The logjam at press time in NBA negotiations is largely over how to divide revenue. For the most part, this is about how to divide a pie. And it’s a pretty big pie that’s being cut into two pieces. The size of the pie depends on fans and how much they are willing to pay to watch the performance of their favorite player(s) live and on TV.
The owners (the “billionaires”) want a bigger piece of the pie so that their return on investment is higher. The players (the “millionaires”) want a bigger piece because that’s their income. Of course, the size of the pie being divided may shrink if they don’t come to an agreement soon enough. Support for the Thunder could wane as fans find alternative entertainment. Hockey hasn’t recovered from its labor turmoil, although the NFL and MLB seem to have suffered no ill-effects from theirs.
Typical economic analysis, an appeal to “supply and demand,” doesn’t work in this situation. This is a “monopoly versus monopsony” situation: the cartel (NBA owners) versus the union (National Basketball Player’s Association). The resulting negotiations only exist because antitrust law does not hold in professional sports. And so the consequences we can expect are different from the normal results.
Despite protestations to the contrary, the real losers in this will be the fans. And it’s not just missing seeing the likes of Kevin Durant smoke another defender with grace and style that’s lost. It’s ticket prices. It’s bragging rights. Fans and other Oklahomans are the real losers in this battle, particularly those taxpayers who aren’t even fans.
Franchise players such as LeBron James and Durant can afford to sit out and not play in foreign leagues. They’ve got a few extra pies in the cupboard from earlier contracts. The journeymen are already moving on to foreign leagues. They know they’re replaceable and the salary difference is not as large. Besides, they don’t have many pies in their cupboard. Of course, the NBA claims that many owners are losing money, so maybe some owners don’t have a well-stocked cupboard either.
How will this all be resolved? When one side blinks. The blink will occur when the cupboard is bare. It looks like the players are most likely to run out of pies first and so will end up getting the smaller piece of subsidized pie. If this ends up being the case, the billionaires will have won over the millionaires.
Lost in all of this are the games already canceled through November. Of course, that’s been a pretty good deal for other entertainment options. Few people are much richer or poorer for the lack of an NBA game. So they spend their entertainment dollar on something else.
In a “Big League City” (thanks to the NBA?) like OKC, there’s a lot to do in the evening. Many unsubsidized businesses will gladly accept payment for their services. And they’ll provide it now, without public debate over how to divide the pie.
Willner, an Oklahoma City resident, is chair of the Department of Economics and Finance at Oklahoma City University’s Meinders School of Business.