Friday, September 30, 2011
Sticking point: Competitive balance
By Henry Abbott
Ronald Martinez/Getty Images Sport
Championships. In the NBA, very few teams win them. Can that be fixed?
NBA owners and players are in New York fighting about money.
And, maybe, one other thing.
More than 90 days into the lockout, and more than a year into talks about the next collective bargaining agreement, the union and the league still can't agree whether or not they're fighting over competitive balance.
The league says they want to change how the NBA operates, to give fans in all 30 NBA markets hope at the outset of every season. The league says now is a rare chance to fix a system in which teams are fairly well locked into categories of contenders and non-contenders, and that a team's payroll tells you a hell of a lot about how well that team's going to perform. The league's insistence on a hard cap, or a luxury tax so stiff it might function like one, has been arguably the talks' biggest sticking point.
The union says the entire effort is sleight of hand. The union says that the league's talk about competitive balance, and making the game more exciting for fans, is merely an attempt to put a friendly face on the league's latest scheme to reach into players' pockets.
FACT: The NBA has terrible competitive balance
Neither side disputes this. There are obvious and strong numbers to support the idea that other major American sports have more teams contending, and more close games, than the NBA. Respected economists made a clever measure of a league's competitive balance, called Noll-Scully. By this measure, the NBA finishes last of the big four sports just about every year, and recently completed the least competitive decade of any major American sport in the last century, with a Noll-Scully score approaching 3. The NFL, meanwhile, has a score over the same period of 1.5. Needless to say, lower is better.
In the NBA the gap between the good teams and the bad teams is wide. Very wide. When you tune in for a midseason contest between the Lakers and Kings, you have a strong idea who's going to win.
And, making this news extra hard to swallow for fans in those unlucky markets is evidence that in the NBA it's rare for bad teams to become good. One way to test this is to see how a team's wins this year work to predict their wins next year. The answer in the NBA is a lot. If you want to know where your team will finish in the standings next year, where they finished this year is a strong predictor. That's not nearly as true in other sports.
Consider that over the last quarter century in the NBA, a measly eight teams have won titles. In baseball that's true of 17 teams, for the NHL and NFL the number is 13. If there were lots of turnover among the elite, this simply wouldn't be so. The NBA is also last in terms of how many teams have made the Finals or conference finals, and, according to the NBA, now is the time to close the gap between the strong and the weak.
THEORY: That lack of competitive balance costs the NBA and its players money
We used to live in a world where the most important NBA revenues came from those attending in person. In the wired global future, however, there's almost infinite potential for the NBA to grow the televised game. The key growth audience is watching on screens -- on TVs, mobile phones, or computers -- and increasingly in places like Brazil or China.
What matters here is that while Laker fans may be content to buy a ticket to see their team roll to big victories. But fans watching on national or international TV don't have the same team allegiances. They want great entertainment -- better than whatever's happening a click away. As a television product, basketball needs to be exciting from the opening tip to the final buzzer.
In recent NBA marketing research, even fans rooting strongly for one team identified closely fought games as their top priority in choosing what to watch. There has also been evidence from the NBA and European soccer research that as games turn into blowouts, people at home are quick to change the channel. There is value to the NBA and its advertisers in simply keeping more games close. That will keep more people watching for longer, which will mean better TV ratings, which, the theory goes, will lead to more national and international revenues for the league to share with players.
THEORY: That competitive imbalance is because some teams are really rich
Some teams in the NBA are really bad, and many of those have low salaries. Meanwhile, other teams are really good, and many of them have high salaries. It's not perfectly true -- the Knicks famously had massive payrolls and few wins. This last season the Bulls and Thunder were among the league's elite in all but salaries.
But by and large, the playoff teams spend a lot, and the lottery teams spend little.
Economists differ on this. Some find that the current NBA salary is a meaningful predictor of wins. Others say it is only a weak predictor, and point to the likes of the Bulls and Thunder who won a ton with small salaries.
To the extent salaries do determine wins, however, there's a chicken-and-egg question. Do winning teams have high payrolls because they are good, or are they good because they have high payrolls?
Consider the Cavaliers before LeBron James. They knew they were bad. The key decision-makers are on the record. They made an organizational decision to shed payroll every which way they could. It was not a case of competing as hard as they could. The strategy was to preserve draft picks and payroll for a time when they had a star to build around.
This is the standard playbook for turning around an NBA team, and it's as good a strategy as any.
When that same "poor" team got James, however, the money story changed completely and they soon came to be a very high payroll team.
So were they good in those later years because they spent more? Or did they spend more because they were good?
If they had spent more without getting a player like James, would the league have been better off? Or would the Cavaliers have been spending more for role players, to little effect?
Title teams essentially always have stars, and there are not 30 stars. There is no way to spread money around the NBA to get every team a player to build around.
"Payroll is significant and there is a correlation [with winning]," says deputy commissioner Adam Silver. "It’s not a perfect correlation and that’s a point [union president] Derek Fisher has made many times; and we don’t mean to take away anything from his multiple championships. But, it’s a critical issue. And a GM that’s given $100 million to spend as opposed to a GM or owner who’s given $50 million to spend is at a huge competitive advantage and that’s something we want to fix in this deal."
