Monday, February 22, 2010
Mark Cuban on collective bargaining agreements
By Henry Abbott
There are a lot of great storylines around the NBA these days. All those trades! Playoffs on the horizon! LeBron James and the class of 2010!
That's all fascinating, but sometimes it feels like worrying about such things might be a little like fussing over the radio as you drive the car off the road.
Because this labor situation is pretty serious, and could be getting worse.
In trying to understand it better, one thing that is missing is frank talk from owners. It's just not something most of them are willing to talk about in any detail. The gist of what I'd like to know is: Are you looking for a total reinvention of how this business works? Is the model totally broken? Are lots of you really losing your shirts? Or, is this simply a case of the economy has been bad, and you'd like to control player salaries?
Perfect information along those lines is very hard to come by. However, while not talking much about the NBA itself, Mark Cuban has been waxing poetic about sports leagues in general, and the kinds of business models they have. You can learn a lot about his NBA positions by reading carefully.
In 2008, Cuban explained how salary caps are really bad for small markets. Basically, leagues look at all the major income sources, and make a salary cap that is a percentage of that. That means, however, that if one team is doing really really well, and has a huge increase in income, while a small market team might lose a little money, then the next year's cap will be quite a bit higher, which leaves the money-losing small market team further in the lurch. His solution at the time was that in calculating the salary cap, leagues should ignore local revenues, and instead focus only on national revenues like the league's TV deals, which come with income for each team.
Now Cuban is blogging some more about collective bargaining agreements, and taking things a bit further. And it's clear that he's saying he believes the current system needs more than a little tweak.
We have seen bankruptcies in the NHL. If pro sports leagues don’t do a better job of risk management, it could get worse. ... What about the players side? They have kicked ownership’s ass in every league. ...
While individual NFL players take on significant risk, the players as a whole take on ZERO risk. If their membership just shows up for games, 53 guys on each team are getting paid. They never have to give the money back or contribute capital to make up losses.
The solution? It's a system where risks and rewards are allocated properly. Owners should take on more risk than players because they have more upside from franchise appreciation. They shouldn't take on all the risk. Nor should players be excluded from sharing in the upside of equity appreciation. I'm not saying that for example players earn a share of the sale price when an NFL franchise is sold. There are a variety of ways to track or index appreciation of franchises that rewards players that can work better and more efficiently. When the index appreciates the economics available to players appreciate. When the index depreciates, the amount available to players should be reduced as well.
The bottom line of the bottom line is that its time for a new model for professional sports.
What I hear him saying there is that it's possible teams will go out of business, he doesn't like the current revenue sharing at all and the meaningful long-term solution he envisions will be unlike anything we have ever had in the past.
Oh by the way he also points out that when players are locked out, owners lose some income, but players lose all of their income. That's yet another kind of tough talk.
If lots of owners are thinking like this owner, things could get messy.