The Best of 2011: The NBA: Where an Overpaid Middle Class Happens

This post by Mike Azmera, which originally featured on November 10th, kicked off a number of NBA-related posts on our site during and directly after the league's labor dispute. While basketball has returned this week, it was still far from certain that there would be a season when we first dove into the topic.

By Michael Azmera

I would like to quickly thank my friend Josh for letting me talk to you about one of my favorite things, basketball, and about one of my least favorite things, the current NBA lockout.

The last time that we saw an NBA game, we watched Dirk Nowitzki join the ranks of the great players who have won an NBA championship. He joined Jordan, Kobe, Magic, Bird, Duncan, Garnett, Olajuwon, Moses Malone, Isiah Thomas, and Shaq, all players who are either in the Basketball Hall of Fame or well on their way there. All of these players were—and some still are—among the very best players in the NBA during their careers.

Excluding the 2004 Detroit Pistons as the lone exception, every NBA champion since the 1980 Lakers had at least one of these players on its roster. All of them have been able to boast at least one of the 10 best players in that season’s NBA. The rule is pretty simple: Teams with elite players can contend for NBA championships. Teams without these players just fill out the rest of the league. Micky Arison, owner of the Miami Heat, looked back on 31 years of recent NBA history, noted this rule, and built a team around a pair of superstars. The Heat narrowly lost in the 2011 NBA Finals, essentially proving this rule along their way.

However they did not win it in the end; the Dallas Mavericks did. And in comparing the champion Mavericks with the runner-up Heat, the difference is obvious. The Mavericks surrounded their superstar with a good team of complimentary players; the Heat splurged on superstars and filled out their roster with an affordable group of supporting players.

Now give me a moment to explain why this is relevant to the current labor dispute. As fans, we like to think of winning championships as the ultimate goal of team owners. But owners also want to turn a profit. As such, they need to generate enough team revenue to exceed team expenses. NBA teams generate revenue, among other things, through ticket sales, through TV contracts, and through merchandise sales. Put simply, NBA teams generate revenue when people watch games. So one goal is to win the games; another is to get people to watch the games.

People watch two types of teams: Teams with title hopes and teams with exciting players of the Blake Griffin variety. Thus, NBA teams need superstars if they want to bring in revenue without winning. And title contenders have superstars on the roster, so it follows that in either case, NBA teams need superstars to bring in revenue, period. Even though role players are integral to building winning teams, they don’t generate revenue. And so it doesn’t make sense to pay them what they’re currently paid.

If there is one flaw with the current NBA business model, it is that the NBA labor market incentivizes owners to overpay mediocre players and allows these players to underperform on their contracts without real consequences. Of course, ownership wants to change this, and that is why the biggest demands made by the owners in the current labor dispute will primarily affect these mid-level type players, not the top tier or the bottom tier. Of course, players want it to stay as it is. Both sides have obviously rational stances, and that’s where the conflict stands. I will try to put this in context by explaining a few of the biggest issues:
  1. Basketball Related Income (BRI): The big one. Obviously, this feels like something that will impact all players equally. But that is not the case. At the end of the lockout, the maximum salary is likely to stay the same. The best players will continue to be paid the maximum salary. There will be the same number of roster spots, and the same players will continue to fill the last spots on rosters. And then the players who barely make it onto rosters will continue to get the minimum salary. Since the highest-paid players and the lowest-paid players will continue to be paid the same as they are now, it is clear that any decrease in the players’ BRI share will come from the mid-level guys.
  2. Maximum Contract length: Owners want to shorten the maximum contract lengths; players want to keep them where they are. Shortened contracts are not an issue for players who perform to the level of their contracts. (Of course, some players will be injured during the term of their contracts and see their market value fall. But unfortunate injuries would damage some careers under any system.) The only healthy players who would be hurt by shorter contracts are the ones who don’t earn their pay. The others will keep signing shorter contracts, one after the other.
  3. Salary Cap Exceptions/Sign-and-Trade Rights: Without going too in-depth, current exceptions allow teams to exceed the cap to spend more money on players. Sign-and-trades allow free agent players to change teams without taking pay cuts, and they allow teams that lose free agents to recover some assets for their losses. These are examples of issues that relate more universally to players across all levels, and owners are trying to exert more control over them.
Of course, the union has a duty to protect the interests of its middle class and it is right to do so. Many players are fighting for their friends, for their colleagues, and possibly for their own futures. However many players are just fighting for their right to remain overpaid. As an NBA fan, I hope that this dispute is resolved in the coming days and that the lockout ends soon. I also hope that the players can keep a lot of their freedom and their security, beating the owners on some of the more onerous issues. But in this situation, I won’t be that torn up if the average employee in the middle of the pack is forced to take a pay cut, because in this rare case, the average employee is actually the overpaid one.

Michael Azmera is a recent law school graduate. This is his BlawgConomics debut.


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