The Lakers, points out David Stern, spend "well over $100 million on the payroll and Sacramento at 45, that’s not an acceptable alternative for us. That can’t be the outcome that we agree to."
FACT: A hard cap or stiff luxury tax would change ... something
The NBA is ardently pushing for either a hard cap or a luxury tax so stiff it would function like one.
One way or another, teams like the Lakers and Mavericks will almost certainly have to shed salaries in the next CBA. Players like Brendan Haywood, Caron Butler, J.J. Barea, Metta World Peace and Lamar Odom could be redistributed, one way or another.
The great thing that money buys you in the NBA is not so much more talent, but a greater ability to weather front office mistakes. Mark Cuban "missed" on Brendan Haywood, but it hardly doomed Dallas. Thanks to his deep pockets, he got to try again when Tyson Chandler came available.
A hard cap or something like it would limit Cuban's ability to spend his way out of bad decisions, which will make things more tense for fans of rich teams like the Mavericks.
THEORY: More equal spending would mean more equal winning
But would cutting the Lakers and Mavericks salaries down to size really increase the likelihood the Kings or Timberwolves could win a championship?
The NBA says yes. They are working with internal numbers showing that if you want to win one more games per season, the recipe is to spend an additional 3.8 percent on player salaries. The Lakers' salaries alone, by this analysis, give them an 82 percent chance of making the playoffs before the season even starts.
The union says basketball is a game of just 10 players on the court -- one star can make a huge impact. The wins and high salaries congregate around those stars.
British economist David Forrest, who has studied sports leagues, says that hard caps are a major economic boon to ownership: "The way owners end up getting their fingers burnt in sports leagues is what you might call an arms race. It's in all their best interests not to go out and buy all the talent. But if things are calm, one club will see its chance, to get the special reward, financially and otherwise, of winning championships and so on. If all the others can be relied on just to carry on spending normal amounts of money, it's in the interest of one to go out and try to buy the talent and finish on top of the league. Of course, when that's seen, someone else will say well we've got to go nuclear as well. So a lot of agreements in sports leagues, to try to contain costs, break down. Are you familiar with the prisoner's dilemma? It's in the interest of everyone for them all to keep low wages. But one of them breaks ranks, and the war breaks out again, and the costs go through the roof. So, sports leagues would like some permanent way of stopping an arms race. And in America, leagues seem to find that they get this through regulators and the law very readily compared with Europe."
Deputy commissioner Silver, however, denies that the league's interest in a stiff tax or a hard cap has to do with keeping salaries down. "By definition, it can't depress salaries" he says, referring to the league's offer to guarantee players a fixed percentage of basketball revenues. "So the economic discussion in terms of paying a percent of BRI or overall revenues to the players, both sides accept. ... We’re negotiating first in the aggregate as to the total amount we pay. So it cannot possibly depress salaries; that’s the math."
That total to be paid to all players will not go down, or change in any way, should the league close the gap between how much rich and poor teams can spend.
"This is not about suppressing salaries," says David Stern. "This is about distributing talents and salaries in a different way than we currently do. ... That’s what our proposals have been about."
THEORY: It's really about reducing guaranteed contracts.
It's generally true that NBA contracts are guaranteed, while NFL contracts are not. It's entirely untrue that that's because NBA players have guaranteed contracts as a birthright. The simple truth is that every player in either league is eligible to have guaranteed or non-guaranteed contracts. Your entire NFL roster could have guaranteed deals. Why doesn't that happen?
Because the NFL's hard cap makes it bad strategy to hand out guaranteed contracts. Owners simply don't do it -- if the player becomes injured or unproductive for any reason, it's just too costly to keep him on the roster, tying up precious cap space. So all but the stars face the reality of being paid about as long as they are productive, and no longer. That's a tough gig for players, compared to the deals they could command on the free market. NBPA head Billy Hunter has made it a "blood issue" to keep the league's middle class from facing the same degree of uncertainty, where the vast majority of players could be unemployed every offseason.
And the union says this is the NBA's real motivation in arguing for competitive balance. They are really arguing for a way to sign up the best players in the world, while protecting against having to commit to those players beyond their most productive periods.
FACT: Hard caps are unproven in increasing competitive balance.
The NFL has a hard cap and has tremendous parity, where any team has a good shot at winning any game. But the NFL has always had great parity, even before the current salary structure.
The NHL has recently imposed a harder cap. So how's that working out? Some economists find "weak evidence" that it is having a desirable effect on making the league more competitive. Others say a mild tightening of the standings in the NHL is attributable to other factors.
The NBA makes a convincing and logical case that redistributing talent would mean more excitement for fans, and more revenues for the league. And it might. But if it's that simple, why is it so hard to find examples of leagues that have achieved that?
It's a tough issue to resolve ... and until it is resolved, it's likely these CBA talks won't find resolution.