Economic impact of the NBA Lockout?

November 4, 2011

There is always that question of the economic impact sport has, and the common answer given by economists is that there is little/no economic impact from sport on a region.  The research done in peer reviewed journals backs this up, and it has been something which has been discussed here any number of times.

Thus, I was pleased when I came across this post at NBC’s ProBasketballTalk blog today.  They note that there is no economic impact of the NBA lockout, as the discretionary income used to buy tickets will go to other goods and services in the community.  However, they do note a group that is hurting from the lockout, workers at Orlando’s Amway Center where the magic play.  The article states:

(Community Food & Outreach Center director, pastor Scott) George estimated that between 40 and 75 game-night workers have used the Community Food & Outreach Center’s services over the last few weeks. He said he’s unsure of the exact number because some game-night workers are afraid that if they say something, they might not be able to go back to their jobs when the lockout ends.

While this is less than ten percent of the workers for the Amway Center, and we don’t know how many of these workers already go to the Food and Outreach Center in the first place, it does highlight that it is the little guy/business that is often affected negatively by the lack of games.

I remember earlier this year THE SAME author at NBC’s ProBasketballTalk posted an article making the claim that the Lakers losing early in the playoffs would cost the Los Angeles economy $70 million.  This all traces deeper to the words of an economist, who actually notes that the loss could cost downtown business near the Staples Center around $70 million.  Of course, this doesn’t mean that LA is losing $70 million, but that the spending might be redistributed among other parts of the city/region.  Again, those who would be hurt would most likely be those business such as bars and restaurants that depend upon game traffic and large numbers of fans to help boost business.

I’m hoping that more of those in the media are paying more attention to what the academics have to say about economic impact and sport, though I’ll keep watching to see if NBC is keeping a new consistent message.

NBA Lockout Breakdown

November 3, 2011

Welcome to day 126 of the NBA lockout.

I feel a bit guilty about not having discussed the NBA lockout in greater depth, as I spent many posts discussing the NFL lockout.  The NFL lockout was settled in time for the season to begin on time, and while there seemed to be some bad blood between the players and the owners, the scope of the NFL lockout pales in comparison to the NBA lockout.

We are now several months into the lockout (the lockout is just over four months old) and the talks between players and owners hit a deadlock over splitting the revenue.  The owners want a 50-50 split of revenues, the players were willing to go as low as 52.5%, but have yet to say they will go any lower.  Not only has the talks between players and owners been heated, but some of the players have expressed anger at the union as well.  The big split seems to be between union head Billy Hunter and player rep Derek Fisher who seemed to have come to a disagreement over the revenue split.  It is reported that Kobe Bryant and Derek Fisher were pushing to accept the 50-50 split, and that Billy Hunter actually confronted Derek Fisher about this.  It came to the point where Derek Fisher had to bring in the lawyers and publicly make a statement that there is no split in the union.  Officially there is no issues in the union.

NBA veteran Jerry Stackhouse came out and disagreed with this on ESPN Wednesday, he stated:

“Not to say anything against Derek Fisher, it’s not that I don’t think he’s a great guy,” Stackhouse said, “But I don’t want him negotiating my contract. I want an agent who knows the lingo negotiating my contract. Derek Fisher, he doesn’t negotiate his own contract. He has an agent. So why would I want him negotiating something even bigger than his contract? This [Collective Bargaining Agreement] is something more important to everybody…

“David Stern, he’s made this league what it is,” Stackhouse said. “He’s one of the greatest commissioners in sports. He’s got that title, he’s got the NBA at the place where it is because he’s a shrewd businessman and knows how to work his way, play the media, play things up to get what he wants. We don’t do that. Players are emotional. Players get emotional. So no, I don’t necessarily, particularly want Derek Fisher or any of the executive committee negotiating a contract for me.”

So clearly there is a rift in the NBA lockout, which would seem to give some more power to the owners.  The NBA is also trying out a new tactic in the labor agreements: Twitter.  The NBA has a twitter handle now dedicated to posting the ownerships point of view in the labor lockout.  One player (Nazr Mohammed) pointed out that the players can’t talk to coaches or workout at facilities, but the NBA can send them harassing messages about the lockout through twitter (though it is Mohammed’s choice to receive these messages as well).

