Wednesday, October 26th, 2011...3:47 pm

Follow-up: NBA labor and MLB Television

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By Sam Mann

I was listening to an interview with Billy Hunter, head of the NBA Players Association, and wanted to comment on a few issues that came up. (The interview was with Bill Simmons, available on ESPN and Grantland.com). One of the main points of contention from Simmons, playing devil’s advocate to Mr. Hunter, was that consumer behavior is evolving, and is much different now than it was in 1998 (when the owners also locked out the players) or even just a few years ago. Basically, with the advent of NBA.tv, the iPad, internet viewing programs and the NBA package on cable/satellite, it is much harder to convince fans to come to games. Season ticket packages are harder to sell, particularly for non-premium seats in the upper deck. For a lot of teams to generate revenue, they need to put butts in the seats. A significant portion of receipts for each gave is non-ticket revenue. Concessions and other on-site revenue are shared differently than revenue from media contracts, which may be a reason why small market teams are struggling.

Simmons contended that the NBAPA has yet to embrace the changing economic nature of the NBA, specifically as it relates to this point. While the league is still bringing in revenue with their television deals, streaming internet, etc., these differences have a stark effect on the economic state of the league. While I don’t have the numbers in front of me, it is at least reasonable to believe that the NBA has to adjust their economic model going forward. From everything I have read (and heard) on the negotiations, the NBAPA is operating on the assumption that market forces are the same as they have ever been and that basketball does not face an uncertain economic future. And while ratings have been excellent recently, and the league was very popular back when it actually operated, that does not mean that NBA economics are stable.

Here is my (updated) take on where we are headed with this labor deal. It seems reasonably clear that the players won the last two rounds. The owners are not going to stand for the public perception that they have not “won” this labor deal. To win, I believe they are prepared to miss a full season. In the previous deal, the players were entitled to 57% of Basketball Related Income (BRI). The owners are saying the split has to be 50/50 before they can negotiate on the other points, while Hunter indicated that the NBAPA’s last proposal was somewhere around 53%. The highest I can see it settling at is 51%, and that is probably only with a hard salary cap, which the players are definitely against.

The owners argument seems to make sense at first blush. The league as a whole lost somewhere between $200-300 million (the players believe that number to be about half, but nonetheless) last year, and only 8-10 were clearly profitable on a year-to-year basis under the previous collective bargaining agreement. Based on these numbers, the owners should be entitled to retainĀ a larger split of BRI. At the same time, however, the owners are using these losses as an excuse to impose a completely new, much more restrictive system on the league. I agree with some that the solutions have to be creative, as it is clear that the economic model needs tweaking, but I don’t think it needs to be blown apart completely. The players cannot be completely divested of every concession they have won in previous collective bargaining agreements.

There are obvious solutions to some problems as well, yet the “big issues” have gotten in the way of even those. Shorter contracts: no guaranteed contract lasting more than 4 years; incentive-based deals: one idea even called for a mutual arbitration clause allowing either the team or the player to exercise and determine whether the payer’s performance is measuring up to his contract; an equitable split of BRI somewhere between 50-53 (and where it realistically should be anyway); and an out for either of both sides in this next deal (The NBA reportedly wants a 10 year deal but that only makes sense if there is an opt-out, because, as we indicated above, the economic nature of the game and the consumer experience is changing). Of course there are other, more difficult problems to solve, that do require creative solutions. But blowing up this system and instituting a 10 year deal with an absurdly low salary cap does not seem like the answer either.

I will repeat what I said in the previous post on the labor dispute: there are fundamental misunderstandings and mistakes being made on both sides. Neither is right and neither is wrong, and both are stubbornly clinging to their positions for the sake of unity and “holding the line” and other ideals that signify nothing. The point of this is to create and maintain a system that creates good incentives and allows the teams that operate properly to make a profit commensurate with their product. It’s not for every team to make a profit regardless because the system is set up that way (as the owners seem to believe) or for the players to be guaranteed their share regardless of performance or the economic state of the league (as the players seem to think). Negotiation inevitably implies compromise and meeting in the middle. Very rarely does one side “win” as definitively as each side here seem to think they are entitled to.

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Shifting gears for a moment, I want to briefly return to the discussion of baseball’s television ratings. Per CNBC’s Darren Rovell, the World Series did beat Monday Night Football on Monday, but it was the lowest rated Game 5 in World Series history [For the record, that seems really hard for me to believe. I thought this series was gaining momentum, but I guess not]. The numbers from Sunday night really illustrate baseball’s problems: Average age of Game 4 viewers: 53; Sunday Night Football: 42. So even thought MLB beat the NFL Sunday night, they didn’t beat them in advertising terms. And Game 5 was bested in the ratings by Dancing with the Stars and 2 1/2 Men (did Sheen do a cameo or something?)

The reason I bring this all up again is not to kick dirt on Major League Baseball (I love baseball and have watched every game), but because of the increasing importance of television ratings and non-traditional revenue from the internet, cable/satellite packages, etc. As we see in the above NBA discussion, consumer behavior is changing and leagues/teams/players have to respond accordingly. Though baseball’s labor deal is expected to be cooperative and uneventful (ESPN even floated the idea that a deal could be announced by the conclusion of the World Series, which would be the end of this week), both the league and the Players Association should consider what lower television ratings mean for the sport.

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