This Week on Leverage - The NBA Lockout

You may or may not have noticed, but I like basketball. As such, I tend to pay some amount of attention, perhaps more than the average American, to the goings on in the NBA. This summer, that would mean the lockout, which I have followed, shall we say, with interest.

So I was shocked - SHOCKED! - to read today something that is really significant which I did not previously know. In fact, what I thought I knew was completely incorrect. It turns out, the league still receives the money from their National TV contract even if they cancel games! Hold the presses! This changes everything.

So here's a little backstory - Sean Deveney of The Sporting News had this tidbit way back in June, which I somehow missed. Not only did I miss it, but I had seen contradictory information elsewhere, so I've been working on the assumption that a truncated schedule means truncated TV revenues - miss a game, lose 1.2% of $31M (that's 1/82nd of a single team's share of the $930M TV deals from ESPN/ABC and TNT) which is $372,000. But in Thursday morning's Hook at SBNation.com, Tom Ziller stated that they get to keep that money. I was confused and got in touch with Tom to discuss it, and he pointed me to Deveney's piece (there's an update to that story as well).

Why this hasn't been discussed more widely as a major factor in the league's thinking is a mystery to me. This is big.

The super-optimistic Little Mary Sunshine post I wrote on Wednesday presupposed that the National TV money was among the revenues that would be impacted by losing games. The league will still be losing ticket sales and sponsorship revenue and lots of other streams, but the National TV deal is a really big piece of the revenue pie, almost a quarter of total league revenue, so that's a really handy safety net for the owners. It makes an on time start to the season much less urgent.

Both sides still lose much if there is a work stoppage - not least of which is the good will of the fans, most of whom will blame Stern and his pals this time around. But whereas the players will be cut off from their NBA salaries completely, the owners will still be cashing checks from the networks. It's quite the sweetheart deal for them - they don't have to pay salaries, don't incur the costs associated with game production, but still collect the TV revenue. Which puts them in a pretty nice spot to play hardball as they have been doing.

The biggest question in any dispute of this sort is who has the leverage. It wasn't clear before - but I now realize that this TV contract gives the owners significant leverage in the short term.

There is a catch though: if the entire season is lost, the league has to pay the money back (with interest). Which probably puts the sweet spot for the owners at that point in early January where they can salvage a 50 game season, a la 1999. They keep 100% of their national TV booty, subject the players to two full months of missed paychecks, watch the union cave and get the CBA they really want. David Stern is an evil genius.

But before he gets too comfortable in his high backed swivel chair, smoking his Tiparillo and stroking his white Persian cat, Stern should think about this: as the calendar gets closer to that drop dead date where the entire season will be lost, the leverage starts shifting back to the players. The league gets to keep that TV money if they play a partial season - so at that point it becomes the owners who have more to lose! The players have no more to lose in January than they do in October - missed games are missed paychecks, and if they're not willing to sign a bad deal in October they may have the resolve to stand firm in January. The owners on the other hand may let the start of the season slip away confident that they've got a significant revenue stream to splash around in - but suddenly that blessing turns into a curse as they face the possibility of having to return that $31M with interest!. So strangely, the players may actually be able to get a better deal in January than they can before then.

Of course, we're just looking at the short term leverage in this discussion. If these two sides can't figure out a more amicable way to work together, you have to start thinking about the big picture. I've asked this before but for me it's informative: would you rather watch NBA players playing for other owners in a non-NBA league, or watch non-NBA players playing for these owners in the NBA? It's a no brainer. It's messy, and no one wants it to happen because there would be turmoil for several years as things were shaking out, but when you take a step back from the microscope the real leverage is with the players and always has been. The owners have nothing without the players but the players can still play and people will pay to watch them play, with or without the NBA.

I don't know what all this means. I'm much less confident that we'll have a season with this new realization. But there's still a lot on the line for both sides. Cross you fingers and hope that they make significant progress towards a deal on Friday - if not, we could well be looking at an extended work stoppage.

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