The lockout has carried on so long to this point, that the league was forced to cancel games all the way through the end of November.  Each day that ticks by is another day lost, as realistically, to get players through camp and have the season ready to go would take about a month (30 days).  So while November is already cancelled, you can pretty much start ticking off the days in December.  The Christmas day NBA games are usually pretty popular, so I wonder if the the two sides might try to push for some resolution.  We know the season will already be shorter, and there is no way they can extend it with the 2012 London Olympics looming in the summer, I begin to wonder if there will even be an NBA season at this point.  While I have pointed out that the owners have stood strong, and there is fractions in the union, it is important to note that many NBA players are currently making money playing basketball overseas.  Utah Jazz point guard Deron Williams began the exodus of NBA players by signing to play in Turkey, and slowly players have moved to teams all over Europe and China.  So while the NBA has suffered bad PR form this lockout, many overseas teams have had the bonus of having the services and star power of some NBA players on their team so far this season.  The NBA has always looked to try and build a bigger global brand, and it is curious to see whether this lockout causing players to go overseas may help/hurt the league trying to become even more popular overseas.

Yesterday, Chauncey Billups had some strong words trying to show the solidarity of the players.  Billups said he was willing to forgo his $14.3 million contract for this season and sit out the entire year to make sure that there is a fair Collective Bargaining Agreement (CBA) in place for the future.  Billups noted that fair means that it would be economically fair to the players.

NBA players are the highest paid players on average than any other professional sport league in the world.  Their salaries have been the big target point of this round of CBA negotiations, as the owners feel they are taking a big hit having to pay such high salaries.  At the same time, the high salaries and lower number of players in the league seem to have created a case where many of the players can actually afford to sit out a season, where NFL players were not able to.  The availability of leagues overseas providing another avenue for players to earn money for NBA players has been another factor which has probably caused the lockout to be so drawn out.  To be honest, the NBA players are in a much better situation for the NBA players, and seem to be willing to take a loss for the time being in order to get a fair contract.  Both sides are losing money, and right now it almost seems to be a game of chicken to see how will flinch first.

Also, I would like to point out this post about the lockout over at The Sports Economist, another great read and take on the lockout from University of Chicago economist Kevin Murphy.

City of Memphis contemplating suing the NBA over the lockout

October 20, 2011

The Memphis Grizzlies, the cities National Basketball Association (NBA) franchise, currently play at the FedEx Forum.  However, with the NBA currently locked out, and looking more and more likely that there is going to be a big cutback in the length of the season (or possible no season at all), the city of Memphis has started to worry.  The reason?  The FedEx Forum is actually paid for through revenues produced by the team.  However, if there is no team playing there, then that means the city will have to make the bond payments.  Fox Memphis say the City Council is estimating that these will be somewhere in the neighborhood of $18 million.  Those who will have to bare the burden?  Most likely the local taxpayers.  Things are getting urgent, city councilwoman Julie Fullilove notes:

“Should this lockout stay until December, then there’s a very big bill there that the city of Memphis will be responsible for, and whether or not we file a lawsuit, which may set precedent among other cities in this nation, is something we’ll have to wait and see. But it’s only being proactive that’s he’s offering this resolution.”

So with less than a month and a half away from the deadline when Memphis will start having to cough up some cash to make bond payments, the city has started to look at the potential for a lawsuit against the NBA.  Curiously, when Fox Memphis talked to the individual in charge of the bond, he noted that there is currently a surplus in the account to pay the bond through 2028.  He  even notes that he is confused where the city got the idea that they needed to pay up $18 million soon, and that it would be the taxpayers who would have to pay it.

So there we have it, the City is thinking of suing the NBA for being locked out, claiming it will cost them part of the bond payment.  The guy in charge of bond payments says there is more than enough money for the next decade and a half.  The $18 million doesn’t seem to add up that the city would have to pay because of basketball not playing, as they only receive about $3.5 million a year currently from ticket sales and revenue.  I think this may just be a political powerplay to help the politicians in the city council to look good.  I don’t think it really will do much, and I doubt that they have much of a case against the NBA.  Case in point to this being about politics, the City Council Chairman noted:

“I want the citizens of Memphis to know that we are not sitting by idly, waiting for this to hit us and for us to say we’re sorry.”

