Official CBA/Labour Talks Discussion Thread II

[BorisDK1]

So, where do these $300 million losses stem from, even after a record-breaking revenue year?

Zamboni maintenance? 10-cent minimum wage increases for concession workers? The cost to keep dead franchise like the Hornets afloat?

Player payroll is obviously the biggest portion of costs - and the only thing that's really within the owners' control at this point.

[Ponchos]

If the players agree to subsidize the owners interest expense, the amount of debt that NBA franchises take on will increase substantially.

Nobody's talking about the players subsidizing the owners interest expenses: just admitting that it's a normal part of operating costs for any business.

Go ahead: go show me one professional sports franchise with zero interest expense. Just one. Or any business valued at $300 million or more...

They can admit that it is a normal operating cost. It is. However, they cannot show a willingness to accept a lower % of revenue because of interest expense. If they do, the owners will seize upon that and use more and more debt to finance their operations.

Most businesses operate with debt, but debt levels are completely within the control of ownership. If players are willing to share the burden of interest expense with the owners then this, in effect, will lower the interest rate that owners have to pay. Lower actual interest rates (since players are paying part of the rate) will lead owners to take on a higher amount of debt.

This is why that although using debt is a perfectly legitimate way to finance an organization, the players cannot allow interest expense to be treated as a "real" expense that cuts into their share of BRI.

I got the impression from your previous posts about interest expense that you felt the players should recognize it as something that should legitimately reduce their income.

[BorisDK1]

They can admit that it is a normal operating cost. It is. However, they cannot show a willingness to accept a lower % of revenue because of interest expense. If they do, the owners will seize upon that and use more and more debt to finance their operations.

You're obviously not conversant in how businesses act. If an operation has to issue debt just to finance their operations, that means they are operating at a loss - which means you just granted the assertion that the franchises are, in fact, losing money.

Most businesses operate with debt,but debt levels are completely within the control of ownership. If players are willing to share the burden of interest expense with the owners then this, in effect, will lower the interest rate that owners have to pay. Lower actual interest rates (since players are paying part of the rate) will lead owners to take on a higher amount of debt.

Who's asking the players to pay the interest? Nobody, that's who. The only discussion around this issue has been to blame interest costs for operational losses for NBA franchises: that is manifestly not true. Firstly, next to nobody has a liquid $350 million+ sitting around to buy a team, so either you sell equity (i.e. stock) in the team to raise the money to buy it, or you issue debt viz. a bond or take out a loan. Obviously, with interest rates being so low, it would make zero sense to give up equity if you don't have to. Secondly, the actual portion of the overall operating costs comprised of debt service charges of NBA teams is very small: it's not even close to being the cause of the operational losses incurred.

This is why that although using debt is a perfectly legitimate way to finance an organization, the players cannot allow interest expense to be treated as a "real" expense that cuts into their share of BRI.

Of course they can, and they do right now - just like every other business in the world.

Again: show me one business in the world that doesn't treat interest as a "real" expense. Just one.

Please: be sensitive to real-world situations. You can't have it both ways: you can't say that operating losses aren't important because the owners get their money back when they sell on the one hand, and then argue that the means of acquiring teams on the other is completely illegitimate.

[Ponchos]

You're obviously not conversant in how businesses act. If an operation has to issue debt just to finance their operations, that means they are operating at a loss - which means you just granted the assertion that the franchises are, in fact, losing money.

Very few NBA teams are forced to finance their operations with debt. It is a choice. They can either take out loans to cover shortfalls or the owners can inject money from their own personal wealth. It is a choice.

Thank you for asserting that I am not conversant with how businesses act, but I think your paragraph did not need the insult. Have I written something that disrespected you?

Who's asking the players to pay the interest? Nobody, that's who.

