Thursday, October 20, 2011
The Economic Geography of the NBA and the Lockout
I wrote the following for my Human Geography Class. I hope you enjoy.
Currently the National Basketball Association, or NBA, is experiencing a work stoppage. The collective bargaining agreement that the National Basketball Players Association, or the NBPA, and the NBA owners had been operating under for the past 10 years ran out after this past season ended. In negotiating for a new deal many different topics have been fought over including how basketball related income, or BRI, is divided between the players and owners, length of contracts players can be signed to, the possibility of a harder salary cap, and many other smaller matters including the Mid-Level Exception. The one issue that is pertinent in this case study however is the possibility of merging, contracting or moving NBA franchises. Bill Simmons states in his article “Behind the Pipes: Into the Arms of the NHL”:
I think we should contract/merge several franchises until we settle at 27 teams; I think Seattle should have a team; I think Chicago should have two teams. I don't think that the L.A., Chicago and New York teams should pay to keep struggling basketball teams afloat in Charlotte, Indiana, Sacramento, Milwaukee, Minnesota and New Orleans.
It is important to note that Chicago, unlike New York and Los Angeles, currently does not split its media market between two teams. Simmons is the foremost expert on the NBA, particularly when it comes to off the court topics, and much of his work will be used throughout this case study. This case study will examine the current spatial distribution of NBA franchises and how that distribution affects the league and its teams.
All of the NBA franchises in the United States are located in cities that are in the top fifty media markets in the U.S. (“Top 50 U.S. Television Markets”). The NBA has teams in each of the top ten media markets in the U.S. including two in Los Angeles and New York, the top two media markets in the United States. The largest market left vacant by the NBA is Seattle, where the NBA did have a franchise from 1967 until 2008 when the Supersonics left Seattle to become the Oklahoma City Thunder (Sandomir). Ironically enough Oklahoma City is now the smallest media market with a NBA franchise at 45th. Moreover there is an NBA franchise in 17 of the top 20 media markets in the United States (“Top 50 U.S. Television Markets”); needless to say media market size is a major factor in the distribution of NBA franchises.
Now that it has been established where NBA franchises are located and why they are located where they are, media market size and regional appeal, the next step is to look at what effect location has on an individual franchise both on and off the court. When it comes to championships won, the 8 franchises in the top 6 media markets have won 41 of the 63 NBA championships since the inception of the league (Florida) that is 65% of the league’s championships held by just 20% of the league’s franchises. In theory if every team actually had an equal shot of winning the championship, something it seems the league would like, these numbers would be more proportional. Now in a total free market system this would make a lot of sense that these teams are winning a disproportionate about of titles but the NBA is not set-up to be a total free market system, it actually has rules and regulations such as a salary cap, the luxury tax, inexpensive rookie contracts and even some revenue sharing in order to ensure as much parity as possible but obviously none of those measures have worked. The first red flag that would indicate why these teams have such a competitive advantage on the court is because they, more than likely, make the most money off it. Of the 8 franchises in the cities within the top 6 media markets 4 are also in the top 8 in total revenue and those same four franchises, the Los Angeles Lakers, New York Knicks, Chicago Bulls and Boston Celtics, are the four most valuable franchises in the league . If you count only those four most valuable franchises 13% of the league’s teams hold 57% of the league’s championships, an even more striking statistic than just looking at the media markets alone ("The NBA's Most Valuable Teams"). Money is not everything though, the New York Knicks play in both the largest media market in the country (“Top 50 U.S. Television Markets”) and are the most valuable franchise in the league ("The NBA's Most Valuable Teams") but only have 2 championships to their name both coming in a three year span almost 40 years ago. A factor that cannot be ruled out is the ability for players to choose the team of their choice in free agency. Players tend to prefer major media market cities, wealthy franchises, winning tradition, and warm locations. Milwaukee for example is neither of these; it is the sixth smallest market (“Top 50 U.S. Television Markets”), is the least valuable franchise in the league ("The NBA's Most Valuable Teams"), has just one championship to their name and is notoriously cold. It is no wonder players like John Salley, Gary Payton, and Todd Day had absolutely no desire to come to and play in Milwaukee (Schmidt). The team that best illustrates how to overcome its geographic hurdles is the San Antonio Spurs. The Spurs have won 4 titles over the past decade and is second in the league in championships per capita behind only Boston whose 17 championships keep it on top of the pile (Florida) even though it is the sixth largest media market in the league while San Antonio is the 4th smallest media market in the league (“Top 50 U.S. Television Markets”) but is in a warm climate and, in no small part to its four championships, is the ninth most valuable team in the league despite having the 12th most revenue ("The NBA's Most Valuable Teams"). So the case of San Antonio shows that geographic disadvantages can be overcome but they are one of the few franchises that have shown the capability to do so. Only Detroit and Houston have current franchises not in the top six media markets that have won multiple titles (Florida). There is no doubt that money and media market size play a tremendous role in determining what a franchise is capable of.
When it comes to the current lockout, the idea from the owner’s perspective is that the league is losing money and thus must restructure the collective bargaining agreement with the NBPA in order to become profitable. The owners have a point; over half of the franchises in the league lose money year to year ("The NBA's Most Valuable Teams"). So examine Simmons’ proposal of making two new franchises out of four existing ones. Chicago currently has one team, the Bulls, that is the third most valuable, has the third highest revenue and has the second highest operating income in the league ("The NBA's Most Valuable Teams"). Surely the city could support another team. He also wants a team to return to Seattle; a team there would secure a franchise in 14 of the top 15 and 18 in the top 20 media markets (“Top 50 U.S. Television Markets”) something that, as demonstrated above, tends to lead toward both on the court and off the court success. The new object is to find what four teams to contract or merge in order to make this possible. Combining factors of market size, franchise value, revenue and operating income those four franchises should be Milwaukee, Charlotte, Memphis and New Orleans. If the owners merged these four teams into two new teams as they saw fit and place one in Seattle and one in Chicago they would be able to make concessions in other areas and get the league back up and running which would be better for the owners, players, cities and fans.
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