Still, it would be curious to see if cities can take action over lost revenue because leagues do not play because of a lockout.  I wonder, would the city sue the players if the players were on strike?

Does an NFL Lockout increase crime?

May 22, 2011

Ray Lewis gave an interview to ESPN stating that he believes if the NFL lockout continues, it will lead to an increase in crime.  Ray Lewis, a linebacker for the Baltimore Ravens, states:

Do this research if we don’t have a season — watch how much evil, which we call crime, watch how much crime picks up, if you take away our game,

I know everyone’s first thought is that Ray Lewis is hinting that if the NFL lockout continues, and players do not get paid, that many of the players will turn to a life of crime to help pay the bills.  However, Lewis is really not indicated that the players will turn to crime, but rather the people who depend on the players and owners for a job and/or some type of financial backing.  Lewis continues:

There’s too many people that live through us, people live through us,… Yeah, walk in the streets, the way I walk the streets, and I’m not talking about the people you see all the time.

It seems that Lewis is really point towards the “hanger-on’s” and “posse’s” that many NFL players have, as well as other dependents who live in poor financial conditions.  It is known there are a number of athletes who do have such groups, but I wonder if having a lockout would really increase the crime rate.  Lewis does end noting that the two sides (the owners and NFL players) need to get back to the negotiating table and get a deal done, as he knows many people who are hurting from the lockout.

On another thought, I wonder if the lack of NFL to watch on Sunday’s and Monday night’s in the Fall could lead to an increase in crime rate because of individuals having “nothing” to do.  Instead of sitting at home and watching games, some people might instead go out looking for something else to do, and in some cases this could lead to crime.  I don’t think that this would hold true in all communities, and I’m not suggesting there is going to be a national crime wave (I believe Ray Lewis is not suggesting this either), but there are probably some communities that could be affected if the NFL is in lockout.

Of course, all of this could be a great tactic by Ray Lewis to get into the negotiations between the owners and players.  He hasn’t been part of any of the negotiations, but has been hinting that he wants to be part of the talks.  Either way you take it, Ray Lewis always makes good headlines.

The NFL Lockout and Rottenberg’s Invariance Principle

May 10, 2011

The NFL in its opening brief argued that Judge Nelson’s ending of the lockout a few weeks back caused harm to the NFL, by making it so that better off (in the financial sense) teams could sign better players, and that would harm the league by causing a decline in competitive balance.  The argument follows that a decline in competitive balance of talent in the league, would lead to greater disparity between the teams on the field, and thus make the outcome of games easier to predict for fans.  If fans can predict the games then they are less likely to go, and this would mean less gate revenue for teams.  Back in 1956, University of Chicago economist Simon Rottenberg wrote what is to this day one of the seminal works of sports economics and the understanding of competitive balance and uncertainty of outcome in professional sports.  In this Rottenberg hypothesized that games with uncertain outcomes are more likely to be viewed by fans.  This hypothesis came to be known as the “Uncertainty of Outcome Hypothesis” (UOH) and was the first step towards research in competitive balance.

In additional to the UOH, Rottenberg also posited the “Invariance Principle.”  In simple terms, the Invariance Principle basically noted that player talent in a league would move to the team which valued them the most, invariant of team revenues.  That is, players will eventually end up on the team where they have the highest value of use to that franchise.  This is somewhat similar to the Coase Theorem, developed by fellow U of C economist Ronald Coase in 1960.  The NFL’s most recent argument states that player movement caused by the lifting of the lockout caused harm because of a decline in competitive balance because players go to teams that have the most revenue.  The Rottenberg Invariance Principle would note that these players would probably have ended up on teams that valued them the most, and that this ruling by Judge Nelson probably would not cause a change in competitive balance, and in turn cause a change in revenue distribution among teams in a league.

The longer legal brief can be found here.

… and the NFL lockout is back on again.