If the NBA is claiming 300+ million in losses and part of that stems from interest expense, and the NBA is asking the players to take a lower share of BRI so the NBA can make a profit then it leads to the conclusion that the owners are asking the players to pay for their interest.

the actual portion of the overall operating costs comprised of debt service charges of NBA teams is very small: it's not even close to being the cause of the operational losses incurred.

I agree that the NBA is losing money operationally and not just from interest expense.

Again: show me one business in the world that doesn't treat interest as a "real" expense. Just one.

You're missing the point. I am not arguing that interest expense is not a legitimate expense, because it is. Almost all businesses, especially healthy profitable businesses operate with a certain level of debt and interest expense.

The issue is that it can be used to game the system. The owners get a direct benefit from taking out a loan, and they are in complete control of how much debt they acquire. This fact sets it apart from other normal operating costs. There is no benefit to owners from increasing costs of travel expenses, nor are they in direct control of them.

Again, interest expense is not inherently evil, but it can very easily be used to enrich the owners at the players expense if the players agree to take less money so that owners can take on larger and larger debt burdens.

[S.W.A.N]

Hard to follow some of the conversations going on in here. Arguing about accounting etc.

Really it doesn't matter if the Owners lost 200 or 300 million last year. The point is the same, a highly successful business like the NBA should not run this way.

The biggest issue is not expenses, that is the point people seem to be missing. Its the fact that the cba dictates that salaries are decided by a percentage of the whole leagues income.

The key to this whole thing is REVENUE SHARING.

Its good that the players percent of BRI is coming down to 50/50 ish. This swings the pendulum of profits back towards the middle, and should remove the league from the lose column.

But that still doesn't make for a healthy league. That still leaves the bottom 10 or so teams losing money while increasing the bottom line of the rich teams which are forced to spend less.

When you have teams like the knicks and Lakers that make so much more money that everyone else its stupid not to have increased revenue sharing. Hell the Lakers TV deal could keep three teams going strong.

[BorisDK1]

Very few NBA teams are forced to finance their operations with debt. It is a choice. They can either take out loans to cover shortfalls or the owners can inject money from their own personal wealth. It is a choice.

Thank you for asserting that I am not conversant with how businesses act, but I think your paragraph did not need the insult. Have I written something that disrespected you?

It wasn't an insult, it was an observation. You said that NBA teams were issuing debt to finance their operations. Now, that's probably not true to a great extent - the lion's share of borrowing is for capital expenditure, not operations financing. But that's what you said, and it obviously needed to be corrected.

If the NBA is claiming 300+ million in losses and part of that stems from interest expense, and the NBA is asking the players to take a lower share of BRI so the NBA can make a profit then it leads to the conclusion that the owners are asking the players to pay for their interest.

It isn't asking the players to pay one single, red cent. The players don't put a single dime towards the teams: they bear absolutely zero risk. They are being asked to give up some percentage of BRI. Only a tiny portion of NBA operational costs are debt servicing charges. And you know what? Every union in the world when it negotiates with their employer acknowledges the need for their employers to cover their financing charges. What planet is the NBPA living on if they think that interest charges somehow don't relate to the successful operation of a business?

You're missing the point. I am not arguing that interest expense is not a legitimate expense, because it is. Almost all businesses, especially healthy profitable businesses operate with a certain level of debt and interest expense.

The issue is that it can be used to game the system. The owners get a direct benefit from taking out a loan, and they are in complete control of how much debt they acquire. This fact sets it apart from other normal operating costs. There is no benefit to owners from increasing costs of travel expenses, nor are they in direct control of them.

You're making it sound like you think NBA owners are just taking out loans left, right and center just so they have to pay less salary: that's ridiculous. Secondly, the franchise still has to pay the interest: even if they somehow got a deduction on the BRI side for the purposes of paying salary, that's a pretty small benefit. (And, for the record, they don't.)

Again, interest expense is not inherently evil, but it can very easily be used to enrich the owners at the players expense if the players agree to take less money so that owners can take on larger and larger debt burdens.

