With the 2012 playoffs underway, our thoughts have fortunately turned from the unpleasantness of the lockout to the entertaining play on the court. NBA Commissioner David Stern offered an interview with Bloomberg TV's Al Hunt this past weekend on May 4th to offer up his thoughts on the business of the NBA, how the season has progressed, and where he thinks things are headed. Take a look at the entire interview below, but I have also extracted a few of the topics and offer a little bit of commentary. If you would like to take a look at Stern's last visit with Bloomberg TV, you can find the discussion and analysis HERE.
Are NBA teams still losing money?
David Stern: This year we will probably have about ten teams losing money. And next year, I hope that the number will be down to under five. And then after that, I would expect that all of our teams will have the opportunity to make money.
Under our new collective bargaining agreement, we have in place a system where those teams can clearly compete. There is a very high tax that will be imposed after next season, where if you wind up paying a player $30 million above the tax level, there is another $70 million in taxes due.
We think that that will tend to press down the salary level among the top teams. In addition, the highest-grossing teams will be redistributing well over $200 million through revenue sharing to the smaller teams. So we think as a competitive matter, as an economic matter, we have leveled the playing field.
According to the league's official position last summer, about 22 teams were losing money to the tune of around $370 million cumulatively. Stern believes that this number should be cut in half after year one and then reduce by 50% the following year, etc. Eventually all teams should have the opportunity to make money, the implication being that teams that opt to willingly go over the soft cap and pay the tax can do so, but it is at their respective discretion.
The question though is, does Stern's claim hold water? Can the change in BRI, combined with revenue sharing, really make that much of a difference in a single year?
It is impossible to know definitively, since we don't have the actual numbers the teams or the league uses to determine this measure, but we can do some back of the envelope calculations. To make sense of it, I inquired of resident smart guy Tim Donahue of the Pacers site Eight Points, Nine Seconds, and the answer is convoluted at best. A few things Tim pointed out to me that have to be taken into consideration are:
- The BRI split, which was lowered from 57% to 51.15% in year one. This alone could shift anywhere from $150 to $200 million from the players to the teams. Given that some of the teams' losses were small, such a shift could easily move a team out of the red into the black.
- That said, we don't yet know how the impact of the lockout will have impacted the revenue stream from the season. The overall slice of pie that teams take might have changed, but if the overall pie shrunk (at least for a season) then continuing expenses from years past could still put a dent in things.
- TV ratings have been up, but with the loss of games we do not yet know how lost TV revenue from fewer games will have impacted the bottom line.
- By the same token, gate receipts will be down as well since each team lost at least eight home games (excluding playoffs).
- New elements in contracts such as the amnesty clause will have an effect in teams' accounting, which puts them on more stable ground in terms of negotiating ability and credit rating, but it will not have any effect on actual cash flows (amnestied players don't get their contracts voided, it's just that the teams can remove it from their salary cap for tax purposes).
Stern: No. Actually, I think the recent incident demonstrates how much we have squeezed violence out of the NBA. We suspend a player automatically for leaving the bench to join a fight. You throw a punch, you get suspended, whether it hits or not. We have escalated, you know, the ability of refs to give flagrant fouls, too, that results in usually getting thrown out of the game and a one-game suspension.
We think our system works fine. When we deal with errant acts, in the case of the gentleman formerly known as Ron Artest, he was a repeat offender. And we dealt harshly, I think, with a seven-game suspension.
The pro basketball game is obviously fundamentally different from the way football is played so the debate is kind of apples and oranges, but Stern does make a good argument. The fact that serious non-basketball aggression on the court has greatly diminished since the infamous Malice at the Palace is a good indication that the NBA has been on the right train of thought.
You could ascribe the change to a variety of factors, including:
- The NBA's extremely low threshold for allowing non-competing players to leave the bench and go onto the court. The rule has had some very unfortunate byproducts, but on the whole, players know the rule and follow it, which has prevented things like this from happening.
- David Stern (knowingly or not) loosely adopted Rudy Giuliani's "broken window" doctrine, decreasing the level of tolerance for behavior that reflects poorly on the league.
- The collective amount of money that is now in the hands of the players means that there is much more at stake if they are to engage in fisticuffs, both from on-court suspensions as well as what it could mean from lost endorsement revenue. While a player like Kobe Bryant might have to do something extremely egregious to lose sponsors, I would guess that role players like Chris Andersen must accept a much lower threshold.
- I think the NBA front office knows that you cannot legislate every bad act out of a society. Sometimes bad things happen, and you simply have to have a system in place that deals with it in an orderly and fair fashion. Anything more tends to result in unintended consequences, which may cause more harm than good.
There is a federal investigation of the NBA players union going on right now. Is this going to hurt the NBA?
Stern: I don't think so. I'm a lawyer by trade. And I think that the appropriate thing to do is to accord people the benefit of the doubt and see what due process ultimately yields. If I had a nickel for every federal investigation that went no place and throw in some state ones as well, I could afford to move to Washington.
We've covered the NBPA's issues a bit here, since it has directly involved the newest Thunder member, Derek Fisher. What troubles me the most about the investigation is that it indicates that Union head Billy Hunter as a little bit to much authority, power, and sway simply in the form of holding onto his job. In that vein, if I were a player I'd be highly dubious about his ability to act in the best interests of the players instead of himself.
If anything, such discord in the ranks of the players' union would only help the business of the NBA on the whole, because it could mean that the NBPA's decision-making ability would be compromised. Stern and Hunter paint Hunter's legal struggles as much ado-about-nothing, but I think we should keep a close eye on this one.
Is the NBA draft lottery unfair?
Stern: I don't think so. You know, life is a series of corrections that deal with problems that we run into. And one of the problems we had was that years ago the teams with the worst two records would flip a coin, and they would get it. You know, they would split the pick.
And the problem was that allegations were made that those two teams were racing to the bottom so that they would be eligible to choose the best player in the draft. So we opened it up so that we could have a broader selection.
And so now all the teams that don't make the playoffs are in our so- called lottery. But even in that lottery, we've changed the percentages from time to time, as people complain that the team with the best record in the lottery would - who almost made the playoffs didn't deserve the opportunity to get the pick at the same level as the team with the worst record.
I tend to think of draft lotteries in the same way I think of democracy or capitalism. To borrow a quote from Winston Churchill, "Democracy is the worst form of government, except for all those other forms that have been tried from time to time."
At the end of the day, you cannot force an individual or a team to do the right thing and act in what you think is in its best interest all the time. Why would someone seemingly act in a way that seems counter to their own self-interest? Even if 'tanking' a season to try and secure a high draft pick undermines the very fabric of what being a 'competitive team' is all about, franchises will do it anyway for even the chance at reversing their fortunes. In 2003, there was a race to the bottom just so teams had a chance at grabbing LeBron James or Carmelo Anthony. Did it pay off? Dan Gilbert might have an opinion on that (written in comic sans).
The NBA has a lottery system to offer a disincentive for teams to waste a third of their season because they want to have a small shot at drafting Anthony Davis. The NFL has a system in place that rewards multiple teams for wasting their ENTIRE season so that one team could draft Andrew Luck. Now, which system is worse?