You need revenue before you can share it
â€œThe NFL [labor debate] is completely different than the NBA debate because of the strength of their business.â€
As his fellow panelists nodded their heads, Tom Penn, an NBA analyst for ESPN and the former assistant general manager of the Portland Trailblazers, went on to explain that, while nearly every NFL franchise is profitable, the vast majority of NBA teams — all except six or seven — lose money.
This stark fact dominated the conversation at the MIT Sloan Sports Analytics Conferenceâ€™s panel on sports and labor relations Friday morning. Common debates such as whether or not playersâ€™ contracts should be guaranteed or what percentage of revenue they should receive — questions that might have received further consideration had there been a players representative on the panel — were overshadowed by the question how does the entire NBA, and not just an elite group of teams, return to profitability?
Although he never said so explicitly, Andrew Zimbalist, an economics professor at Smith College, appeared skeptical that they could, pointing out that both television revenue and ticket prices have begun to flatten out, even in the NFL.
â€œHow do you expand over time,â€ he asked, â€œother than having growing popularity?â€
Zimbalist said one of the few ways the league could increase revenue in the short term was by contracting. However, Zimbalist was strongly opposed to contraction, which he called â€œanti-consumer.â€ But, he said, itâ€™s common for monopolies in sectors other than professional sports to reduce output relative to demand in order to increase prices.
Former Houston Rockets President George Postolos said Zimbalist was approaching contraction in the wrong way. â€œI donâ€™t think people are talking about contraction in New Orleans is because they want to raise prices in L.A.,” he said.
During a question-and-answer session, I asked the panelists, which also included former NBA Deputy Commissioner Russ Granik and Sports Illustrated legal analyst Mike McCann and was moderated by ESPNâ€™s Jackie MacMullan, if revenue sharing could actually lead to greater revenue.
Earlier Granik said that, if the league is losing money overall, revenue sharing amounts to little more than spreading out those losses around the league.
I suggested that revenue sharing might increase parity and competitiveness in the league, generating great interest in smaller markets and then, hopefully, more revenue.
Postolos agreed with my suggestion, pointing out that the NBA, which has a minor degree of revenue sharing when compared with the other major sports leagues, is also one of the least competitive (i.e. the same teams tend to make the playoffs and win championships year after year). He noted that Major League Baseball began sharing more revenue among the franchises a decade ago. Since then traditional powerhouses such as the New York Yankees, although still very successful, have not dominated the sport as easily. (The Yankees won four World Series between 1996 and 2000, but have won only one since.)
Zimbalist, who earlier said he supported a form of revenue sharing that encouraged owners to remain â€œentrepreneurial,â€ agreed that revenue sharing could lead to greater profitability, but it would be difficult to calculate the degree to which it would.
Postolos pointed out that issues like revenue sharing, which is hotly debated amongst the owners, can handicap the ownersâ€™ bargaining ability. Focusing on the disagreements they have with one another can distract from the disagreements they have with the players. Although, as Zimbalist pointed out, their disagreements with the players can also be what enables them to put issues like revenue sharing temporarily aside.
â€œWhen the owners canâ€™t agree on things like revenue sharing, they can agree they want the players to have less,â€ he said.
The conversation focused so directly on the question of the profitability of franchises partly because the players didnâ€™t have a true representative on the panel. Former league-wide and franchise executives, although incredibly well versed in the issues at hand, arenâ€™t necessarily the best at honestly addressing what is troubling the players. Although the overall profitability of the league is certainly something the players union is concerned with, there are most likely other issues a players representative might have raised.
Then again, Iâ€™m not sure what I expected: Go to a panel on labor relations at a business school, and youâ€™re almost certain to get a discussion that slants in a pro-business direction. Thatâ€™s not to say the panelists were hostile towards the players union or dismissive of their concerns. They just werenâ€™t especially attentive to them either.