Look, you're making entirely new arguments that nobody else is making, so something tells me you're going far afield. Owners are not taking out new debt just to knock a tiny slice off of BRI: firstly, the more indebted a business is, the worse their credit situation becomes and the higher interest rates they will have to pay as a penalty. Interest charges arise from the initial purchase of the franchise, or on occasion for capital expenditures (not really a big factor for a non-capital-intensive industry like the NBA).

And, for the record, interest charges don't affect BRI: BRI only measures revenues, not net income (I think the players are quite grateful for that arrangement, too). If you want the NBA to issue a credit to that total for interest charges, I frankly think you might be a little crazy on this issue.

[Twinkie defense]

Your assuming that there is a better deal to be had.

Actually, I'm 100% certain there is a better deal to be had. But it takes a tremendous amount of player unity, so it's very possible that we won't ever find out.

There is a great deal out there, cuz owners are lying and making money hand over fist... If the players don't get it they didn't try hard enough.

= floppy wanting to eat cake, and have it too

[Ponchos]

It wasn't an insult, it was an observation. You said that NBA teams were issuing debt to finance their operations. Now, that's probably not true to a great extent - the lion's share of borrowing is for capital expenditure, not operations financing. But that's what you said, and it obviously needed to be corrected.

They take out debt to finance their operations and capital expenditures (I believe the hornets had to take out loans to cover payroll). I don't recall where I said they only took out loans for operations and did not take out loans to cover capital expenditures.

It isn't asking the players to pay one single, red cent.

They are being asked to give up some percentage of BRI.

So they're not being asked to pay a dollar, they're being asked to give up a dollar... In the end, the outcome is the same.

You're making it sound like you think NBA owners are just taking out loans left, right and center just so they have to pay less salary: that's ridiculous.

No, I'm not. I'm simply stating that if players show a willingness to cover the interest expenses in CBA negotiations then NBA owners will be more likely to take on additional debt. It's human nature. If you present an incentive, people will take it.

Look, you're making entirely new arguments that nobody else is making, so something tells me you're going far afield. Owners are not taking out new debt just to knock a tiny slice off of BRI: firstly, the more indebted a business is, the worse their credit situation becomes and the higher interest rates they will have to pay as a penalty. Interest charges arise from the initial purchase of the franchise, or on occasion for capital expenditures (not really a big factor for a non-capital-intensive industry like the NBA).

I understand that owners are not currently taking out new debt to knock off slices of BRI, I never said they were.

And, for the record, interest charges don't affect BRI: BRI only measures revenues, not net income (I think the players are quite grateful for that arrangement, too). If you want the NBA to issue a credit to that total for interest charges, I frankly think you might be a little crazy on this issue.

I'm aware of what BRI entails. I think we're having a failure to communicate. What purpose would a credit for interest charges serve? I certainly did not bring that up.

*Edit* - I'm off to bed. I may pick this up sometime tomorrow if you reply, but based on your responses it looks like we're making progress about as fast as Stern and Hunter. So I might just have to agree to disagree!

[Twinkie defense]

The CFO of the NBA has refuted Forbes' numbers, so I'm not sure what makes them "neutral"...

Wow, we've been over all this so many times. The NBA never went after the Forbes numbers until the CBA was about to expire. While they were selling all those teams, not a peep about the Forbes numbers

This is a fase argument... The League said years ago that they were losing money, why do they have to specifically comment about Forbes? In fact even Forbes refuted their own numbers. And coversely, how come the union only waited until now to ty to refute the League's numbers, and then only vaguely?

[ranger001]

As has been noted before Forbes' numbers are fatally flawed because the data they present is not net profit. It ignores interest, taxes and depreciation.

Taxes? So teams are losing money because of taxes? That's a neat trick.

Whats your point here? Taxes are optional?

Depreciation is not an issue. Any team leasing their arena has almost nothing that depreciates.

