July 1, 2011
Management Inflation in the NBA
If you read anything about the NBA lockout today, read this: Arturo Galletti looks at the numbers:
• Player's salaries have stayed even with inflation. Essentially this means their pay has not been going up.
• Owners have been increasing their spending. Management's operating costs (per their own numbers) have been going up at five times the level of inflation (that's a lot).
• Even in the ideal case for the owners with the new CBA these problems will repeat themselves in 2020.
• The Owners are asking the players to take a pay hit to make up for bad management practices.
In fact, it was the only thing I read on the NBA lockout today, but it was worth a look. I can't vouch for the accuracy of the math estimates, but I will say that my gut tells me the point is on track. Galletti argues:
The simple takeaway . . . is that Player Salaries and NBA Revenues are growing exactly at the US inflation rate (score one for economists everywhere!). Team expenses are growing at a ridiculous five times that. The owners must know this. A new labor deal will not fix that.
I am not one who thinks it's all management's fault when a business tanks or who thinks it's all labor's fault when costs are too high. It's much more complicated than that, although most reports you read seem to imply it's one group OR the other, not both. However, when it comes to this problem, and most sports leagues, I am inclined to think it is more on the owners. Here's why: to my knowledge, not one major sports league has struggled financially because of a lack of effort or talent on the part of the players. (The XFL is hereby officially exclude from "major" sports league.) And I don't think you can fault a player for taking a big contract when it's offered any more than you can fault a Wall Street executive.
For sports leagues, it has been a marketing problem, a rules-related problem, a cost problem, etc. These are management concerns, not player concerns. The salary cap exists because most owners could not control themselves without limits. Notice that some owners can keep costs in check -- Minnesota Twins, Oakland A's -- when there is not a salary cap, but not most. In a contract-based employment environment, if management over pays, it highlights management mistakes, because there is no avoiding the costs incurred until the contract runs it's course. (As opposed to an at-will situation where you just fire people when costs are too high -- I'm talking about you investment banks.)
The are a lot of legitimate things to question about high-paid athletes, but for me, an inability to control league expenses is simply not one of them. Personally, I am not that stressed about the NBA situation. But I do care of about the NFL. We Detroit Lions fans have earned the chance to enjoy a little hope for the coming season.