Aug 10, 2008

Profit-Sharing in the NBA?

In making my daily visit to FreeDarko, I came across this tasteful morsel (FreeDarko Post). The post in reference was aimed at analyzing Lebron's interest in playing overseas and the potential impact it could have on the NBA's Collective Bargaining Agreement (CBA). It got me contemplating the NBA and its current compensation structure and how this structure could be revamped in the near future.

The fact NBA stars Lebron, Kobe, & DWade have shown interest (regardless of their sincerity) in playing overseas has to have NBA heads talking. In an era where "Show me the Money" is a prevaling theme and stars (e.g. Lebron) are as much aspiring businessmen as they are aspiring NBA legends, this talk should come as no surprise. Sure, the Olympics are here, making the obligatory "I'd play overseas" statement en vogue. I get that. But these stars aren't idiots, or they're at least getting advice from people who aren't idiots. There is a load of untapped money & fame overseas, and basketball is quickly gaining popularity in these markets.

The Motivations of Superstars have Changed over the Years

If Josh Childress can become "the highest-paid player in Euroleague history," making ~$7M/year, what kind of money would be thrown at Lebron or Kobe? Lebron half-jokingly threw out an asking price of $50M/yr, but is that number really as ridiculous as it sounds? I'm not so sure. I am sure that there are international teams that would be willing to outbid NBA franchises, with salary cap limitations in place and all. Who's to say Lebron the businessman wouldn't take an offer of, say, $40M plus some sort of ownership stakes to play in China? If not James, how about a Lamar Odom-type player? A player like Odom could never be the face of the NBA but he could be the face of Croatian basketball or its equivalent. If a Croatian team threw $15M, profit-sharing, and endless endorsement possibilities at Odom, would he take it? I don't know if Odom would, but I'm fairly certain some players would.

Is this where international basketball is headed? In recent years, the migration of international stars to the NBA has been the trend. As interest grows overseas, who's to say the trend won't be NBA stars migrating to international leagues? While the NBA still has the premier competition, competition is no longer the primary movitator for all professional athletes. I could particularly see veterans who had reached the pinnacle of NBA fame & fortune making the move overseas. It would only take the movement of a few players (e.g. Lebron and/or Kobe) for an exodus of sorts to gain momentum.

The Chinese Love Them Some Kobe

So, assuming more players follow Childress' lead and move overseas, how would the NBA respond? If it were only a few players and none were All-Star caliber talents, Stern probably wouldn't bat an eyelash. If it were a handful of players and one or more of those players were cogs in the NBA's marketing machine, Stern would be sweating bullets. As soon as Greece, Italy, China, and Germany start flashing the dough, Stern and his cronies will have to take a hard look at the NBA's current compensation structure. This will be an absolute must-do if the NBA wants to continue to monopolize the world's best basketball talent.

In observing the Stern regime, I'm fairly certain he won't stand pat if basketball's balance of power begins to shift away from the U.S. Stern, in spite of all of his annoying tendencies, is an innovator of sorts. To date, he has embraced the globalization movement wholeheartedly -- and while you could argue that MLB had an influx of foreign players long before the NBA did, basketball is now leaps and bounds ahead of its American sports counterparts in terms of international appeal growth rate. It should be noted, however, that this was a calculated embrace. The progressive approach Stern has taken with regards to globalization has been aimed at growing the NBA's appeal (and revenue) overseas. I don't think he will be so eager to embrace the globalization of basketball if international leagues begin reaping the benefits at the expense of his NBA.

Without totally destroying the salary cap system in place, profit-sharing could be a solution. Lebron and others have already shown interest in participating in team ownership, so why not?While in the past I had been an advocate of the CBA, I'm beginning to think it may be too restrictive. The argument that players are overpaid can certainly be made, but foreign leagues (without salary caps or profit-sharing restrictions) will be able to overpay them even more. Furthermore, NBA franchises generate enormous amounts of revenue from ticket & merchandise sales. While marketing has improved and team management & coaches should be compensated for assembling & developing talented, cohesive, winning rosters it's hard to argue that the players are not primarily responsible for these revenues. Take the Cavs as an example: aside from winning the lottery and making the biggest no-brainer #1 selection ever, they have done virtually nothing to improve the franchise. In fact, they have probably been one of the worst-run franchises in the NBA in the past few years. Lebron has quite literally carried that franchise on his back. Players like Lebron transcend the game and sell merchandise, tickets, and the game's overall popularity on their own.

In any other type of American business, the compensation for Lebron-types would be more closely related to the overall success of the businesses they were employed by. They would get commissions, bonuses, and/or huge allotments of stock options. All of these forms of compensation reward the employee (or player) when their contributions positively impact the business's bottom line. Rather than adding variable (and minimal) compensation to be paid if the team makes the playoffs or wins the championship, couldn't some fraction of player compensation be tied to ticket sales, jersey sales, and overall profitability? Maybe not for all players, but at least for the players with the "franchise" label?

I realize this could get tricky really fast. Employing a profit-sharing system in the NBA would inevitably expose the league to the problems experienced by the MLB. Boston, New York, Los Angeles, and Chicago would have bigger bargaining chips for the superstars due to the relative profit potential advantages in those markets. Small-market teams like the Trailblazers wouldn't be able to rely upon good management alone to build competitive rosters. The NBA has kept its structure intact to avoid these types of disparities. To be quite honest (even as a Laker fan), I'm not sure I'd be happy if profit-sharing brought these inequities with it.

So what, if anything, should be done if NBA players start bailing to play overseas? Would the assurance of the best players remaining in the league outweigh the consequences of profit-sharing? I'm torn. If this posting hasn't thoroughly confused you, I'd love to hear your thoughts...


KneeJerkNBA said...

It'd be rich if Stern's master plan for globalization was foiled by all his precious commodities jumping ship first.

I hope that doesn't happen, though. The US economy needs our multi-millionaire players carelessly pissing away those dollars at local car dealerships and real estate agencies.

Walton's Wisdom said...

Good point. Don't forget to mention the toll this movement would take on our domestic narcotics market...