Legal Commentary

The NBA Bubble

By Tom Kirkendall

Looking for the next bubble to burst?

How about the National Basketball Association, where the local Houston Rockets play in what has been nicknamed ?The Library on LaBranch? because of the lack of fan interest at their home games.

ESPN?s Bill Simmons dissects and then sums up the league?s dilemma well:

.  .  . The current system doesn't fly. The salary cap and luxury threshold ebb and flow with yearly revenue -- so if revenue drops, teams have less to spend -- only there's no ebb and flow with the salaries. When the revenue dips like it did these past two seasons, the owners are screwed.

They arrived at this specific point after salaries ballooned over the past 15 years -- not for superstars, but for complementary players who don't sell tickets, can't carry a franchise, and, in a worst-case scenario, operate as a sunk cost. These players get overpaid for one reason: Most teams throw money around like drunken sailors at a strip joint. When David Stern says, "We're losing $400 million this season," he really means, "We stupidly kept overpaying guys who weren't worth it, and then the economy turned, and now we're screwed."

This isn't about improving the revenue split between players and owners. It's about Andre Iguodala, Emeka Okafor, Elton Brand, Andrei Kirilenko, Tyson Chandler, Larry Hughes, Michael Redd, Corey Maggette and Luol Deng making eight figures a year but being unable to sell tickets, create local buzz or lead a team to anything better than 35 wins.

It's about Jermaine O'Neal making more money this season than Kevin Durant, Russell Westbrook, James Harden, Serge Ibaka, Eric Maynor, Thabo Sefolosha and Jeff Green combined.

It's about Rasheed Wallace -- a guy who quit on his team last season, then showed up for this one with 34Cs and love handles -- roping the Celtics into a $20 million, three-year deal that will cost Boston twice that money in luxury tax penalties.

With at least a dozen or so NBA teams facing serious financial problems, my sense is that the league is facing a radical restructuring whether the players like it or not. Of course, a substantial component of those teams? financial problems is attributable to the transfer of capital that many teams made to players as a result of not needing to rat-hole capital for arenas that local governments naively financed instead.

Sort of makes one re-think this boondoggle, eh?

Full post as published by Houston's Clear Thinkers on March 05, 2010 (boomark / email).