Official CBA/Labour Talks Discussion Thread II

[ranger001]

Another way to think about this is how it affects team value. Ownership debt affects team value not at all. If I owe $50K on a $200K house, it's still worth $200K and will sell for that.

But a more favorable BRI split for the owners affects team value directly. It goes straight to the bottom line for every team and makes them all more valuable.

More finance and accounting classes are in order for anyone who thinks the players should be paying for owner purchase debt.

Nonsense. The players are employees, if the owners of the company want to cut salaries to pay interest on debt they are perfectly entitled to do that. If your employer decided not to give you a raise because they got into debt they are at liberty to do so.

Hey, teams already do that. They decide they can't afford player X because of their finances. And you know what happens? Player X takes a better deal from a different team.

Businesses in real life that get in a position where they can't afford to pay their employees a competitive rate... lose their employees to a company that isn't screwing the pooch.

The only reason teams are arguing for having players pay off purchase debt is because if they can get away with it, then there is no competition. It will be in the CBA agreement for all NBA teams/players. Sweet deal if you can get it, which maybe they can. They never would in a million years if there was a true free market for players.

Why would it be in the CBA agreement? The players are going to get a percentage of revenue. The UPC will not be rewritten so that whatever team the player is on then his salary will change depending on the owners debt.

If the economics were right a rival league would form pretty quickly if the players were underpaid, but that is not going to happen. Oh wait, maybe the players are actually overpaid so no rival league.

[floppymoose]

Why would it be in the CBA agreement?

What will be in the CBA is a lower BRI split than the prior 57%. The rationale is losses by the league. If those losses are built partly on ownership purchase debt, then.... you can figure the rest out, right?

[ranger001]

Why would it be in the CBA agreement?

What will be in the CBA is a lower BRI split than the prior 57%. The rationale is losses by the league. If those losses are built partly on ownership purchase debt, then.... you can figure the rest out, right?

And again, my question is why is it somehow prohibited for the owners to want their expenses to include interest on debt? Expenses that will be reflected in a lower bri for their unionized employees, the players.

[Fairview4Life]

Why would it be in the CBA agreement?

What will be in the CBA is a lower BRI split than the prior 57%. The rationale is losses by the league. If those losses are built partly on ownership purchase debt, then.... you can figure the rest out, right?

And again, my question is why is it somehow prohibited for the owners to want their expenses to include interest on debt? Expenses that will be reflected in a lower bri for their unionized employees, the players.

It's not prohibited for them to want that. It is not prohibited for them to want their players to make $10/hour. What some of us find distasteful the the NBA missing a season because the owners want to have the players finance the purchase of basketball teams without being rewarded for their sale.

[ranger001]

It's not prohibited for them to want that. It is not prohibited for them to want their players to make $10/hour. What some of us find distasteful the the NBA missing a season because the owners want to have the players finance the purchase of basketball teams without being rewarded for their sale.

The players are not financing the team anymore than the guy selling hot dogs.

If you want to say every employee is financing the team and it shouldn't be so then ok but reality is that every employee's salary reflects the expenses of the business. Interest or whatever.

[Fairview4Life]

It's not prohibited for them to want that. It is not prohibited for them to want their players to make $10/hour. What some of us find distasteful the the NBA missing a season because the owners want to have the players finance the purchase of basketball teams without being rewarded for their sale.

The players are not financing the team anymore than the guy selling hot dogs.

If you want to say every employee is financing the team and it shouldn't be so then ok but reality is that every employee's salary reflects the expenses of the business. Interest or whatever.

That's not really true. A replacement level hot dog salesman is basically worth the exact same to an owner. Replacing the top 400 players in the world with scabs will destroy the NBA. It's basically why the players make what they do. It would also only really make sense if the NBA was an actual free market enterprise and not a legal cartel. The fact there is not financial competition between teams and only athletic competition, means that players in every market are being asked to pay the bills for poorly run franchises, including massive debt obligations. The hot dog vendor at MSG is not paying Clay Bennett's bills, but Carmelo Anthony is.

[Sleepy51]

Must have been some bad hash, because you were talking down to me thinking that the 2004 statement was the only data in the conversation. Your information was incorrect.

