Like NFL, hoops league faces potential lockout

For the NBA and its TV network partners, it has been a slam-dunk season. The sport’s ratings are up and large-market teams such as New York, Los Angeles, Boston, Chicago and Miami are seeing exceptional interest.

But like the NFL, the NBA is facing labor strife that could bring it all crashing down like a shattered backboard.

On June 30, the labor agreement between the NBA and its players expires, creating the possibility that the owners could lock the players out, killing the ratings momentum built by ABC, ESPN and TNT.

And because basketball is universally popular around the world, the dispute could have ramifications in other TV territories — especially China, where viewership for NBA games averages 30 million per week.

The sides remain far apart on the core issues of finances, with the league maintaining it is loosing money hand over fist, and the players claiming the league’s revenues are rising. National Basketball Players Assn. exec director Billy Hunter has said he’s “99%” sure that a lockout will occur.

Meanwhile, the league’s owners have arguably never been more unified.

“We need a system that provides all 30 teams, regardless of market size, an opportunity to compete for a championship and be profitable,” NBA deputy commissioner Adam Silver says.

A labor negotiating meeting between the union and league during All-Star Game week has seen several star players join the discussion, voicing their displeasure with proposed salary cuts.

“The union delivered a proposal on July 1, and we are still awaiting a response,” says NBPA communications director Dan Wasserman. “Negotiated salaries for players have decreased three years in a row while NBA ratings, ticket and merchandise sales are up strong across the board. That’s a system that should work for owners. A lockout jeopardizes all of the league’s current business momentum.”

For the two cable nets that air most of the sport’s national telecasts, interest in the NBA has been a blessing. At the All-Star break, TNT’s 36 games had averaged a record 2.42 million viewers — up 36% from the same point last year, while ESPN’s first 47 games averaged 2.01 million, up 20%.

And ABC is averaging 7.23 million viewers for its five broadcasts, up 44% over last year (5.01 million).

But, if a work stoppage were to move into next season’s TV sked, ABC, ESPN and TNT could be in the position of paying broadcast rights fees for games not played. Much like the deal brokered by the NFL, the NBA’s TV agreements have provisions that stipulate rights fees must be paid through any work stoppage. But the league would have to rebate the networks, with interest, once play resumes, like the NFL deal.

ESPN, which airs both the NBA and NFL, could be hit with a two-shot foul. If the NFL and NBA were to lose their entire upcoming seasons, Disney-owned networks would be shelling out approximately $1.5 billion in rights fees for games not played.

The broadcast partners for the NBA each reached eight-year agreements in June 2007 that went active in 2008. Each involves a heavy digital-rights component. For ESPN, that includes rights to have the NBA deliver content for multiple ESPN platforms, including ABC, ESPN, ESPN.com and ESPN360.com. ESPN also has an augmented package of international television rights for game and studio telecasts.

Turner Sports gained enhanced digital rights that involve the league delivering content for multiple Turner and Time Warner platforms, including TNT games simulcast on wireless, broadband and VOD through TNT OverTime; interactive online elements such as selected camera angles, statistical feeds and video to complement TNT’s telecasts; and exclusive broadband and other content, including highlights and studio shows, for digital platforms.

All told, rights fees from ABC, ESPN, and TNT total approximately $930 million a year. Over the life of the eight agreements that expire at the end of the 2015-16 season, each year of the agreement sees a 3% increase. The total rights fees paid by the network partners will reportedly be $7.4 billion.

“We obviously have contingency plans put in place,” said David Levy, president of Turner Sports. “We certainly hope there won’t be a lockout. For us, we are prepared, and hoping for the best.”

At the center of the labor dispute is the NBA’s claim that the league is losing money. Currently, 57% of the league’s revenues go to players in the form of salaries. While the down economy has hurt the NBA, the league says further pressure has come from increased costs in marketing and arena development and renovation — moving their finances from black to red.

According to Forbes, more than half the NBA’s clubs (17 of 30) are losing money, with five teams facing deficits in the double-digit millions. Saying that the current system is completely broken, the league aims to cut player salaries by $700 million to $800 million annually — a whopping reduction of 40% from what the players make now.

Unlike the NFL, whose owners say they are seeing cash flow declines but won’t show actual figures, the NBA has claimed financial distress and has released audited financial information to the players union to show losses going back several seasons.

The NBPA has said it wishes to see current numbers, especially in the face of the league’s apparent resurgence in some markets that have experienced large increases in ticket sales.

The New Orleans Hornets are in such dire shape that they have become wards of the state — the NBA has purchased the club. While the league is looking to local and state government for a new arena for the Hornets, there have been rumblings that the NBA might look to dissolve the club through league contraction. Whether the threat of contracting teams is a negotiating ploy or not, league insiders say that the $40 million that comes from sources such as national TV and revenue-sharing might be better served going to the rest of the league’s owners.

The union maintains NBA revenue has been increasing, not decreasing. The NBA saw total gross revenues of $4.2 billion for the 2007-08 season, $4.3 billion for 2008-2009 and a 1% increase for 2009-10. Revenues tied to attendance are up 1.7%. The NBPA has said it is willing to negotiate a reduction in the 57% of the revenue pie it is guaranteed, as well as giving owners consideration for new arena construction or major renovations to existing arenas.

Currently, Madison Square Garden is undergoing a $500 million renovation, the New Jersey Nets are in the midst of moving to a new $800 million arena in Brooklyn, and the Minnesota Timberwolves are looking for $155 million to renovate Target Center.

The NBA’s labor dispute could also impact networks across the globe, namely in China.

More than 300 million people play basketball in China, and a 2007 game that saw Houston Rockets center Yao Ming go up against Yi Jianlian of the Milwaukee Bucks was broadcast on 19 networks across the country, and drew an estimated audience of more than 100 million.

And it isn’t just players born in China that draw huge numbers to television in the world’s most populous country. The Los Angeles Lakers’ Kobe Bryant is a pop icon in China, and millions of viewers there watch his weekly reality show “Kobe’s Disciples.” A prolonged work stoppage in the NBA would undermine the marketing of the league in the economic powerhouse that China has become.

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