problems over the next two years.

Its likely to be a game of musical chairs that will leave more than a few players standing with one-year contracts which expire in time for the lockout.

How Long Would a Lockout Last?

The league broke the union last time and there is no reason to believe that they can’t do it again.

Many NBA players seem to have no difficulty blowing through the millions they collect. Give sixty percent of your earnings to the government and your agent and $10 million a year quickly becomes $4 million. That $34 million contract is really only worth $14 million.

That’s a lot of money. But when you’ve got four houses, fifteen cars, eight illegitimate children, a twenty person entourage and a few bad investments, its no wonder some NBA players live paycheck to paycheck.

“The owners have the economic wherewithal to shut the thing down for two years, whatever it takes, to get a system that will work long term,” David Falk said in an extensive interview to discuss his new book. “The players do not have the economic wherewithal to sit out one year.” (David Falk)

The league won last time. They’ll win again this time.

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4 Comments

  1. The NBA salary cap has been set for next season at $57.7 million, a decline from 2008-09, allowing teams to begin signing players.

    The figure the league announced Tuesday night was about $1 million less than last season’s cap of $58.68 million. More…

    In a memo announcing next season’s salary cap and luxury-tax threshold, sent out shortly before the league’s annual July moratorium on signings and trades was lifted at 12:01 a.m. Wednesday, NBA teams also received tentative projections from the league warning that the cap is estimated to drop to somewhere between $50.4 million and $53.6 million for the 2010-11 season.

    The official league memorandum, obtained by ESPN.com, forecasts a dip in basketball-related income in the 2009-10 season of 2.5 percent to 5 percent, which threatens to take the 2010-11 cap down some $5 million to $8 million from last season’s $58.7 million salary cap. More…

  2. A little-discussed clause of the NBA’s collective bargaining agreement resulted in every player giving 9 percent of his salary back to his team last season.

    The NBA’s agreement with the union includes a league-wide cap on salaries and benefits paid to players. Only 57 percent of the league’s “basketball-related income” (BRI) can be paid in player salary and benefits each season. Instead of the league billing players for any overages at the end of the season, an escrow system is in place to collect 9 percent of every player’s salary right off the top. More…

  3. Average paid attendance is down 3.7 percent in the NBA through the first quarter of the regular season, sending gate receipts plummeting 7.4 percent, according to league documents obtained by CBSSports.com.

    Net gate receipts, the money teams make from ticket sales, fell to an average of $828,985 per game, down from $894,823 at the same point last season. Only nine teams were up or flat in average net gate receipts through Nov. 29, while 21 teams saw a decline. (More…)

  4. How can labor cost growth exceed revenue growth when labor costs are specifically linked to revenue in the present CBA?

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