Is contraction a viable option?

Small market owners are making the largest push to lockout the season due to terrible profit margin. Could and should contraction be an option for the NBA?

First, let me start out with this. If the owners lockout lasts long enough the owners will win whatever concessions they want. In the long run, they are offering the best deal in the world on salaries for basketball players even if they slash all salaries in half.

Let's assume the NBA contracts the Hornets because they own them and also buys out the next struggling owner looking to sell at a cheap price of around 300 million or less (Bobcats recently sold for 275, and the league was in for 300 million on the Hornets, both sales included more the assumption of debt than actual money moving to the previous owner).

If we assume the league can fold two teams in for 575 million than each owner will have chip in 20.5 million in order to buy out the teams. At first glance, I thought, why would the owners want to throw out 20.5 million a piece in order to buy out two franchises, but the deal actually makes quite a bit of sense for them.

Start with the national TV deal. The league signed a deal for 930 million per year which amounts to 31 million per team per year. Folding a team nets the remaining teams a bit over two million per year.

Presuming the TV deal rises with inflation fairly evenly canceling out the extra value of interest on the 20 million up front it will take ten years for the NBA to break even on contracting two teams. After which, they'll simply be banking tons of extra money.

There could be additional problems for teams locked into long term leases which would force the league to pay out cities. The length and terms of leases around the league vary while some teams are on year to year deals others are locked in for longer terms. Let's presume the NBA could negotiate its way around that with minimal extra pain though.

In the end, ten years is a fairly brief period of time to make up your initial investment. If the new TV deal rises considerably, as expected, then the length could be brought down to eight years and the existing owners will come out far ahead.

As for fans, contraction is great for everyone except the contracted teams. Quite simply, the quality of basketball rises as the talent is more tightly clustered. Two teams dispersing players may not make a huge difference in talent throughout the league, but it would improve it at least somewhat, especially at the bottom end.

The players would ultimately be hurt by contraction most in terms of jobs lost. There are 26 fewer spots in the NBA for players to go to. Of course, the average salary for existing players would rise under a similar BRI split, as BRI won't drop by 7% while losing 7% of the jobs.

In the end, I don't think anyone will seriously consider contraction, but if I owned a team I would. It simply makes financial sense for the owners to buy out the bad teams and take a greater share of TV money back.

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  • Why stop at 2 teams? My list for contraction starts with the Clippers, Memphis, New Orleans, Sacramento & Toronto. The product is way too watered down. Too many NBA owners got in too late, paid top dollar for their franchises, and depend too heavily on their NBA endeavor for revenue. For owners like James Dolan, Mark Cuban, and Mickey Arison, owning an NBA team is a hobby. They don't depend on the revenue. It's just as much as an owner vs. owner conflict, as it is owner vs. player. It may not totally solve the problem, but contracting teams is a very good start. Pay off the low-end owners to go away.

  • Here's my take, and maybe I'm too pro owners, but I like the league at (or near) it's current size. And I think the player comp should be structured with a hard cap set a level that the smallest revenue teams can earn market returns (i.e. 15% ROE). The players will still make more than anywhere else in the world, and the system will create more parity in the league, which is good. So what if big market teams make more money?

  • In reply to scogo1:

    If you structure the league that way and you don't have revenue sharing, then you'll likely get frequent strikes by the players union.

    Even though they'll ultimately fold to an extent, they won't fold to the point where the worst team in the league makes 15% a year.

    It's also important for the teams to manage expenses better than they do as well.

  • 1. It is the salary structure which is the problem and not the markets or size of the market. It is short-sighted to look at a team like Hornets which is struggling right now without the right pieces around Chris Paul and declare it is a useless franchise. What if they draft a stud in 2012 draft(supposedly deep) and turn their fortunes around? It ithe s just that the ridiculous salaries like the Joe Johnson's or Arenas's have to be straightened out along with reducing the overall pay structure by 20% or so for the 3 to 12 mil guys. Unless, Stern plans to start another international league...I think we need to keep all these struggling teams.

    2. The NBA talent pool is bigger than in the 80s and 90s with the influx of talent from Europe and Asia. There is room for more teams. Even Wade and LeBron(supposedly experienced superstars, HOF players) have holes in their game if we start over-analyzing.

  • In reply to schaumburgfan:

    Regardless of the salary structure, my point was that existing owners would make more money by contracting teams rather than keeping them around.

    The national TV money doesn't go up with more teams, so contracting the bottom two to four teams would mean the remaining teams would make a much greater share of TV revenue and do better.

  • Ironically I suggested contraction as an option just the other day. Ahemm..

    Seriously though, who's to say small market teams are economically viable? Especially when according to the NBA they've been bleeding red/money for years. I would want fans not to lose their teams. And players not to lose their jobs. The thing is, if something is not economically viable then you are penalizing all the other players to give all their money back to bouy said failed franchises.

    What about revenue sharing? Seriously what sucessful capitalist endeavor shares their profits/earnings with failing competitors? I can see teams like the Lakes and Bulls giving some back because competition in less prime markets still gives them the forum/opposition to make their money. So revenue sharing with viable teams/contributors does more then likely need upped. But not welfare to failed markets. If the NBA/pro sports weren't regarded these days as just "a business" then fine keep 30 teams. Find the medium between lowered player salaries and upped gate sharing from teams like the Lakes who make a ridiculous $1.9 Mil per home game?! Without the visiting teams/talent there are no games/money. It's just too bad owners and Stern are so disengenuous that it makes compromise almost a dirty word. Maybe the players will end up getting crushed in the process to make the onwers feel better about overpaying for suspect franchises markets and players as a whole. Who's fault was that though?

  • In reply to RoadWarrior:

    You did, my first take was that it was terrible, but it got me to want to look into the math, and after doing so, I was surprised how feasible the idea really is.

    The players would lose a certain amount of jobs, but I'm not sure if they have a say in contraction or not.

    I generally agree with your take on revenue sharing. One way to make things somewhat better would be to split 50% of all local TV/Ticket sales to the league then divide it evenly.

    Home team's can't play without the road team as you say, so giving them 50% of the home amount and 50% of the league average would balance things out in a way which feels fair. It would balance things out tremendously.

  • Also, off topic, but I wish Comcast would show some of the Under20 Euro Championships with Nikola Mirotic(27ppg-MVP/Spain. The CBS sports channels and NBATV have shown NikeHoops Summit and Euro teams like Real Madrid. I'd love to see a game or two or at least the championship game with Spain/Nikola. I watched the Nike 2010 Summit, and Mirotic looked very good/intriguing. Maybe not the next Dirk, but a quality NBA player/starter? Maybe.

  • In reply to RoadWarrior:

    I'd love that too, but it's not going to happen. There'd be like 10 people watching it outside of you and I.

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