Thursday, December 02, 2010

The Other Part of the CBA Dispute

Will take place between the owners. As Matt Ozanian of Forbes explains (HT: Kurt Helin at ProBasketballTalk):
Tying team payrolls to league-wide revenue (currently about 50% of total revenue goes towards player compensation and benefits in each of four leagues) has served to make high-revenue teams enormously profitable and low-revenue teams unprofitable, or marginally so, relative to their rivals. The growing distortion in profitability has resulted in a bigger gap in team values…

The NBA had total operating income of $234 million during the 2008-09 season (our 2010 valuations and profits will be published in February). But three teams (Los Angeles Lakers, Chicago Bulls, Detroit Pistons) accounted for 64% of the league’s profits and 12 teams lost money.


The conventional wisdom is that salary caps benefit poorer teams. But in reality they benefit richer teams more. The owners know this, of course. Which is why the real bare knuckles fighting in the current collective bargaining negotiations in these three sports is among owners.
Whether the Hawks are still losing money or breaking-even at this point in time, it's important remember that, should the Hawks cross the luxury tax line (they are less than $1.5 million below the tax line), not only would they have to pay a dollar-for-dollar tax for their spending above the line, they would forfeit their one-thirtieth share of the luxury tax money that goes to all teams under the luxury tax line.

Given the realities of Atlanta as a basketball market (even ignoring any self-inflicted limitations of the market created or exacerbated by this ownership group), it's difficult to imagine a scenario wherein it makes financial sense for the Hawks to go over the luxury tax line given the current structure of the CBA. Of course, that's also an argument for not getting so close to the luxury tax line and handcuffing the organization on the court for years to come.

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