Mendoza School of Business

ND Expert: Un-discussed issues in NBA lockout

Published: September 29, 2011 / Author: Shannon Chapla

 With the Nov. 1 season-opener looming, NBA owners and players meet this weekend to discuss a new labor deal in the midst of a 3-month lockout.

University of Notre Dame Finance Professor Richard Sheehan, who specializes in the economics of sports, says there are three fundamental issues to consider in terms of reaching an agreement, two of which haven’t been publicized.

“The first is the simple question of what are the real numbers?” he says. “The owners contend that the financial model currently in place is untenable and that they are losing money. I am inclined to agree that the current situation may be untenable, but without the owners providing more details about their real finances, it’s impossible to say for sure. There are so many ways to be creative in accounting and turn a profit into a loss. Certainly, that’s what the players think the owners have been doing and they don’t believe owners’ claims of losing money.”

However, Sheehan says a more fundamental point is missing.

“Why should anyone expect an NBA franchise to make money?” he asks. “Why would you buy an NBA franchise? Do you buy it because you think it’s a good investment or for the fame and notoriety associated with owning an NBA franchise? If it’s the former, sure you want and expect to make money. But if it’s the latter, why is there any expectation of making money? You essentially bought an extremely expensive toy. That may give you the ability to complain that it’s not as much fun as you thought it would be, but any claims of losing money should be ignored.”

Sheehan says another issue, not heavily discussed, is even more fundamental to the settlement of the lockout.

“Owners don’t all have the same objective and players don’t all have the same objective,” he says. “Some owners appear to really value the enjoyment that comes from owning a franchise. The Dallas owner, Mark Cuban, precisely fits that mold. In contrast, some owners are in it for the money, like L.A. Clippers owner Don Sterling. This is important to consider because the owners need to present a unified front, and obviously Cuban and Sterling would not be in agreement on all issues. Cuban presumably wants rules that will let his franchise win and won’t interfere with his ability to field the team that will do that. In contrast, Sterling would prefer guidelines that will let his franchise make money. It’s not clear that there’s a negotiating position that will satisfy both. And realistically there will likely be a range of owner objectives in between.”

Players also have differing objectives, and Sheehan says their greatest split will likely be between those who earn the top salaries, and will do so for many years, and those who are near the minimum and may be in the league only for a brief period.

“Bottom line will be which group is able to come up with a negotiating position that will most effectively exploit the potential split in their bargaining partner.”

Sheehan, author of “Keeping Score: The Economics of Big-Time Sports,” also has examined the relationship between collegiate athletics and academics.

Media Advisory: Sheehan’s comments may be used in whole or in part. He is available for interviews and can be reached at 574-631-5212


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