As I informed you, I'm at work and kind of swamped. I've had a very disjointed (and one-sided) conversation with Fairview on that very data before. I note that you couldn't be bothered to go back and look. (If you can accuse me of laziness, the opposite is certainly up for discussion.)

I've reviewed the 2005-6 Nets' financials. Any chance you looked at their Statement of Cash Flows, where they hemorrhaged ~ $27 million in FY 2005 and $40 million in FY 2006 in cash?

I'm disappointed that I still can't get an honest acknowledgement from you that indeed the RDA does appear on the statement of operations on audited GAAP financial statements.

I did look at the entire financial statement when deadspin published it, and no I did not focus on the statement of cash flows. A net cash loss does not represent the companies "loss." For example, an increase in accounts receivable in a year of increasing sales and revenues is by no way shape or form an actual loss. It's a negative movement in net cash on the balance sheet, to balance net cash to net income, but it is not necessarily pertinent in a discussion of profitability.

I focused on the P&L (less the specious depreciation expense) which still results in a net loss for the Nets. I know the New Jersey nets lost money. I do not dispute that the Nets lost money. But, a business loss can result from a number of factors. Some of those factors can be inherent in the business model or business market. Others can result from ownership, management and capitalization strategies. In the case of the NBA lockout, for me and for the players, the crux of the debate comes down what amount of losses are attributable to ownership & management strategic inputs, vs. what portion of losses are attributable to the NBA player compensation system.

There are different valuation tools and different accounting reports for different purposes. A statement of cash flows happens to include the movement of funds around the balance sheet: changes in AR, accrued salaries, changes in AP, etc change on a balance sheet year to year and those changes are impacted by management decisions and strategy. There is also a loss on "equity share of NBA related entities" which most likely represents the league's substantial investment in new media over the past decade. I believe it is not only acceptable, but important to isolate those kinds of factors and look at the underlying business model and market in the context of this labor dispute. EBITA was an easy place to start because Forbes has those numbers for all teams. The Nets P&L viewed with a critical eye represents an even more accurate tool, but we don't have 30 P&L's from each year of the CBA to review.

The players claim that the owners are overstating their losses by virtue of accounting convention holds up to scrutiny. Whether the NBA is using net income (which includes the RDA) or is talking specifically about net cash, I don't agree that those are the appropriate tools given the context of NBA team operations, and I doubt the players representatives agree either.

As a fan, why do I care? Because just like I understand the risk to the game posed by owners giving out too many years of guaranteed money, I also recognize the risk to the game if the NBA financial system guarantees NBA franchises a profit no matter how poorly they choose to run or capitalize their teams. If the owners of NBA teams are not at risk of financial loss, the management and operational decision-making driving these teams will suffer. I have lived that as a fan under the current CBA. I do not see further insulating NBA owners from financial loss as a progressive decision for the fan experience.

Some of these guys need to fail when they have failed.

That's going to be it for the back and forth between us. I am not comfortable with your tone, or your moving goal posts, or your refusal to acknowledge that you mispoke or were misinformed about the SOO. There is no basis for a respectful or productive exchange with you.

[ranger001]

It's not prohibited for them to want that. It is not prohibited for them to want their players to make $10/hour. What some of us find distasteful the the NBA missing a season because the owners want to have the players finance the purchase of basketball teams without being rewarded for their sale.

The players are not financing the team anymore than the guy selling hot dogs.

If you want to say every employee is financing the team and it shouldn't be so then ok but reality is that every employee's salary reflects the expenses of the business. Interest or whatever.

That's not really true. A replacement level hot dog salesman is basically worth the exact same to an owner. Replacing the top 400 players in the world with scabs will destroy the NBA. It's basically why the players make what they do. It would also only really make sense if the NBA was an actual free market enterprise and not a legal cartel. The fact there is not financial competition between teams and only athletic competition, means that players in every market are being asked to pay the bills for poorly run franchises, including massive debt obligations. The hot dog vendor at MSG is not paying Clay Bennett's bills, but Carmelo Anthony is.

I still don't see why you are claiming that the players are somehow immune to financing costs. Equity capital is not free.

If your point is that hot dog guys are a fixed cost then the players are a fixed cost also. 57% of BRI.

If you point is that 400 nba guys are not replaceable so they should not have to pay the owners interest payments makes no sense. Why is being one of the best athletes in the world make you immune to the costs that an owner has to bear?

