Basketball Diaries, Part II

NBA players and owners are fighting about money, and have cancelled games until they reach an agreement. (For a previous “Explainer” on the dispute, scroll down.) This strike–like any strike–is a decision to (temporarily) burn down the silo because of a squabble over dividing the grain. Each side hopes that the silo-burning will goad the other side into granting favorable terms–never mind the grain collectively sacrificed in the process. The outcome depends on each side’s tolerance for loss and also on the distribution of that loss. So: Who’s losing money because of the cancelled games, and how much?

Players: There are two kinds of players–those with contracts and those without. Neither is likely to get paid so long as games are cancelled. Last week an arbitrator ruled that those with contracts won’t draw salary during the cancellation (a Federal court may say otherwise; it will take months). Those without contracts–the “free agents”–will enter salary negotiations after the dispute is resolved; presumably their contracts will be stingier in recognition of the shorter season. The average annual salary of an NBA player is $2.6 million, so missing a few weeks’ paychecks represents an extraordinary loss.

Owners: The 29 franchise owners will save the money not paid in salaries but they have also agreed to give cash refunds to ticket holders as long as games aren’t being played. Some owners will have to pay arenas and concessionaires even during the cancellation (it depends upon the fine print of the 29 different contracts). According to an NBA estimate, refunding ticket holders, arena owners, and concessionaires, will cost each franchise an average of $600,000 per game, though of course this will vary widely among franchises.

Owners are not, in the short run, losing income from TV networks. Contracts with Turner Broadcasting ($200 million per season, coverage beginning in November) and NBC ($500 million per season, coverage beginning in December) specify that the networks pay even if games are cancelled. But in the interests of maintaining good business relations (networks renew contracts every three years) owners have agreed to make up for the cancelled games by lowering future fees or offering the networks more games. That is, in the long run, the owners will have to pay the TV networks an as yet undetermined penalty.

One Final Option: If the players’ union feels that the owners’ won’t offer acceptable terms, they have one arrow left in their quiver–union decertification. The National Basketball Players Association is registered with the National Labor Relations Board as a union, which in turn permits the NBA owners to collude in negotiating labor contracts (setting such rules as salary caps, for instance). If the Players Association says it’s no longer a union, then the NBA owners can’t work together to set salaries, just as McDonalds, Wendy’s, and Taco Bell cannot get together to set prices. This process would take years to resolve and would generate sky-high legal fees. In other words, it’s a sort of Doomsday Scenario, a weapon of last resort.

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