May 2, 2011

As expected, the NFL appealed to the U.S. 8th Circuit Court of Appeals to get a injunction placed against Judge Nelson’s prior ruling ending the NFL lockout.  So for the time being, the lockout is back in place as the court reviews the brief filed by the NFL.  ESPN has kindly provided a link to the 18 page legal brief here.  Now an interesting point which came up in the legal brief is that the NFL is claiming that the NFLPA and its members (the players) did not bargain in good faith.  They show some quotes and citations that state that the players were happy with the union and only dissolved it as an “Ace up the sleeve” in their battle against the owners.  While the NFL won a 2-1 vote for a temporary stay, the same judges will have to come back and decide whether a longer injunction can be put into place.

The NFL has also tried to make the case that the players are actually enjoying the lockout, after Ray Lewis and Wes Welker stated to the media that they were happy to have more free time because of the lockout.  And that because of this, the lockout is not putting the players into greater harm.  Now the argument may be legally sound, but it would seem that just because two higher profile players are happy, doesn’t mean those 2nd string tight-ends or the punter is going to be happy with the longer lockout.

I’ll keep updating as more news on this is released.  One of the big losers at the moment are the undrafted players, as they are the ones who will be without contracts and the ability of knowing if they will be invited to camps or even have a shot at playing in the NFL this year.  There may be a big influx of players to Arena Football and possibly the Canadian Football League if the lockout continues.

Judge Nelson orders NFL season to begin

April 28, 2011

In a bit of breaking news, 30 minutes ago Judge Nelson ordered the NFL to begin its season, effectively ending the lockout.  The NFL will now try the Appeals Court as their last resort.  For more on the lockout and Judge Nelson’s rulings and its potential fallout you can read previous posts here and here.

NFL Doomsday Scenario, Part II

April 27, 2011

More movement in the NFL lockout.  NFL owners urged Judge Nelson to place a stay on her decision, the players fired back and said “NOT SO FAST” (in their best Lee Corso voices).  The NFL players are now urging Judge Nelson to not grant a stay, so they can move forward.

In the 23 page filing which is opposed to the NFL Owners attempting to get a stay on the previous ruling, the players have asked for four big things if the stay is not granted..

First, they want a billion dollar bond (yes, $1 billion).  I would suppose this would be to cover player costs, but at this point they are simply noting that it is to “protect players’ rights”.  The $1 billion would be a bout 25% of total compensation that players receive in a year, and would seem to help solidify the end of the lockout in some individuals opinions.

Second, and potentially more important, the NFL players have asked for a new system which does not violate any antitrust laws.  Now yesterday I posted talking about what I thought may have been Goodell’s irrational fears of the players gaining too much power.  I dismissed this as many players had said they wanted to head back to the status quo.  Yet, it is rather vague what the players’ association really is going for here, when they want an end to all antitrust activities.  Does the draft violate antitrust? Should all players be unrestricted free agents?  Certainly there are good arguments for giving these things to players under antitrust law.  This has major implications depending on how it is interpreted, I would be curious to see if the NFL players try to move away from their current status quo, towards a system which gives them even more power (and would likely hurt certain groups of players and owners alike, and help others).

The other two parts of the filing note that the NFL has little chance to win, and that a lockout is not in the best interest of the public.

The drama continues, and Judge Nelson’s decision here today could have major financial implications for all involved.

NFL Doomsday Scenario?

April 27, 2011

National Football League (NFL) Commissioner Roger Goodell has been given space in today’s Wall Street Journal to write his own opinion piece of what he believes will happen if the players win this lockout battle going on between owners and the players.  The picture which Goodell paints, is one of a true Doomsday scenario for the league and owners.  He believes that the recent ruling by Judge Nelson which will potentially end the lockout will cause a lot more problems for the NFL and potentially lead to the demise of the league.  While the ruling is still being considered by Judge Nelson, and even if she did rule in the players favor, the owners would still probably get time with the business friendly Eight District Court of Appeals.  In all of this, what Goodell see’s as the future is if the players manage to have rulings made in favor of them, it will give too much power to the players, and that the players would want to take more and more away from the owners.