Any business buys assets that get depreciated. If you buy a $100,000 scoreboard you can't expense it all on day one, it has to be expensed over several years. The same with furniture, equipment, etc.

Interest? Right, if you borrowed a few hundred million to buy the team, you might lose money. True dat. Not the player's problem. If you can't afford to buy a team, don't. If you can, they are almost all going to make very good money for you on your investment.

The players are employees. So yes it is the players problem. If an employer has to pay interest then the amount they can pay their employees are reduced.

[ranger001]

The CFO of the NBA has refuted Forbes' numbers, so I'm not sure what makes them "neutral"...

Wow, we've been over all this so many times. The NBA never went after the Forbes numbers until the CBA was about to expire. While they were selling all those teams, not a peep about the Forbes numbers

This is a fase argument... The League said years ago that they were losing money, why do they have to specifically comment about Forbes? In fact even Forbes refuted their own numbers. And coversely, how come the union only waited until now to ty to refute the League's numbers, and then only vaguely?

Forbes is just guessing at numbers. Neutral is another word for guessing. Why should anyone believe a guess? And their numbers are ebitda because they have no idea what the net profit is of franchises.

[C Court]

As has been noted before Forbes' numbers are fatally flawed because the data they present is not net profit. It ignores interest, taxes and depreciation.

Its 22 teams losing money, not 7.

Stephen Brunt on Prime Time Sports - "anyone who accepts the owners ciaims that 22 teams are losing money is naive."

[ranger001]

As has been noted before Forbes' numbers are fatally flawed because the data they present is not net profit. It ignores interest, taxes and depreciation.

Its 22 teams losing money, not 7.

Stephen Brunt on Prime Time Sports - "anyone who accepts the owners ciaims that 22 teams are losing money is naive."

So its 21 then?

[TiKusDom]

It wasn't an insult, it was an observation. You said that NBA teams were issuing debt to finance their operations. Now, that's probably not true to a great extent - the lion's share of borrowing is for capital expenditure, not operations financing. But that's what you said, and it obviously needed to be corrected.

They take out debt to finance their operations and capital expenditures (I believe the hornets had to take out loans to cover payroll). I don't recall where I said they only took out loans for operations and did not take out loans to cover capital expenditures.

It isn't asking the players to pay one single, red cent.

They are being asked to give up some percentage of BRI.

So they're not being asked to pay a dollar, they're being asked to give up a dollar... In the end, the outcome is the same.

You're making it sound like you think NBA owners are just taking out loans left, right and center just so they have to pay less salary: that's ridiculous.

No, I'm not. I'm simply stating that if players show a willingness to cover the interest expenses in CBA negotiations then NBA owners will be more likely to take on additional debt. It's human nature. If you present an incentive, people will take it.

Look, you're making entirely new arguments that nobody else is making, so something tells me you're going far afield. Owners are not taking out new debt just to knock a tiny slice off of BRI: firstly, the more indebted a business is, the worse their credit situation becomes and the higher interest rates they will have to pay as a penalty. Interest charges arise from the initial purchase of the franchise, or on occasion for capital expenditures (not really a big factor for a non-capital-intensive industry like the NBA).

I understand that owners are not currently taking out new debt to knock off slices of BRI, I never said they were.

And, for the record, interest charges don't affect BRI: BRI only measures revenues, not net income (I think the players are quite grateful for that arrangement, too). If you want the NBA to issue a credit to that total for interest charges, I frankly think you might be a little crazy on this issue.

I'm aware of what BRI entails. I think we're having a failure to communicate. What purpose would a credit for interest charges serve? I certainly did not bring that up.

*Edit* - I'm off to bed. I may pick this up sometime tomorrow if you reply, but based on your responses it looks like we're making progress about as fast as Stern and Hunter. So I might just have to agree to disagree!

Boris dont argue with this guy, he really has 0 clue about what hes saying, he likes to run circles around himself.