Lets say the tv contract got cut if half because basketball was no longer popular. The owners would cut BRI even more. The players should be ok with that but somehow they are not ok with interest payments? Salaries hinge on profit. Makes no difference where the money is spent or earned.

[CPT]

Maybe I'm naive, but I believe that the reason the owners are willing to lose a substantial part of the season is because they will make more money this way. Even though they have to make their interest payments with no revenue coming in, they are still better off than continuing in the current system. Maybe it's just a case of sacrificing now to get bigger gains later on, but if things were really so great, I don't think the owners would be as willing to lose games.

I also think the notion that if they get down to 50% BRI this time they will push for 40% (or some other number) next time is ridiculous. At a certain point, they won't be able to push the players any further because the market won't allow it. NBA players could go elsewhere, or a new league could start. Or at the very least, there will be a point where by cancelling games, the owners would be losing more money than they stood to gain.

I was never fully tapped in to the details of the NFL lockout, but I think that's why things eventually got done without losing games; both sides would have lost more by cancelling games than they stood to gain by holding out for a better deal. Because the NFL has a fair and balanced CBA.

While I don't want to paint NBA owners as the white knights in this scenario, I think this lockout is to get things closer to a balance. Both financially and competitively.

[Fairview4Life]

That's not really true. A replacement level hot dog salesman is basically worth the exact same to an owner. Replacing the top 400 players in the world with scabs will destroy the NBA. It's basically why the players make what they do. It would also only really make sense if the NBA was an actual free market enterprise and not a legal cartel. The fact there is not financial competition between teams and only athletic competition, means that players in every market are being asked to pay the bills for poorly run franchises, including massive debt obligations. The hot dog vendor at MSG is not paying Clay Bennett's bills, but Carmelo Anthony is.

I still don't see why you are claiming that the players are somehow immune to financing costs. Equity capital is not free.

If your point is that hot dog guys are a fixed cost then the players are a fixed cost also. 57% of BRI.

If you point is that 400 nba guys are not replaceable so they should not have to pay the owners interest payments makes no sense. Why is being one of the best athletes in the world make you immune to the costs that an owner has to bear?

Lets say the tv contract got cut if half because basketball was no longer popular. The owners would cut BRI even more. The players should be ok with that but somehow they are not ok with interest payments? Salaries hinge on profit. Makes no difference where the money is spent or earned.

Salaries do not hinge on profit. Nor should they. The owner also does not "have" to bear these costs. That's kind of the point. Over inflating the value of a franchise by buying it on credit and asking the players to pay for it is not a necessity. It is what the owners are happy with since their franchise values will increase and make them more money the players can't touch, as long as they can get the players to agree to it. I do not believe the players should agree to that, or that it is in the leagues best interest to let the Robert Sarvers, Bruce Ratner's, or Clay Bennett's of the world buy in.

[Sleepy51]

Lets say the tv contract got cut if half because basketball was no longer popular. The owners would cut BRI even more. The players should be ok with that but somehow they are not ok with interest payments? Salaries hinge on profit. Makes no difference where the money is spent or earned.

For argument's sake, if the TV contract did get cut in half, there would be a very credible argument that the TV revenue reduction can be correlated to the value players generate. I don't see how you correlate the value players generate to the capitalization strategy employed by a particular owner.

But TV revenue is actually going up. By a lot. The players have demonstrated value over this last CBA. Despite the grousing over Shard Lewis and Erika Dampier (whom I certainly agree are overpaid) but the players in general have performed quite well. Individual players have underperformed. Individual owners and managers have underperformed as well.

[Fairview4Life]

Dumb idea time: why doesn't "the NBA" pay players directly? Take all the BRI money, put it into a pot, and issue checks. Players salary still gets capped at 57, 54, or 50% or whatever, but now OKC isn't really on the hook for Durant's salary. That's basically just a revenue sharing plan, isn't it? I imagine there are a fair number of unintended consequences in that idea though.

Seems like that would create a much more level playing field to me, as the best managed and/or luckiest drafting teams should rise to the top. Socialism works in practice, right?

