Nominal Wage Cuts in the NBA

The best way out of a recession is a combination of expansionary fiscal and monetary policy to bolster aggregate demand. Failing that, you need to have a grinding process of nominal wage cuts and unbalanced deflation that can take years to end and cause massive human suffering in the meantime. David Stern wants the National Basketball Association to do its part to make the dream a reality:

Stern said the league wants player costs to drop $750 million to $800 million. Deputy commissioner Adam Silver said the NBA spends about $2.1 billion annually in player salaries and benefits. […]

Stern and [Deputy Commission] Silver spoke after completing two days of meetings with league owners, who are seeking major changes to the current CBA that expires June 30. Silver said the league has told the union that owners are in a “diseconomic situation,” with projected league-wide losses of about $340 million to $350 million this season.

Though season ticket sales are up, both insisted that no matter how well the league does at the box office, it won’t change the fact that an overhaul is necessary to a system in which the players receive 57 percent of basketball-related income.

“Even though we reported we have record season ticket sales over the summer and otherwise very robust revenue generation, because of the built-in cost of the system, it’s virtually impossible for us to move the needle in terms of our losses,” Silver said.

This kind of pleading always strikes me as unpersuasive on the merits. If I owned a business that was losing tens of millions of dollars a year, I’d be eager to sell the business for a relatively small amount of money. When the Washington Post Company put Newsweek up for same, for example, they were ultimately willing to part with the firm for $1 on the condition that the new owner assume Newsweek’s pension liabilities. Similarly, when General Motors and Chrysler were revealed to have an unsustainably high labor cost structure, nobody wanted to buy either firm at any price so the government had to step in.

By contrast, when Mikhail Prokhorov bought the New Jersey Nets—by no means the league’s most lucrative franchise—he paid $200 million for the privilege. Ted Leonsis bought the Wizards, a terrible team, from the Pollard family for over $500 million this past summer. The high price of NBA franchises strongly suggests that operating one is valuable even with 57 of basketball-related revenue going to player salaries. Part of the issue is that the teams themselves can be in some ways loss-leaders for businesses whose real profit center is an arena or a cable network. Accounting can be misleading, actual asset prices are telling you something.