[Fairview4Life]

With a decertified union and assuming the contracts of all players become null and void.
Nothing can stop the NBA from setting up new guidelines for the league. Like these!

Nothing except anti trust law.

[C Court]

Woj of Yahoo Sports is reporting that the NBAPA will accept a 51/49 BRI or a 50/50 BRI, if the system is flexible.

Woj and Chris Broussard are both saying the stumbling block is the small market hardliners who don't want to even move to 50/50. They want 47/53 BRI.

Woj of Yahoo! wrote:

The owners are threatening to pull their current offer at 5 p.m. ET Wednesday and return to proposing a 53-47 revenue split in favor of the league, as well as a hard salary cap and contract rollbacks. This act would almost certainly move the players to decertify the union, and could cost the NBA the entire 2011-12 season.

The Players Association offered to drop its revenue split to 51 percent on Saturday, but wanted several system items – including sign-and-trade deals and full midlevel exceptions for luxury-tax paying teams – as part of a new CBA. It remains to be seen how far the owners would go to remedy the players’ concerns and move closer to an agreement. Hunter surprised some in Saturday’s mediation session when he suggested the players might be willing to drop to a 50-50 split, even when they had just stated their position as 51, sources in the room told Y! Sports.

[Related: NBA owners give players drop-dead offer to end lockout]

One of the union’s lawyers quickly corrected Hunter, saying he meant to say a 51-49 split, but officials on both sides believed Hunter meant what he said: 50-50. All along, the belief has been the players would eventually accept the 50-50 split if they could get satisfactory resolutions on the system issues that would protect middle-class salaries and not stifle player movement, especially to the big-spending, big-market teams who are typically over the salary cap.

Some hardline owners didn’t want to even give the players until Wednesday to make a decision on accepting or rejecting Saturday’s offer, sources said. They wanted to force a decision within 24 hours, but were talked out of it.

“There’s an intense feeling among the teams who are not on the labor committee as to how a 50-50 deal doesn’t fix the economic model,” the ownership source said. “They’re adamant that 50-50 is too high and that the labor committee should’ve never gone that high. Stern wouldn’t be able to overcome such strong and wide resistance however much he tries to lead here.”

[BorisDK1]

Whats your point here? Taxes are optional?

No, his point is that corporate taxes are only payable in the case where the company turns a profit. Hence, teams losing money don't have to worry about taxes - except property tax, of course.

[Fairview4Life]

Woj of Yahoo Sports is reporting that the NBAPA will accept a 51/49 BRI or a 50/50 BRI, if the system is flexible.

Woj and Chris Broussard are both saying the stumbling block is the small market hardliners who don't want to even move to 50/50. They want 47/53 BRI.

So revenue sharing with some preconditions gets us basketball this season. Good thing the NBA won't consider that until after the CBA is settled.

[C Court]

With a decertified union and assuming the contracts of all players become null and void.
Nothing can stop the NBA from setting up new guidelines for the league. Like these!

Nothing except anti trust law.

Yup. If they lose an anti-trust lawsuit, the NBA will have certain business rules imposed on them which would likely mean that they would restart the league with a system that looks like MLB - no team spending limits, no maximum salaries, unlimited contract lengths and no NBA draft.

While it's a longshot that it ever gets that far, that's the risk for the owners of allowing the players to decertify and litigate an anti-trust lawsuit in court.

[dacrusha]

So, where do these $300 million losses stem from, even after a record-breaking revenue year?

Zamboni maintenance? 10-cent minimum wage increases for concession workers? The cost to keep dead franchise like the Hornets afloat?

Player payroll is obviously the biggest portion of costs - and the only thing that's really within the owners' control at this point.

Player costs are directly linked with BRI, so if those costs rise, then, obviously, BRI has also risen, meaning, then, owners revenues also increased.

In fact, the owners underpaid players last year, necessitating escrow payments to the players to make up for the shortfall.

Again, where do those $300 million LOSSES come from?