Sharing The Revenue Pie

Darius Soriano —  October 3, 2011

As the Collective Bargaining talks continue today, one of the ongoing topics of discussion is how to make teams profitable for the greater health of the league. This subject isn’t without controversy as there are many angles to view this from…

Is owning an NBA team a business or something entirely different? What of the other ways owners make money on their afiliation with their NBA team? Owners can talk endlessly about what they believe is fair to them, but what about what’s fair to those fans that invest in their teams?

There are no easy answers here. But if we’re truly going to discuss how to make an NBA team profitable, it seems the logical place to start is revenue sharing.

Recent reports state that David Stern and the owners plan to triple and, eventually, quadruple their revenue sharing in a new model. The plan is ambitious to say the least. But, with such an agressive plan, come questions about its viability. Chris Broussard says that owners whose pockets will be dug in the deepest aren’t necessarily keen on the idea of having their coffers raided to prop up those that can’t do so for themselves:

The divide centers around the large-market owners’ refusal to share their local television revenue. For instance, while Lakers’ owner Jerry Buss is willing to share national TV revenue, he wants the money made from his 20-year, $3 billion deal with Time Warner all to himself, according to sources.

That said, it is pretty clear that some teams need this assistance. Over at Sactown Royalty, Tom Ziller states openly that the Kings would be a team in the line with their hands out:

The Sacramento Kings rate in the bottom 10 market sizes in the NBA, and if you looked at local revenue, they could be bottom five most seasons. As the Nexus Report outlined, there’s a small corporate base here, a relatively small TV market and a struggling economy that’s worse than most comparable metro areas. The one bonus is that there’s no competition: Sacramento has no other major league teams to compete with the Kings, though we all know crazy Niners, Giants, A’s and Raiders fans who make the trek into the Bay Area on a regular basis.  The Kings would definitely be a receiver … but how many other teams would join them? Are the Kings in line to take in $20 million a year when revenue sharing fills out in a few years? More? Less? Every bit helps, but the mechanism by which it moves matters greatly. Until we see that, it’s hard to say whether it will put the Kings on anything like an even playing field with the other three teams in California. Let’s hope it does.

The implication of that last sentence gives me pause. Don’t get me wrong, I’d love a more competitive league and wish for strong competition from and between all teams (yes, even Boston). But, building that ability to compete on the backs of only those owners that can afford to financially contribute doesn’t address issues related to the lack of viable, superstar level talent around the league. Nor does it account for the lack of capable front office men that navigate complex path of team building better than their peers. These are factors that greatly influence a team’s success on the court.

Meanwhile, it’s not even clear who should be doling out these large stacks of cash. Sure, the Lakers have been identified as a team that could share as much as $50 million a season and the Knicks would chip in $30 million. Since they’re two of the highest revenue producing teams, this makes sense (though trying to dig in my pockets for that much – even if I could afford it – might lead to fisticuffs). But who else is on that list and how is it determined?

From where I sit, the most logical way to share the revenue pie is that all teams contribute a set percentage of their revenue into a gigantic pot. This pot would then be distributed amongst all teams equally. Strangely, this rarely gets mentioned even though really smart people (like Kevin Arnovitz with an assist from Bob Costas) have been saying it for months (if not years if you go back to Costas’ argument that was suggested for MLB’s revenue sharing issues).

To these eyes, the only way to actually share revenue amongst teams is for all teams to participate in the giving and receiving. Altruism is a nice idea but as we’ve been reminded nearly every 15 seconds by owners like Robert Sarver and Dan Gilbert, the NBA is a business and should be run like one. With that in mind, I find it strange that they’d be willing to take handouts (especially large ones) while not contributing anything to the process other than running their franchise(s) incompetently and then bringing a large duffle bag to shovel cash into to further aid in the profitability of their sub-standard teams.

Mind you, this argument isn’t made to protect Dr. Buss’ bank account or to ensure that the next time he goes all in with pocket fours and suffers a bad beat on the river he can cover his losses. I’m not trying to spend his money now just as I’m not trying to spend it in the off-season when that shiny new player is on the open market.

That said, I’m a firm believer in the overall health of the league; that success in the NBA matters only because other NBA teams are on the other side of the wins that the team I root for stacks up. Dr. Buss should be asked (and willing) to share the revenue he makes on his team as he has no ability to generate revenue without other teams to compete against in the league that his team is a member of. But asking him to give while others will only take breeds bad blood and has the feel of dressing up financial woes as the lack of competitive balance when the two topics aren’t as firmly tied together as we’re being told.

Darius Soriano

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15 responses to Sharing The Revenue Pie

  1. I think it’s sad that so many of the owners seem to be making a beeline for the Lakers and Dr. Buss – not because I’m a Laker fan, but because Jerry Buss is a rare example of someone who has run his franchise extremely well.

    He’s not some faceless corporation. He’s an individual who’s been running his franchise as a family business for 32 years. He’s had a lot of good fortune along the way, but he’s made plenty of his own breaks.

    Really, his only competitive advantage going into NBA ownership was/is the city of Los Angeles, and that’s hardly been a guarantee for successful ownership (see: Donald Sterling, Bruce McNall, the McCourts).

    Why should this man, who’s done such a stellar job for his city and the league, be more responsible than 29 other owners for getting the league back on solid financial ground?

  2. The whole idea that success is something to be despised and punished just makes no sense to me, whether we’re talking about business or the business of basketball.

    Some entities are better equipped to make money on a macro scale than others. Why should they be made to suffer at the behest of those who can’t do the same, but are capable of doing well in their own right if managed correctly?