[Sleepy51]

Dumb idea time: why doesn't "the NBA" pay players directly? Take all the BRI money, put it into a pot, and issue checks. Players salary still gets capped at 57, 54, or 50% or whatever, but now OKC isn't really on the hook for Durant's salary. That's basically just a revenue sharing plan, isn't it? I imagine there are a fair number of unintended consequences in that idea though.

Seems like that would create a much more level playing field to me, as the best managed and/or luckiest drafting teams should rise to the top. Socialism works in practice, right?

I actually really really really wanted a team by team hard cap to come out of this lockout. I could really care less how the owners went about making their case if they held firm on the hard cap. I think it's tremendously important competitively. I just didn't want that hard cap number to fall at a level of BRI where teams are guaranteed to make a profit, even if they make terrible decisions.

As far as revenue sharing, I'm torn. I realize that markets are unequal and that the last dollar of salary under the cap in Milwuakee is functionally more of a hardship than a dollar of salary in New York. But revenue sharing again severs to undermine the competitive pressures on owners. I would not have wanted a team like Charlotte to be enabled under Johnson's terrible management by a rigged financial system. As it was, the Cats lost money and lost value under terrible stewardship. I don't think major changes to the CBA that protect guys like Johnson, or Sarver or Shinn from thier own ineptitude will serve fan interest.

I have a harder line on the league's negotiating strategy than I really do on CBA outcomes. I just think it's important that the owners continue to face genuine competitive pressures.

[Indeed]

Dumb idea time: why doesn't "the NBA" pay players directly? Take all the BRI money, put it into a pot, and issue checks. Players salary still gets capped at 57, 54, or 50% or whatever, but now OKC isn't really on the hook for Durant's salary. That's basically just a revenue sharing plan, isn't it? I imagine there are a fair number of unintended consequences in that idea though.

Seems like that would create a much more level playing field to me, as the best managed and/or luckiest drafting teams should rise to the top. Socialism works in practice, right?

I think that would mean hard cap with the max capped by the percentage of RBI.
I am not objecting to it, but anything they are discussing will not improve parity.

I think hard cap can resolve a lot of problems on the owner side, and isolate player side. However, players seem to be objecting to it (not sure why, and I don't see any difference with soft nor hard cap).

I would prefer they focus on fixing super team issues. Even Stern says he doesn't want super team, but currently he is leading it to that direction.

[Fairview4Life]

I believe that if the league wants there to be small market teams (for marketing the NBA in middle America, etc.), the large markets need to subsidize them via revenue sharing. I don't see any other way around it. The NBA protects markets like NY, LA, and Chicago, and those teams should be paying for that privilege. Otherwise Charlotte should be able to move to Chicago and not have the $ issues they are currently dealing with.

A hard cap won't create the competitive balance you're looking for. A bunch of people have studied competitive imbalance in the NBA and various financial systems in other sports and the numbers don't work out. Setting a hard cap just increases Lebron's value to his team, it doesn't decrease it. One team would be paying Lebron the max, and another would be paying Bosh the max, but wouldn't be able to surround Bosh with any other good players. Some posters here have suggested massively increased revenue sharing combined with no max contracts as a way to level the playing field. Give teams the same starting point and let them manage however they can. Having Lebron make $50 million/year would actually decrease his value a little, since he might have to compete with Duncan/Ginobili/Parker making that same amount of money.

None of this will ever happen, but a hard cap isn't a cure all, or even that beneficial, in the long run.

[ranger001]

Lets say the tv contract got cut if half because basketball was no longer popular. The owners would cut BRI even more. The players should be ok with that but somehow they are not ok with interest payments? Salaries hinge on profit. Makes no difference where the money is spent or earned.

For argument's sake, if the TV contract did get cut in half, there would be a very credible argument that the TV revenue reduction can be correlated to the value players generate. I don't see how you correlate the value players generate to the capitalization strategy employed by a particular owner.

The correlation is between profit and salaries. Less profit means less money available to a particular group of employees.

[ranger001]

Dumb idea time: why doesn't "the NBA" pay players directly? Take all the BRI money, put it into a pot, and issue checks. Players salary still gets capped at 57, 54, or 50% or whatever, but now OKC isn't really on the hook for Durant's salary. That's basically just a revenue sharing plan, isn't it? I imagine there are a fair number of unintended consequences in that idea though.

Seems like that would create a much more level playing field to me, as the best managed and/or luckiest drafting teams should rise to the top. Socialism works in practice, right?

