A Weekend Wages of Wins Network Podcast and Many Notes on the Many Topics Discussed

Posted on June 4, 2011 by

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Bloggers from the Wages of Wins Network discussed Jim Tressel’s resignation from Ohio State University, Shaquille O’Neal’s career, the NBA Finals and Donnie Walsh’s impact on the New York Knicks.
You can listen to the podcast one of several ways:

The Cast

The Synopsis

  1. Jim Tressel Resigns
  2. Shaquille O’Neal’s Retirement
  3. The NBA Finals
  4. Donnie Walsh and the New York Knicks
  5. The NBA Labor Dispute

Here are some notes and thoughts on each topic we discussed.

Story One:  Jim Tressel Resigns
On Monday, Jim Tressel – head football coach – at Ohio State University.  After months of stories and speculation, apparently a story in Sports Illustrated — SI investigation reveals eight-year pattern of violations under Tressel – pushed Tressel out the door.

The SI story reveals the basic problem in college sports.  The top players generate substantial revenue for universities.  As Robert Brown notes in an article in Journal of Sports Economics (published in 2010), an examination of comprehensive data from the 2004-05 college football season indicates that a premium player’s marginal revenue product is approximately $1 million in annual football revenues [see Brown, R. W. (2010). “Research Note: Estimate of College Football Rents,” Journal of Sports Economics, August 2010].

At Ohio State, an attempt was made to compensate the athletes.  These attempts violated NCAA rules.  After years of denying that he had knowledge of these attempts, it was eventually revealed that Tressel knew more than he had earlier confessed.

What Tressel knew, though, is not the point.  Top athletes are “exploited” by the current NCAA system.  So it is understandable that people would justify paying these athletes.  After all, the “rule” that is being broken is simply the NCAA prohibition on paying athletes.  One could argue that it is the “rule” that is wrong.

Gordon Monson – of the Salt Lake City Tribune – also makes a good point (see Tressel’s downfall a warning for all college football coaches).
Coaches get fired if they lose.  If they win, they get paid millions.  Given this reality, a coach can choose to

a. cheat and collect millions.  If they get caught, they lose the job but keep the millions.
b. don’t cheat and lose out to coaches that do cheat.  In that case, you don’t get millions.

Given those choices, we probably should expect that Tressel is not the only coach that violates NCAA rules.

In fact, coaches like SteveSpurrier advocate paying players out of their own pockets. Of course, it’s only fair since the only reason they’re allowed to make millions of dollars is because the players don’t get paid. Tim Tebow addressed that issue on The Daily Show.

Story Two: Shaquille O’Neal Retired
In the wake of Shaq’s retirement, many people have contemplated his place in the history of the game. Dave did the same in this article, “The Missing Greatness of Shaq and Superman.”

Story Three: The NBA Finals
Did the Heat choke? Are the Mavericks just amazing?  And who will ultimately prevail?

Beyone our discussion, one can also see Ty Willihnganz’s discussion of how the Mavericks came back (where he notes that the Heat’s strategy was probably correct) and here is Arturo’s discussion of Game Two.

Story Four: Donnie Walsh and the New York Knicks
Donnie Walsh and James Dolan, Chairman of Madison Square Garden, mutually agreed that Walsh will not return when his contract expires at the end of June. The bloggers discussed the impact Walsh had on the Knicks in the last three years.

Story Five: The NBA Labor Dispute
The podcast ended with a discussion of the lockout looming over the NBA Finals. The first game of the finals had the highest TV ratings for a first game in the NBA Finals since 2004 (Lakers-Pistons).  The first game even had a higher rating than the first game of Lakers-Celtics (from last year).
The Finals are not an anomaly.  Much about the NBA’s economy looks promising.  From the USA Today

  • Total regular-season attendance rose 1% to 21.3 million, just shy of the league record 21.8 million for the 2006-07 season, before the economic downturn.
  • NBA arenas were filled at or over 90% capacity for the seventh consecutive season. Average game attendance of 17,306 was the fifth highest. The record is 17,757 during 2006-07.
  • TV partners TNT and ABC/ESPN saw audience gains of 42%, 38% and 28%, respectively.
  • As stars including James, Carmelo Anthony,  and Amar’e Stoudemire changed teams and donned new jerseys, merchandise sales rose 60% at NBAStore.com and 20% globally.