Now this is quite funny in my opinion, as it was the owners who wanted to take away more money from the players, and the players refusing which lead to the owners locking out the players, not the players going on strike.  In fact, it seems many of the players would liked to maintain a status quo, with the league and players keeping their splits from the previous collective bargaining agreement (CBA) without the owners trying to pull over $1 billion from the pot before things were split.  Now to have Goodell, who is really acting in the best interests of the owners, not necessarily the league as a whole is writing what looks to me to be a piece that is focused more on scare tactics than reality.

Goodell tells of a league that has no draft, where all players are independent contractors, and everyone is an unrestricted free agent.  While the players would love such conditions in many cases, as it would allow players to try and demand higher salaries and really test their value on the market, this scenario seems more likely to be something Goodell has nightmares about, than necessarily becoming reality.  Goodell in his piece notes:

In an environment where they are essentially independent contractors, many players would likely lose significant benefits and other protections previously provided on a collective basis as part of the union-negotiated collective-bargaining agreement. And the prospect of improved benefits for retired players would be nil.

And that reasoning would indicate that this is exactly why the players would most likely come back to the table even without the lockout ended by a judge and negotiate a new CBA.  In fact, many players came out and discussed this topic today, including Jeff Saturday, the Players Union Rep for the Indianapolis Colts.  On both the radio and television he noted all the players want is things to basically go back to the system they had before, the one where owners weren’t pulling out an extra billion dollars.  As noted before, if the owners opened their financial statements and showed hardship, then they might have a case, but they continue to refuse to do so, and really make things tough on themselves.  Goodell does end by trying to pander to the fans.

Is this the NFL that fans want? A league where carefully constructed rules proven to generate competitive balance—close and exciting games every Sunday and close and exciting divisional and championship contests—are cast aside? Do the players and their lawyers have so little regard for the fans that they think this really serves their interests?

As Gene Wojciechowski of ESPN notes, the Wall Street Journal isn’t probably the best venue to reach football fans.  He also notes:

Goodell said in the WSJ piece that the current system provides “incentives” that resulted in “two dozen new and renovated stadiums.” Interesting, since Goodell has argued in the past that the current system isn’t conducive to new infrastructure expenditures such as stadiums. So which is it, Commish?

Really, Goodell seems to be losing his war against the players union, and it could be costly for the owners if they come to some agreement soon.  Will it “endanger” the league as Goodell claims it will?  In the short-run I doubt it, in the long-run, it will probably be in the owners and players best interest to get a CBA back in place.

Are NFL Players the target of predatory lending?

April 14, 2011

With the National Football League (NFL) owners current locking out the players, many players have little or no source of income or any type of benefits.  More than a year ago, I discussed how the NFL Player’s Association (NFLPA) was warning players on how to prepare for the lockout.  This including things such as: not purchasing houses, not buying boats or expensive cars, and trying to save money and leave within one’s means.

Pro Football Talk reported last month that many players were seeking high interest loans to help them through the lockout period.  Now ProFootball Talk and Yahoo Sports are both reporting that a number of players from at least 16 teams have had to set up these high risk loans.  It is noted that these loans have interest rates in the range of 18 to 24 percent, with a 36 percent rate in the case of default for some of the loans.

NFLPA representative and Arizona Cardinal kicker Jay Feely noted:

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd.”

However, as noted in the Pro Football Talk article, many players do not have the credit history or collateral needed to back the large loans that many of them are needing to get through the lockout period.

Yesterday, I noted that the NFL owners had made a new offer to the players.  Considering the fact that players are already going out to get risky loans, I’d think that the owners may be in a good negotiating position now.  They have made concessions which will give more money to players who are more likely to be NFLPA representatives, and with the number of players potentially needing a paycheck growing everyday, it may be that some players will start putting pressure for the rest of the players to negotiate a new collective bargaining agreement sooner rather than later.

On a final note, I imagine these lenders who are making these loans must be smiling in joy at the lockout, and probably hope it extends longer so that they can hook more players with these high interest rates.

H/T to Shawn for sending me these articles.

“I think it’s predatory and unjust.  I don’t think they should be charging those interest rates and I would encourage every player [considering high-risk loans] to look elsewhere.  I think if you went to your bank, or outside lending agencies, you’re not going to pay that kind of interest.  That’s absurd


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