Bad bounces for the NBA: With league claiming losses & players crying foul, lockout looms
In seven seasons in the NBA, LeBron James has done everything you could ask of a player who came in directly from the high school ranks. He's taken the once down-trodden Cleveland Cavalier franchise to its first NBA Finals, played in six All-Star Games, won a regular-season MVP award, is favored to win his second-straight MVP and has led his team to the best record in the NBA for the second straight season .
If he only had the Midas touch when it came to making his team money, James would be even better than advertised.
Despite all that James has done to turn Cleveland into a winner, the Cavaliers have been losing upwards of $20 million per season over the last two seasons, and are projected to lose anywhere from $10-$15 million this season, according to league sources with knowledge of the team's finances.
Not that the Cavs are alone. They're one of many of the 30 NBA teams expected to lose millions — and supply the league's owners with what they see as an iron-clad case for changing the current economic model when the labor agreement expires after next season.
Owners don't believe their losses are merely a direct result of the lousy economy, which can be partly to blame for the league's 2% decline in ticket sales. For the men who sign the players' paychecks, the very system under which they operate is obsolete, only five years after they signed their last collective bargaining agreement and guaranteed players 57% of basketball related income (BRI).
"We need to make significant changes to deal with very substantial losses that amount to hundreds of millions of dollars," NBA commissioner David Stern said, at the All-Star Game in Dallas in February. "It's fair to say that the current business activities do not support the current expense structure that we have."
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Stern projects losses upwards of $400 million for this season alone — about double the annual losses for the first four years of the deal. And he predicted Friday that they would still be close to that. That's why he and his owners want to drop the players' salaries to around 45% of the BRI.
The $400M loss projection has come under fire from the players, and, to a lesser extent, from the Players Association, who see it as a negotiating ploy and don't want to antagonize their partners, at this point. When the players present a counter-offer in the near future, they are expected to provide their own bottom-line figure and continue to demand that the current system merely be tweaked. The union contends that aside from the problems with the economy, teams need to be smarter when it comes to spending money on coaches and front office personnel.
Players are in a tricky spot, knowing they can't protest too loudly.
"The last work stoppage was in '98 and certainly the economy was a lot better at that time, and there were some players who said some things that were insensitive," said Phoenix's veteran forward, Grant Hill. "You don't want to alienate and disrespect the public and the customers who support us. So it's a tough situation. Obviously, there's posturing that occurs in negotiations, but both sides have to be careful."
On this hot-button issue, owners and team executives are not as free to speak as players, risking a hefty fine from the league. Not surprisingly, they have taken the league's position that players need to make the ultimate sacrifice. One ownership source said privately that four teams — Memphis, New Orleans, Charlotte, and Minnesota — went into this current season with their owners digging into their own personal fortunes to keep their teams afloat. Additionally, Atlanta, Detroit, Miami, Orlando, Oklahoma City, Indiana, New Jersey, Milwaukee and Philadelphia were among the teams said to be losing "tons'' of money this season.
While the defending champion Lakers do the best on and off the court — with their tremendous revenue streams in big-market L.A., they made around $51 million last season, according to Forbes — the Cavs' payroll of $85 million is the main reason for their losses, sources say. Looking to keep James happy and to get his signature on a new long-term deal this summer, Cavs owner Dan Gilbert has done everything possible toward that end by constantly adding high-priced players, including this season's additions, Shaquille O'Neal ($20 million) and Antawn Jamison ($11.6 million). Gilbert will have to pay about $15 million in luxury tax, bringing his bill for salaries to around $100 million. So, despite the Cavs playing to sellout crowds during most of the James era, and getting top dollar from other revenue streams, including concessions and parking, having James on the team has been a losing proposition, at least when it comes to the team's finances.
Yet, despite the record losses around his league, Stern has rarely taken flak, or for soft-peddling the crisis when he says things like, "It's a good time to be commissioner in the NBA," a line he delivered in Dallas before telling the media how dismal things are.
"When David talks about how great things are, he's not talking about the teams' profitability," says one high-ranking league executive who requested anonymity. "He's talking more along the lines of how the game is going for us, internationally. He's not talking about, 'hey, our teams are printing money.' You have not heard him say that.
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