Some additional thoughts on the labor dispute:

  • Here is David Stern’s take on the NBA’s successful economy… “The owners generate $4 billion a year, more than that actually,” Stern said. “The players get well over $2 billion in salaries and benefits. We just need something that continues our business success and revenue generation — but which lightens the player expense load on the owners.”
  • Dave’s reaction to Stern’s comment:  Stern appears to be saying that the owners create the revenue and are being kind enough to share it with the players.  In reality, players generate revenue (no one pays to see the owners).  Owners in business provide capital (i.e. machinery and buildings) to workers, and thus generate a return from this contribution.  Much of each team’s capital, though, is actually generated by the government (see the NBA’s demand on Sacramento for that city to build the Kings a new arena).  So it is not really clear what the owners are doing.
  • Stern also contends that 22 teams are losing money and that all teams should be profitable.  Capitalism does not guarantee anyone a profit.  If you make bad decisions you should lose money.  Furthermore, given the nature of the NBA (teams essentially have local monopolies), it is hard to believe Stern’s claims about each team’s finances.
  • If teams are paying to much in salary – as Stern contends – this is their own fault.  Teams negotiate these salaries with players.  No one makes the owners pay such high salaries to unproductive players like Carmelo Anthony, Rudy Gay, and Joe Johnson.

Even more on the NBA’s claims….

  • The league’s salary cap (more precisely a cap on payrolls) – which is based on the league revenues – was set at record $58.044 million this past season.  That suggests a league where revenues are growing.
  • The NBA set an attendance record in 2006-07.  There has been some decline since then (with close to this record in 2010-11), but that might be due to the recession.  Again, though, revenues are growing (and we should remember, the NBA is in the midst of a record national TV contract that pays the league more than $900 million per season)
  • This article at Forbes.com captured some of the skepticism people have regarding the NBA’s story.
    • The Wizards and Warriors –two of the worst teams in the NBA – just sold for an average of sale price of $500 million (Wizards for $550 million, Warriors for $450 millions)
    • NBA revenues last season topped $3.8 billion and player salaries are capped at 57% of revenues. The 57% is based on basketball-related income which excludes 60% of arena signage and luxury suite revenues as well as 50% of naming rights revenue. So the NBA actually pays out around 54% of revenues to players. For the NBA to collectively lose money teams must spend more than $1.75 billion (or $59 million per team) on non-player costs.  Hard to believe this is true.
  • And here is a telling comment from Joe Lacob.  The new owner of the Golden State Warriors was asked if he expected to make money as owner of the Warriors.  Here is his response to that question: This is an incredible business opportunity. Turning this into a winner No. 1 and running this business better in certain ways… Look, sports franchises appreciate 10% a year on average over three decades, the last three decades. There’s no reason to think this won’t appreciate in value. So that is the least of my worries. We will make money on this team in appreciation of value.

To summarize the labor dispute….

  • One suspects – given all we know about league revenue and franchise values – that the NBA is simply making a stunning claim in an effort to extract some salary concessions from the players.
  • If the players do buy into the league’s story, this will not likely lead to further cuts in ticket prices.  Prices in the sports are driven primarily by demand, not player costs.  In other words, higher player salaries do not lead to higher ticket prices.  And lower player salaries will not lead to lower ticket prices.
  • If the players do not buy into the league’s story, then we will probably have a work stoppage.  If this happens, people will argue that fans will be permanently offended and future attendance will decline.  There is no evidence, though, that labor disputes lead to less future attendance.  In other words, fans seem to always come back (see the Wages of Wins for more on this topic).

– Mosi Platt and DJ

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