The Business of Sports

NBA Lockout’s Winners and Losers


It’s done. The Basketball Grinch has retreated to his lair atop Mount DunkIt. Cooler heads have finally prevailed, as NBA owners and players reached a new labor agreement over the Thanksgiving weekend, ending a 149-day lockout that did in the first seven weeks of the regular season.

The labor deal is for 10 years, with both sides having the option to opt out after six. Per the agreement, the players’ guarantee of basketball-related income will be no higher than 51 percent after being 57 percent in the last collective bargaining agreement (CBA). That amounts to nearly $3 billion over the length of the deal.

On Monday night, the National Basketball Players Assn. began the process of recertifying, the first step in the process of turning the handshake agreement into a new CBA. The association has sent letters to agents asking their players to expedite the return of signed union cards, and the players will reportedly meet in New York on Friday to complete their portion of the labor settlement, including resolving issues around a code of conduct, drug testing, and the NBA D-League. On Thursday, players were able to start using any NBA team training facilities for voluntary workouts—albeit without coaches and front office personnel present.

Pending approval of a new CBA, a truncated 66-game NBA regular season is scheduled to start on Christmas Day, with five games spread across TNT, ABC, and ESPNCeltics-Knicks, Heat-Mavericks, Bulls-Lakers, and two matchups to be announced Friday. The shortened season will extend games until Apr. 26, with the NBA Playoffs beginning two days later. There is also the possibility of back-to-back games during the second round of the Playoffs, and each team will have at least one, but no more than three, back-to-back-to-back games during the regular season.

Each team will play 48 conference games and 18 nonconference games, and teams will not travel to every NBA arena. Training camps will open on Dec. 9, the day free agents will be permitted to begin signing contracts, setting up a chaotic stretch surging toward the season opener that comprises signings, trades, training camp, exhibition games, and the accompanying media frenzy.

But hey—things are always hectic around the holidays.

NBA Lockout by the (Big) Numbers

$100 million: The city of Orlando projects $100 million in economic impact from hosting the 2012 NBA All-Star Game. Losing the game would have been devastating for the local economy.

$480 million: In losing 240 games, the NBA lost an estimated $480 million. That revenue isn’t coming back.

$500 million: Financial analysts predicted the shoe industry would lose $500 million if the NBA cancelled the entire season. That’s nearly a quarter of the annual basketball shoe market.

$930 million: The NBA’s annual TV revenue from ABC/ESPN ($485 million) and TNT ($445 million). The league would have had to return that money or extend contracts if the season were lost.

$3 billion: The amount players gave up in future salaries based on the league’s previous CBA.

$4 billion: The NBA is a $4 billion business. To put that into perspective, the NBA is a bigger business than Hasbro Toys (HAS), JetBlue Airways (JBLU), or MetroPCS (PCS). Try imaging one of those companies shutting down operations for a whole year.

Winners

David Stern: the longest-serving commissioner in professional sports. Stern’s legacy depended on getting a deal done. In Stern’s tenure at the NBA helm, he has overseen 28 new arenas, the addition of seven teams, and global expansion of the league’s footprint. His most lasting accomplishment may be saving this NBA season.

Owners: Arguably the biggest point of contention in negotiations was the division of basketball-related income (BRI). Players received 57 percent of BRI in the last labor deal, which resulted in the owners losing hundreds of millions of dollars annually. In the new CBA, the players’ cut of BRI won’t top 51 percent. For owners, that amounts to nearly $3 billion in savings over the length of the deal.

Small Market Cities: For Portland, Memphis, Oklahoma City, and others, their NBA teams as the only major league professional game in town. Sacramento is looking for a new arena, or else the Kings might move to Anaheim.

Player Movement: Sign-and-trades, a midlevel exception, and a soft salary cap are all preserved in this new CBA. More opportunities for movement mean more money for players. Earlier CBA proposals didn’t include some of these provisions.

MSG: Shares of Madison Square Garden (MSG) rose more than 10 percent in early trading on Monday following the labor resolution. As of 10:25 a.m. Eastern time, MSG stock was up 11.2 percent, to $28.65 per share, giving the company controlled by the Dolan family, owners of the Knicks, a market value of $2.1 billion.

Losers

Billy Hunter: The NBPA eventually got a deal, but a) it wasn’t the one Billy Hunter wanted, and b) it wasn’t without lots of division among the player association ranks. His decision to hold off decertification is the biggest reason a deal wasn’t reached sooner. If the last couple of CBAs favored the players, this one likely favors the owners.