I'd think the players would be 100% against that. That would mean the NBA is a single employer and anti-trust would not apply. That's the way MLS works so its not impossible to emulate.

[Sleepy51]

I believe that if the league wants there to be small market teams (for marketing the NBA in middle America, etc.), the large markets need to subsidize them via revenue sharing. I don't see any other way around it. The NBA protects markets like NY, LA, and Chicago, and those teams should be paying for that privilege. Otherwise Charlotte should be able to move to Chicago and not have the $ issues they are currently dealing with.

A hard cap won't create the competitive balance you're looking for. A bunch of people have studied competitive imbalance in the NBA and various financial systems in other sports and the numbers don't work out. Setting a hard cap just increases Lebron's value to his team, it doesn't decrease it. One team would be paying Lebron the max, and another would be paying Bosh the max, but wouldn't be able to surround Bosh with any other good players. Some posters here have suggested massively increased revenue sharing combined with no max contracts as a way to level the playing field. Give teams the same starting point and let them manage however they can. Having Lebron make $50 million/year would actually decrease his value a little, since he might have to compete with Duncan/Ginobili/Parker making that same amount of money.

None of this will ever happen, but a hard cap isn't a cure all, or even that beneficial, in the long run.

Are you sure you're not referring to the recent study that payroll wasn't correlating to wins? I haven't seen anything on a study about hard caps and parity.

Assuming that individual player performance correlates to some degree with pay, a hard cap limits the amount of talent that an individual team can afford to retain. Of course there still aren't enough Lebron's to go around, but it does make it VERY difficult to afford a Lebron, Wade and Bosh on the same team. It also means that as drafted and young players improve and emerge and earn more pay they will compete for capspace on a roster with established veterans. Someone has to leave and go to a team with capspace. Player movement and parity go hand in hand.

It sure seems that a hard cap has contributed to parity in the NFL. It would contribute to parity in the NBA.

[I_Like_Dirt]

Sleepy, even with a hard cap, the NFL has almost exactly the same payroll disparity from year to year that the NBA currently has. Despite a hard cap, they still have work-arounds (signing bonuses especially) that allow one team to pay way more than the other, and the teams that spend more almost always win more. Any significant changes to the new CBA with the intention of reducing spending disparity will, if they work, actually make the NBA with more spending parity than the NFL.

I hear your argument against revenue sharing in the sense that nobody wants owners like Shinn and Sarver, etc. to benefit from running a horrible franchise, but honestly, that puts pressure on NBA owners to actually regulate themselves. Don't just allow anybody with a loan to buy an NBA franchise. Make for additional terms of sale that you need to maintain a certain amount of liquidity or you need to sell the franchise, otherwise that franchise has a limited ability to weather a rebuilding cycle. Make revenue sharing dependent on certain degrees of success. Don't allow teams to move from better basketball markets in the Seattle/Vancouver areas to places like Charlotte or Oklahoma City just because owners decide they want the team there. It puts pressure on the league to regulate itself wisely rather than just allowing teams to move so long as the other owners aren't inconvenienced, because MLSE probably doesn't care if the Sonics move from Seattle to OKC without revenue sharing, but you can bet MLSE cares with revenue sharing.

I'd also like to see limits on revenue sharing to allow for poorly run franchises to lose money and not receive revenue sharing. That said, I also don't stand for a CBA where revenue sharing isn't required because because all the teams are making money regardless of their records.

[Sleepy51]

The correlation is between profit and salaries. Less profit means less money available to a particular group of employees.

Players are revenue generating employees. Generally speaking compensation for revenue generators (especially in the highest levels of the entertainment industry) is determined by a competitive employment market. Supply and demand.

Acquiring revenue generating talent is an expensive arms race. You cut compensation for non-revenue generators to pay for it. Life's not fair. We all should have cultivated a marketable talent in Jr. High School. If profits come into the equation for those types of employees, it's the profits of the MOST profitable prospective employer that sets the market, not the least.

I'm all for uncapping individual salaries. No minimum or maximum. Pay Dwade what he's worth and pay Brian Scalabrine what he's worth. But, if we're capping the overall salary structure, setting that marketplace based on what the Nets or Kings can afford is bass-ackwards.