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Larry Coon: The Lockout Break-Even Point for Players is Simple

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Larry Coon writes today on ESPN that if we are to believe that the disparity between what the players want and what the owners want to give them is 53% compared to 50%, respectively.  In fact, over the past weekend LeBron James and Dwyane Wade urged the NBPA not to go below that 53% threshold. The owners, once entrenched at a 46% portion for the players, have inched closer to that 50% mark, and so now, the 3% spread is all that remains between a "regular" season and the juice running.

The Player Salaries Lost to a Lockout | ESPN

As we saw yesterday from Ken Berger, each percentage point equates to about $40 million, so the current disagreement is worth about $120 million. 

Coon takes us through some quick math:

  • Next season, BRI is expected to be about $4 billion.
  • Under the owners' offer, players would get 50%, or $2 billion.
  • Under the players' demand, players would take 53%, or $2.12 billion. 
  • Ergo, the difference between what the players want and what the owners want to give them THIS SEASON is about $120 million in the aggregate. If the CBA lasts another six years, you're looking at a number a shade under $800 million (assuming historical growth rates).
  • In the aggregate, players earn about $82.4 million each week.
So, how quickly in the regular season would the players lose that $120 million over which they're fighting for in Year One?

Two Weeks.

Actually, check that. It's more like 10 days.

In 10 days after the start of the season, every player would have forfeited the money they would have gained by holding out for that 53%. Also, in 10 weeks, or by mid-December, the players will have lost all six years of their desired gains by holding onto that 53% number.

This break-even analysis underscores one very important difference between the players and owners - their window for actually coming out ahead in the money game is extremely small, and once December arrives and it is gone, the pie will irreversibly be shrunk. Furthermore, 50% is likely the best offer they are going to get. Once January arrives, that 50% is going to start shrinking as well.

I understand the players' passion for fighting for what they think they are entitled to. It is admirable. However, if you were the owners, at this point, why would you consider relenting on the split? The tipping point is just a few months away.

Leave it to me to not bother to check out 8 Points, 9 Seconds before going up with this post. If you check out Donahue's work there, you can see that not only does he examine the math from a similar standpoint (but more on a per-game level), but also looks at the opposite side of the equation.

The reason I did not venture down this path is because in order to consider the owners' potential losses during this hypothetical time period of missed games is that I couldn't find a hard metric to calculate how much money the league or even an individual team makes each month during the regular season. Donahue takes three metrics:
  • Donahue estimates that about $200 million was lost by a canceled pre-season.
  • Donahue estimates that the league will lose approximately $250 million per month.
  • The teams would capture $160 million in savings by capitulating to the players, which would be the difference between paying out 57% last season and 53% in the new agreement.
Donahue argues that, given these expenses that the teams themselves face, they too would end up meeting their break-even point sometime around mid-December where they lose everything they had fought for by not agreeing to a 53% split. In other words, if the players face a cumulative break-even point in mid-December, and the teams face a cumulative break-even point in mid-December, then this is a game of brinkmanship where both sides will lose if any games are missed. Furthermore:

"For every 1% reduction in the revenue forecast for the next six-year period, the NBA will lose about $263 million (in today's dollars). This loss will be distributed more or less equally between the two sides and would be in addition to the lost income discussed above."
I conferred with Donahue on this point, and he believes (and I agree) that this is the hidden element that everybody seems to be undervaluing as a byproduct of missing games. It is not just the fact that money will be lost on both sides if the season starts and it all but wipes out the BRI money advantages that each side wants, it is the fact that it will also compress future revenues as well. It will shrink the overall future BRI pot, it will negatively impact the next TV deal, and everyone will be hurt because of it. 

Coon and Donahue have extracted the money terms out of the lockout equation. For both the NBA and NBPA, the gain in money they both seek but will lose by not agreeing to a deal will be lost around the same time. So remove those money variables that are superficially clogging the system. What is left? 

"You have a reasonable idea," a person connected to the negotiations said. "But you're not dealing with reasonable people."