Small Market Teams w/ Superstars: Dwight Howard and Chris Paul are both free agents next season. Neither seems likely to stay with their current team beyond this year. Early CBA talks included an NFL-like franchise tag that would allow teams to keep their superstar players. Without one, Howard and Paul could be gone next season.

Some Non-NBA Markets that Normally Get Exhibition Games: Each NBA team will play two exhibition games, one home and one away, against the same opponent. The games will likely stay close to the teams’ home bases to minimize travel time.

NBA TV: During the football lockout, NFL Network did wonders for its credibility and viewership by tackling the issues head on. The same can’t be said for NBA TV. Instead of talking about the lockout, NBA TV showed dozens of reruns of Teen Wolf and other old basketball movies. At one point in October, the network had the second-lowest viewership on cable.

Agents: If NBA players are “giving back” $3 billion over the next 10 years, that’s more than $100 million in agent commissions lost.

The International Picture

Deron Williams went to Turkey, Tony Parker to France, and Rudy Fernandez to Spain. These players made some extra money, stayed in game shape, and now head home without major injury and without breaching their brief international contracts. NBA players in China aren’t so fortunate.

When NBA players began signing overseas, the guys going to China, including Kenyon Martin, Wilson Chandler, Aaron Brooks, and J.R. Smith, went with the understanding that they would have to play there until the regular season ends in March. Despite the return to normalcy in the U.S., the Chinese Basketball Assn. “is showing no inclination to let unhappy NBA players out of their contracts for the 2011-12 season and will likely mandate they not receive an escape clause to return to the NBA before the Chinese season ends in March,” according to Yahoo Sports.

Meanwhile, the overseas preseason games that have become standard operating procedure the last couple of seasons are clearly gone, as, likely, are regular season international games, such as the Magic-Nets game scheduled for Mar. 7-8 in London’s O2 Arena. The NBA “probably—and understandably—would face criticism from officials in Newark, N.J., for taking two more games out of Prudential Center during the lockout-shortened season,” notes the Orlando Sentinel.

What About the Fans?

The consensus among sportswriters is that, after they get over any feelings of ill caused by the lockout, basketball fans won’t see much of a difference in the game on the court. New luxury tax rules will likely put significant restrictions on player movement, meaning that fan favorites won’t be as likely to be lured away by the Lakers, Knicks, or Heat, and the league’s days of mind-boggling trades may be ending.

But will the fans get any sort of compensation for their loyalty and patience? NBA.com’s David Aldridge put it best: “If, in the next week to 10 days, the league and its teams don’t announce that two games—one preseason, one regular season—are ‘on the house,’ meaning free tickets for both season ticket holders and single game buyers, with the remaining seats given out to the public on a first-come, first-serve basis,” he said on Monday, “then I’m gonna be really ticked off.”

Player movement is always a major catalyst for licensed sports product sales, and with the free agent signing melee that will take place between Dec. 9 and the NBA’s tip-off on Christmas Day, we’ll see a lot of players in new jerseys, and fans as well. Already, the NBA’s labor settlement has ignited consumer demand for products, according to Sal LaRocca, the NBA’s executive vice-president for global merchandising. Black Friday and Cyber Monday sales exceeded the league’s most optimistic projections. Sales at New York’s new NBA Store over the Black Friday weekend were up 38 percent over last year, and analysts added that overall retail sales were up 16 percent during the first weekend of the holiday shopping season. On Cyber Monday, LaRocca said, when NBA.com was offering a 25 percent discount to shoppers, sales were up 43 percent from 2010. “Once there was certainty of a season,” he concluded, “we have seen demand spike, and that’s encouraging.”

Rick_horrow
Rick Horrow is a leading expert in the business of sports. As chief executive officer of Horrow Sports Ventures, he has been the architect of 103 deals worth more than $13 billion in sports and urban infrastructure projects. He is also the sports business analyst for CNN, Fox Sports, and the Fox Business Channel. Karla Swatek is vice-president of Horrow Sports Ventures and co-author of Beyond the Box Score: An Insider's Guide to the $750 Billion Business of Sports (2010). Horrow is also the host of Sportfolio, a new program on Bloomberg TV that airs Wednesday nights at 9 pm ET.

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