    Money and market-size alone do not lead to success in the NBA. The Clippers and Knicks — and to an extent the Bulls in the period post-Jordan but pre-Rose — have shown us that. The Sixers have been mediocre for years, yet in baseball Philadelphia ranks right with New York and Boston in terms of market strength. In short, it’s not the size of the city that dictates success — it’s how you run the team.

    People in Utah weren’t crying when they had a GM putting the right guys around Malone and Stockton. No one in small San Antonio cared about the money in L.A. or New York when the Spurs were winning four titles. Portland’s owner has more money than almost anyone in the world, so why should Jerry Buss contribute too much to Paul Allen’s needs?

    Revenue sharing is fine to an extent, but at some point they need to consider that there are other factors beyond money. The sick part is Fisher gets this on behalf of the players; it’s the slug-side of the owners’ group that’s making this an issue.

  3. I don’t mind revenue sharing. It means that the Lakers can claim partial credit of whoever wins the title each year.

  4. Finding an economic formula for revenue sharing shouldn’t be this hard. But you’ve got many billions of dollars of personal fortune in a room and they’re fighting over divvying up the candy. The worth of players, workers, fans and ancillary partners becomes abstract, even meaningless to these guys. They’re simply playing a form of poker and they’re addicted to it.

  5. In some faceless leagues like the NFL revenue sharing is great because football is the most profitable when there are a lot of average teams. However in the NBA where the league historically is at it’s most popular when there are a few superstar teams things are very different. History shows more people watch the NBA when the top 20 players are spread around a few teams rather than having one star on each team in the league. It’s strange that the NBA is choosing to ignore something so obvious.

  6. Malcolm Gladwell’s piece is disgusting. The level of entitlement some display is absolutely mind blowing to me.

    His main argument is that owning a sports team is awesome, so the owners should shut up about losses and enjoy the ride.

    This is one of my main points of contention with more liberal types, though this is a conversation for another day.

    The NBAs revenue problem is systematic and the solution will be one as well. Appealing to people’s love of the home team to “sacrifice” is the most useless approach to the problem.

  7. @6 “entitlement” … like, expecting city taxpayers to fund arenas that you plan to use as your personal profit center?

  8. Who is thinking for the fan’s welfare in this revenue sharing? Why not lower those gargantuan salaries, less profits from the owners and give back the rest to fans in form of lower prices? Does Stern really deserve to receive multi-million dollar salary acting as a dictator of NBA?

    When NBA was starting and nobody cares about basketball, this used to be a practical move. Today, this is too ideal or wishful thinking under the atmosphere of greed and power.

  9. The only people who’ve showed entitlement here is the owners. You can’t afford to run your team? Then get the hell out. I’m sick of owners crying about losses. Owning an NBA team is not a normal business. The vast majority of these owners do not depend on their NBA team for wealth (ironically, the best of them, Dr. Buss, is an exception). I find it very hard to see an owner crying about his team losing $30 million last year, when his Fortune 500 company turned a billion dollar profit.

    I agree with the first comment. Jerry Buss is the best owner in sports, and now you’ve got other owners lining up for his table scraps to cover their own ineptitude. Jerry Buss’s success is nearly all his own doing. When the Clippers get offered a $3 billion TV deal, that’s the day I’ll start believing in revenue sharing.

  10. @6

    “Entitlement” could also be defined as expecting owners who are profitable to subsidize owners who aren’t. Seems to me that if one wants to own a professional sports team they shouldn’t depend on tax payers to pay for new arenas, and they shouldn’t depend on other owners to pitch in for their cause. That “entitlement” sword cuts a multitude of ways.

  11. When I took my son to a Laker game right before Christmas last year (remember the Kobe ejection), the face value of the tickets were $150 EACH. I was willing to pay that because we were going to watch the Lakers, not that other scrub team that took us out by 19 points. Dr. Buss should not have to support the rest of the league, along with the bad contracts they may have, IMHO. Likewise, the Lakers are dependent on playing other teams, to get fans like me into Staples to pay for a fun game.

  12. Putting a % of each team’s revenue into a common pot, then allocating it evenly sounds good, but is fraught with problems.

    1) Do we use gross or net revenue and, if net, then how do we describe what constitutes net – for collection purposes?
    2) How do we differentiate between teams trying to win titles (Lakers, Celtics, etc) and those just trying to stay in the league (Clippers, possibly now the Suns, etc.). If ownership is simply trying to make a profit, with no other motivation, then I – as a competing owner – don’t want to give them a nickel of my money.
    3) How much should we consider the owner’s outside interests when calculating their contribution? Some owners – the Nets for example – have been able to drastically upgrade their investment values because they also own the NBA team. While these investments began with an NBA team, they often diverged from the team and probably would not be considered in the calculation. Other owners – the Lakers for example – draw their income almost exclusively from their NBA teams.

    All this is not a simple situation and is the reason I believe the owners should have settled all this BEFORE they asked the players to forfeit their share of the pie. The way this has been done to date, reminds me of the mugger who tells the victim they will reform their ways after they finish this robbery.

  13. I think it’s hypocritical that some speak of ‘entitlement’ while defending owners who feel that they’re entitled to profits regardless of how they run a team, to such a degree that they’ll depend on other owners’ profits.

    So if you’re a billionaire, you’re ‘entitled’ to a team that makes a profit while average people or millionaire players aren’t entitled to anything?

  14. Nobody is siding with the owners because nobody pays to see them play basketball and they have the leverage to take advantage of their workers as they monopolize basketball. As long as they hold all the cards they will continue to artificially lower the value of the players via salary caps, rookie contract caps, and caps of length of contracts. If the players wanted to make a change for future players so those guys can get paid market value they can all pick a league in Europe and half of them play there. Within a few years that league would be rivaling the NBA and the NBA would have to abolish slalary restraints to compete for players with another league. Until that happens the owners have all the control.