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The Flaws In The NBA's Pursuit Of The NHL Model

In the latest round of labor negotiations, the owners’ unwillingness to compromise became clear. While the players want to tweak the current system, the owners are demanding a fundamental overhaul, similar to the deal the NHL’s owners got after canceling the 2004-05 season.

As Billy Hunter told Newsday about the owners’ reaction to the players’ latest proposal: “[They] were receptive to the economics, but not the system.”

But the NHL’s system, with a hard salary cap and fixed player costs, is hardly the model the NBA’s hard-line owners believe it to be. The NBA’s party-line is strikingly similar to the NHL’s in 2004: skyrocketing player salaries made the current business obsolete, and drastic steps to ensure “cost certainty” were necessary to maintain the health of the league’s 30 franchises.

But revenue sharing, not a salary cap, is the only way to ensure the relative health of a league’s smaller franchises. That’s why the NHL appears headed towards yet another lockout at the end of the 2012 season.

The hard cap, which makes it difficult for championship teams to stay together, has increased the amount of parity in the NHL. After winning the Stanley Cup in 2010, the Chicago Blackhawks had to gut their roster to stay under the cap. In the last six years, there have been six different champions and ten different franchises in the NHL Finals.

However, parity is not as beneficial as many imagine. The NFL is America’s most popular league because football is its most popular sport, not because of its competitive balance. It doesn’t matter which two franchises play in the Super Bowl, casual fans will watch anyway. It’s a part of the culture in a way that the NBA and NHL Finals are not.

Dynasties, not parity, drive interest in most sports. Compare the level of enthusiasm surrounding men’s tennis in the early part of the decade, when 10 different players won major championships from 2001-2003, to today, when three players – Federer, Nadal and Djokovic – have won 11 of the last 12 majors. The TV ratings of golf’s major championships depend almost entirely on Tiger Woods.

TV revenues are the life-blood of professional sports, and they have been exploding rapidly in the last few years. Parity prevents teams from gaining traction with the casual fan, and casual fans are what drive TV ratings. Measures that prevent Alexander Ovechkin and Sidney Crosby from facing off in the playoffs, just like measures that would have prevented Larry Bird and Magic Johnson from playing in the 1980’s, have damaged the NHL’s popularity, and therefore, its profitability.

The NBA negotiated a nine-year TV in 2007, in the aftermath of a San Antonio-Cleveland Finals that received a 6.2 rating. Now, with the rise of glamorous franchises in Miami, Chicago and LA, Forbes estimated the NBA’s deal is undervalued by at least $300 million.

Sharing that type of money equally would do a lot to improve the health of the NBA’s smaller franchises. But it’s much easier for the owners to demand money from the players than it is to demand it from each other. It’s shortsighted thinking, because without substantial revenue sharing system, a hard salary cap system isn’t sustainable anyway.

Since player salaries are linked to the amount of income the league receives, as the league makes more money over time, the average team payroll has to increase. Under the old system, the large market teams that generate most of the revenue would bear the cost of the increased payrolls. In a hard cap system, with a limit on the maximum payroll, the only way the average payroll can increase over time is if the minimum payroll does.

Without revenue sharing, small-market teams can’t afford the rising cost of the salary floor. That’s what has happened in the NHL: the salary floor (the minimum payroll a team has to meet) has risen to $48 million this season, $9 million more than the 2005 salary cap.

In essence, the NHL’s system is the worst of both worlds: leveling the playing field so truly great teams can’t exist while at the same time edging smaller market teams towards financial ruin.

A hard cap does not ensure profitability and competitive balance does not ensure popularity. It’s a lesson David Stern and the NBA’s owners, as they push the season towards the brink of cancellation, should heed.
 

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