Monday Donuts: Our 13-Point Lockout Update
DONUT 1: After the NBA players and owners broke off talks last week, our analysis of the situation was that - despite strident rhetoric from both sides - they were far closer to a deal than it seemed. We wrote then that the "next meeting," most likely one that would beat the Monday deadline imposed by Stern, would bring a handshake deal and have the two sides start the extended process of working together to define the fine points and get the pact in writing.
Our reading of the tea leaves then was that what we were seeing was posturing by each side, partly to get their members willing to compromise a bit, as well as to push for every last nickel left in dispute.
DONUT 2: But since then, there have been several developments. First a recitation, then our updated analysis:
DONUT 3: In response to our article, we received word originating from multiple non-Dallas Mavericks NBA front office types that they did NOT expect to see the league have any games in early November. Their feeling was that the plan would be to move the season back a couple weeks, but tack on the missed games to the end of the season and still have a full schedule. But this expectation was in place before we had arrived at the deadline, while the public stance was that once we pass Monday, the NBA season will be abbreviated.
Hmmmm, we thought.
DONUT 4: With the deadline of "games will be cancelled!!" looming, David Stern began pushing publicly for a meeting to be held on Sunday and/or Monday ... and the union was apathetic. Then the union offered a meeting, but Stern made a precondition that he would only meet if the union agreed in advance to a 50-50 split of revenues. The union refused, saying their members would never accept 50-50 because they are dead set on getting 53%. Stern replied that the owners are in the 47-48% range, the 50-50 is a compromise, but the players have to say they are open to moving if they want the owners to move. Both sides dug in their heels.
DONUT 5: Then Sunday evening the two sides met after all, with no preconditions beforehand. And no formal press conferences afterward, as we were writing this late Sunday evening. ... the focus, instead, being on six hours of work.
DONUT 6: So where are we? Will there be a deal out of this meeting, as we thought? How soon before we get to see our applied logic to the ways the Mavs can defend their title in action?
DONUT 7: As we see it ...
As close as the two sides are to a deal, losing any part of the season (and the revenue that goes with it) makes no sense whatsoever. Let's review the numbers to show how irrational a non-deal would be.
DONUT 8: They emerged from the Tuesday meeting only 2% apart on the one issue that is holding up a deal, the split of revenues. All the other sticking points had been accepted by one side or the other, and a deal merely awaited a compromise on that last issue. The owners labeled their owner a 50-50 compromise, but reports say that label reflected an offer of 49% guaranteed (with triggers to increase that number to 51%), and the players asked for 51% (with the same triggers to push it to 53%).
DONUT 9: Breaking it down further, for the players, there is a deal available that they want, except for that final 2-3%. If they compromise now, they may be able to get a bit more. Or they can hold out and try to get it all (with no assurance of success, of course), and if they get everything they want they will gain between $80 million and $120 million this season.
DONUT 10: However, every week they lose will cost them $80 million (they are guaranteed at least $2 billion for the full season, and there are 25 weeks in the typical season), and the ones who swallow the entire loss will be those playing this season.
That's a huge "however.''
In a protracted holdout, the players will soon have lost more than they could have ever hoped to gain in a best case scenario. Is it really worth continuing the fight, at that cost?
DONUT 11: In addition, while the 53% is a target number for the players because they have subjectively decided it is fair, from the owners' standpoint the 50-50 split might prove to be an even harder line to cross. Why? Because their expenses (before player payroll) have been running 50%, which means that giving the players more than 50% preserves a world where losing money every year is close to a certainty.
That may help explain why Stern's 50-50 compromise contained only 49% guarantee now, a number at which the league's 30 teams could be expected to yield a modest $40 million aggregate profit, with a higher 51% split going to the players later if and less expensive revenue streams arise.
But as the players have expressed it, they were getting 57% before. They'd rather keep as much of that as they can and don't want to reduce their split that much. If they can't have that 57% deal anymore, they want 53%.
Obviously something has to give, or there will be no NBA for a long time.
So what do we think will happen?
DONUT 12: One possibility - and the one I'm now expecting - is that economics and common sense will trump egos, with the Sunday meeting serving as the opener to extended talks that bring the announcement of a handshake deal soon. But I'm also accepting as gospel the whisper that the league actually prefers to cancel/reschedule the first two weeks rather than preserve them, which leads me to the thought that they'll delay any agreement until after the Monday deadline, thereby providing the justification to cancel the first two weeks. That would be followed by an announcement on Tuesday or soon thereafter that they've agreed to a deal, and one with the full season saved by a mutual agreement to shift the lost games to late April.
DONUT 13: In that deal, I'd look for a compromise that gives no more than 50% to the players now, but that has triggers to increase their split to much closer to the 53% if at some point the other expenses go down by finding cheaper-to-produce revenue streams. No hard cap, and no super-punitive tax system, but some system tweaks that make it harder for teams to exceed and remain above everyone else in payroll.
The alternative? Egos get in the way of good business sense, and the two sides let their pride rule in trying to get the last scrap left on the table that's keeping them from a deal.
Unfortunately, that sort of stupidity can certainly happen. Rest assured that if games are permanently cancelled, they'll both get what they deserve no matter what - both sides will start losing lots of real money, as the owners will have their businesses idled and players will have ensured they get even less than they once had available. Get entrenched deep enough, and wait long enough, and we could see the future of the NBA having to be settled in protracted court cases.
But I don't think we'll see that, because I think they're smart enough to understand the math, and can reign in their egos enough to do the wise thing. Or maybe Stern will simply lock them all in a room until a deal emerges -- and in a sense, that might be happening today, as some travel plans have reportedly been cancelled so the sides can engage in a Monday session. Here's hoping that someway, anyway, cooler heads prevail.
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