Eddy Curry and Losing Money in the NBA

Posted on October 22, 2010 by


A few weeks ago, Jeff Pearlman wrote a column at Sports Illustrated that claimed Eddy Curry was young, talented, and a complete waste.  When I saw this column I thought I should write something.  And today I finally did at the Huffington Post.   My basic argument… fans of the Knicks shouldn’t be disappointed that Eddy Curry isn’t currently available.

The Eddy Curry story is part of a larger story in the NBA.  David Stern is currently asking players to take a significant wage cut.  He claims that without this cut in wages, owners can’t make money.  

For a response to Stern’s claims, let me re-post a brief story offered today by Matthew Yglesias:

The best way out of a recession is a combination of expansionary fiscal and monetary policy to bolster aggregate demand. Failing that, you need to have a grinding process of nominal wage cuts and unbalanced deflation that can take years to end and cause massive human suffering in the meantime. David Stern wants the National Basketball Association to do its part to make the dream a reality:

Stern said the league wants player costs to drop $750 million to $800 million. Deputy commissioner Adam Silver said the NBA spends about $2.1 billion annually in player salaries and benefits. […]

Stern and [Deputy Commission] Silver spoke after completing two days of meetings with league owners, who are seeking major changes to the current CBA that expires June 30. Silver said the league has told the union that owners are in a “diseconomic situation,” with projected league-wide losses of about $340 million to $350 million this season.

Though season ticket sales are up, both insisted that no matter how well the league does at the box office, it won’t change the fact that an overhaul is necessary to a system in which the players receive 57 percent of basketball-related income.

“Even though we reported we have record season ticket sales over the summer and otherwise very robust revenue generation, because of the built-in cost of the system, it’s virtually impossible for us to move the needle in terms of our losses,” Silver said.

This kind of pleading always strikes me as unpersuasive on the merits. If I owned a business that was losing tens of millions of dollars a year, I’d be eager to sell the business for a relatively small amount of money. When the Washington Post Company put Newsweek up for same, for example, they were ultimately willing to part with the firm for $1 on the condition that the new owner assume Newsweek’s pension liabilities. Similarly, when General Motors and Chrysler were revealed to have an unsustainably high labor cost structure, nobody wanted to buy either firm at any price so the government had to step in.

By contrast, when Mikhail Prokhorov bought the New Jersey Nets—by no means the league’s most lucrative franchise—he paid $200 million for the privilege. Ted Leonsis bought the Wizards, a terrible team, from the Pollard family for over $500 million this past summer. The high price of NBA franchises strongly suggests that operating one is valuable even with 57 of basketball-related revenue going to player salaries. Part of the issue is that the teams themselves can be in some ways loss-leaders for businesses whose real profit center is an arena or a cable network. Accounting can be misleading, actual asset prices are telling you something.

And here is something else Yglesias said about the NBA’s claims last February.

If NBA teams are really in such bad economic shape then how come we’re not seeing more teams change hands? In other words, if “[a]bout half of the league’s 30 franchises are losing money” then how come that isn’t leading owners to sell their teams? Someone genuinely losing money on his NBA team ought to be willing to sell it at a cheap price to a rich guy hoops fan who doesn’t mind losing money, or just to a businessman who overestimates his basketball-management prowess.

Rationally speaking, if NBA teams are hugely profitable it makes sense for owners to grab as large a share of the revenue as possible. And if NBA teams are posting huge losses it . . . also makes sense for owners to grab as large a share of the revenue as possible. The state of the economy, in other words, has very little to do with anything. And this is really the key issue in the collective bargaining dispute—as a fan, I’d be fine with a hard cap (easier to understand) and happy with shorter contracts (nobody likes to see a team crippled by a bum long-term deal) but from a business point-of-view the owners’ core interest is in reducing the players’ aggregate share of the revenue but nothing about their pursuit of that goal has anything to do with the business cycle or anything a fan would care about.

Let me summarize…NBA owners have every reason to claim they are losing money.  And NBA owners do want a system that allows them to make money even if they give Eddy Curry $60 million.  But the recent sale of NBA franchises suggest that the NBA is really not a league where losing money can’t be avoided. 

– DJ