After last week, many among us started queuing up to buy tickets for an extended cruise to the not-so-tropic islands of Gloom and Doom. It’s an understatement to say the news from around the world hasn’t been that good. The first of the vulnerable European banks, Dexia SA, is folding up like a cheap lawn chair with a couple more waiting for the next stiff financial breeze to follow suit. Merkel, Cameron and Sarkozy are once again scrambling around, trying to convince European taxpayers that if they just dump enough gold into the Aegean Sea, it will eventually float. (It won’t, by the way.) Meanwhile, Madame Lagarde, who already warned us that we’ve got somewhere between four and six weeks to get our financial house in order, has figuratively thrown up her hands and gone home. I’m not even including Barack Obama in this litany because most of his economic crew have already jumped ship. The ones who are left are shaking their heads and (you guessed it!) rearranging the deck chairs — to invoke a familiar analogy. Then, to top it all off, The Canadian Council on Learning released some astonishing news yesterday. Cloaked in long and boring bureaucratese, their report basically says that the killer whales at Sea World are getting a better education than Canadian children, and if we don’t watch out, in ten years we’re going to be the dumbest country on the planet. Our present situation sucks, and the only thing we can say about the future is, “Thar she blows!”
However, before you give up hope entirely and start looking for an inside cabin on the S.S. Pessimistic, there is one group of people in this world who do understand economics: NBA basketball players! These multimillionaires are putting their livelihood on the line to school their billionaire bosses in the rudiments of supply and demand. And here’s the punch line: I’m only half kidding.
If you live outside the large urban areas of North America, you may not have heard that last July the NBA (National Basketball League) locked out its players and spent the summer trying to negotiate a new CBA (Collective Bargaining Agreement.) Negotiations have not gone well, and a couple of days ago the Commissioner of the NBA, David Stern, cancelled the first two weeks of the season with probably more cancelations to follow.
Despite tons of rhetoric on both sides, everybody knows that this is an internal squabble about how the NBA will divide up the spoils they’re going to fleece out of the general public (and various levels of government) over the next five years. The billionaire owners want 53%; however, the millionaire players also want 53%. Since even basketball players can do math, there’s a problem. But that isn’t the real problem because chances are good that like gangsters everywhere, they’ll likely settle on a 50/50 split. The real problem is something called a salary cap. What this means is the billionaire owners want an imposed limit on what they can pay players – kinda like a household budget with a whole bunch of zeros at the end. The millionaire players, however, don’t want any part of that because it limits their potential earning power. The billionaires said, “We can’t function without it.” The millionaires said, “You lying dogs! You can so!” They went back and forth for a while, and then both sides reached for their lawyers. This is where we stand.
What’s actually happened, though, is for the past several years, the NBA owners have been throwing money at their players like a bunch of drunken bridesmaids at an Afterhours party at Chippendales. As a consequence, despite soaring arena and television revenues, the owners’ wastrel ways have severely cut into their profit margins. (Once again, there are arguments on both sides, but in real terms, if you’re giving Kobe 20 million, that’s 20 million you’re not putting in your own pocket. It doesn’t matter if you’ve already got a couple of billion in there.) So, now, the owners want a serious salary cap – to prevent them from spending themselves into the poorhouse. Not only that, but they also want the players to bite the bullet and give up a lot of future earnings to make up for their (the owners’) financial idiocy. One would think billionaires would be better money managers than this, but what can you do?
Meanwhile, on the other side of the bargaining table the players (mere millionaires, mind you) seem to have a better grip on financial reality. They understand that slam dunks and free throws, no matter how well done, have no intrinsic value; they are only worth what the market will bear. This goes all the way from the playground (“I’ll bet you five bucks you can’t make that shot.”) to cars and cheerleaders in college and million-dollar signing bonuses on draft day. In simple economic terms, the players want to maximize their earnings over the short playing career of a professional athlete. For example, if billionaire A (in, let’s say, Ohio) offers you ten million dollars to dribble in your shorts and Billionaire B (in … oh, I don’t know… let’s say Florida) offers you seventeen, your best bet is to take your basketballs and head south for the winter. Anyone who didn’t make that choice would be a flaming fool. It’s straight dollars and good sense.
So there you have it. I have the feeling the NBA lockout is going to last for a while, and I’ll bet you Michael Jordan would give you odds that Kobe and the boys will be playing in Italy before it’s all over. Personally, I gave up on the NBA back when Latrell Sprewell turned it into a bush-league joke, but blaming greedy players for ruining the NBA is nonsense – despite their childish antics. It’s obvious the billionaire owners are the ones spending more money than their bottom lines can absorb — if only on paper. It’s equally obvious the owners will eventually get their salary cap and then overspend it as fast as they can find the loopholes — and the beat goes on.
However, in these troubled times of financial confusion, it’s nice to know that somebody still believes in the power of market economics — even if it is only overpaid basketball players.