Tallying up the NBA lockout costs

The main sticking point in the NBA collective bargaining negotiations that led to the lockout was about money and how it should be divvied up. Now that both sides are preparing to ratify an agreement and play a shortened 66-game season, it’s worth examining how each side might be affected financially.

In theory, players will lose 20 percent of their paychecks due to the reduction from 82 games to 66 this season. The average player in the NBA made $5.15 million last season, meaning the average loss would be $1.03 million. But with the average salary skewed by blockbuster contracts for the league’s biggest stars, perhaps a more accurate number is $1.86 million, the amount the player at the median will make this season, down from $2.33 million last season. Not every player is making millions, however. A player at the rookie minimum of $473,604 will make $378,883 this year.

But that’s not the whole story, because NBA players are guaranteed 51.2 percent of Basketball Related Income (nearly all revenue earned by the league) this season. That means that if players’ collective salaries are less than 51.2 percent of BRI at season’s end, the league will have to refund escrow payments players made. Should the escrow fund fall short of re-paying players, then the league would have to cut a check for the difference. The players association then decides how to distribute the funds (most likely pro rata.)

What’s the likelihood of this happening, given BRI will be affected by a reduction in games? The only components of BRI expected to take a hit are revenue from tickets, concessions and parking. Local broadcast deals could remain as-in in many markets, and national television revenue, a large component of BRI, is generated mostly from games played late in the season.

Larry Coon, an expert in the area of NBA collective bargaining, says his rough estimate is that BRI will be reduced by 10 to 15 percent. If last year’s BRI of $3.8 billion grew by the 3 percent it averaged each year under the previous deal, it would be slightly more than $3.9 billion this year. But a 15 percent loss could mean BRI would drop to $3.3 billion.

If that occurred, the players’ 51.2 percent share would add up to $1.7 billion, a 23 percent reduction from the $2.2 billion they received last year. While players might receive back some of their escrowed funds to ensure they receive their full 51.2 percent share, it doesn’t change the fact that their collective share could be far less than it was last year.

Over the long term, however, players collectively stand to gain under the new deal, because the payroll floor for each team rises. Owners will see spending requirements rise from 75 percent of the cap to 85 percent over the next two seasons and 90 percent thereafter. Applied to the cap for last year and this year, $58 million, that means each team must spend nearly $6 million more this season on player salaries, or $180 million league-wide. If the cap were to grow at the 2.3 percent average rate of growth under the last deal, the total amount owners would pay with the increased minimum salary requirement is $2.7 billion over the full 10-year life of the agreement.

Despite the raising of the payroll floor, over the course of the agreement, players as a collective will see losses of 6 to 8 percent of what they would have received under the previous agreement. Why? Their percentage of BRI drops from 57 percent to a 49 to 51 percent band. Under the previous agreement, BRI increased an average of 3 percent per year. Using that figure to project BRI over the next 10 years, players will collectively lose (and owners will gain) $2.9 billion at the high end of the band and $3.9 billion at the low end.

Some owners might also have made money during the lockout. Economist Andrew Zimbalist, who’s had the opportunity to review the books of several NBA teams, says as many as five teams may have saved $1 million to $2 million from the missed games. He says that a couple of teams had operating losses of around $30 million last year. By losing 20 percent of the season, they saved $6 million. If they reduced their front office expenses to less than $6 million, they could have saved money during the lockout.

Whether those owners will have to rebate any national revenue for games missed is unclear, said Tim Frank NBA senior vice president of basketball communications.