Practical Economics


A Lost Season for the NBA?

Jim Patterson

The prospect of empty basketball arenas spells revenue losses for many businesses.



Editor's note: On Oct. 10, the NBA canceled the first two weeks of the regular season, wiping out 100 scheduled games. NBA Commissioner David Stern told reporters the two sides are "very far apart on virtually all issues."

When the National Football League’s season appeared in jeopardy just a few weeks ago, owners and players settled their labor dispute with surprising haste.

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So we can expect feuding players and owners of teams in the National Basketball Association to do likewise in time for the start of the pro basketball season Nov. 1, right?

Unfortunately for basketball fans — and the many hotels, restaurants, bars, cabs and other businesses that score heavily on game days — the answer is, probably not.

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The business dynamics behind the NBA’s labor fight are different, and far less conducive to a quick and happy ending.

Unlike the highly lucrative NFL, which generates about $9 billion in annual revenues, many NBA teams say they’re losing money. So the owners of those teams have little incentive to keep the current pay structure intact and have less need to fear the financial impact of missing games the way their NFL counterparts did.

“It’s a question of who has more leverage,” says Jay Krupin, a labor attorney with the Washington, D.C., firm of Epstein Becker Green. Without the fear of lost profits, many owners will have little incentive to compromise with players trying to protect their current salaries, he says.

With league revenues under pressure, Krupin expects the owners to drive hard for a new labor agreement that would force players to “feel some of the pain.”

Of course, not everyone agrees that the owners are hurting. This camp includes Victor Matheson, an economics professor at College of the Holy Cross in Worcester, Mass., who specializes in the business of professional sports. But Matheson notes that the owners “have nothing to lose” by poor-mouthing as justification for paying lower player salaries. Owners also see individual games in the NBA’s 82-game season as financially dispensable, whereas the NFL teams play just 16 regular-season games — each drawing big ticket revenues and TV ratings.

NBA players, for their part, show little inclination to come to the bargaining table and accept lower wages. The growing popularity of basketball around the world, from Europe to Turkey to China, means many of today’s stars can earn paychecks by playing abroad, rather than by giving in to NBA owners’ demands.

The Denver Nuggets alone have seen three players take work abroad: Wilson Chandler and J.R. Smith are bound for Chinese teams, while point guard Ty Lawson has signed with a Lithuanian club. Many other players around the league have done likewise, or are considering it. The lure of a gig overseas reduces the financial pressure on many players to reach an accommodation with their U.S. employers — a dynamic not in play during the NFL’s labor dispute.

So don’t be surprised if the basketball season doesn’t start on time — if it starts at all. And that spells trouble for businesses that depend to some extent on arenas full of fans to visit nearby restaurants and bars and book area hotel rooms. The impact will also be felt by many others — from cabbies and parking lots to cleaning services and sellers of team merchandise.

Barbara Lang, president of the DC Chamber of Commerce, says canceled games will hurt plenty of local economies, particularly in cities with downtown venues, such as Washington’s Verizon Center. When the Washington Wizards host an opponent, Lang says, the commercial district adjacent to the arena is a “madhouse,” with packed restaurants and bars before and after tip-off. If there’s no basketball, those businesses will suffer accordingly, causing a ripple effect on hotel and other jobs as well as on tax revenue, she says.

Moreover, arenas have little leeway to book alternate events to fill seats. Barring an official cancellation of the season, arenas will have to keep scheduled game dates open and endure dark venues on such days if the labor fight drags on.

Greg Algie, owner of Fado, an Irish pub located just a block from the Verizon Center, isn’t bracing for a full-blown economic disaster if the regular season doesn’t start on time, but he readily admits that the loss of business will sting. Would he welcome a quick resolution to the impasse and keep his establishment jumping on game nights? “Heck, yeah!”

Negotiations between players and owners have reportedly begun again after weeks of silence, but the two sides are still far apart in their revenue-sharing demands. If no deal is in place by Valentine’s Day of 2012, says Holy Cross’ Matheson, the league will have reached a “drop-dead date” and the entire season will likely be lost.



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