The ongoing NBA lockout could trigger a global shake-up of financing top sports clubs, but at what cost?
A dispute over pay between National Basketball Association (NBA) owners and the National Basketball Players Association has resulted in a lockout, putting the 2011-12 US basketball season in danger. The league’s management is seeking to cap players’ pay and implement a $50 million cost-cutting plan in order to balance the books.
The issues at stake – financial management at major sports franchises and players’ pay structures – has implications for the business of sport worldwide and could lead to an exodus of basketball talent to major leagues in Europe.
Senior NBA officials have claimed that over 70 per cent of clubs are operating at a loss, with collective annual losses estimated at $300 million. The most recent NBA collective agreement, implemented for the 2005-06 season, requires 57 per cent of basketball-related income to be distributed to the players.
The owners now want the revenue split 50-50, while the players have reduced their counter proposal to 54.3 per cent - estimated to be worth $100 million a year of additional revenue to the owners.
Locked-out NBA stars are already considering overseas contracts with the full backing of the players union. This could lead to major players competing in Europe, increasing the interest in leagues currently under the radar in the US.
“The NBA lockout in the States has demonstrated that almost all major sports are now global properties,” says Pete Hackleton, Senior Tax Manager in the Sports and Entertainment Group at top 20 accountants Saffery Champness.
“Star NBA players like Deron Williams are already committing to playing for overseas clubs to avoid the salary cap restrictions…It will be interesting to note how and when the lockout in the NBA is resolved, and whether there is a significant exodus of talent before that happens.”
However, the stance of the NBA management and the subsequent lockout could trigger far wider-reaching consequences by way of a global reassessment of the financial state of leading sporting associations.
The NBA now wants to introduce an absolute salary cap per club, whereas previous absolute caps included a series of exceptions which many clubs exploited.
Hackelton draws problematic conclusions from the English Premier League regarding proposed pay caps: “Consider the UK experience where the possibility of a pay cap for footballers has been debated for some years now.
“The idea has had some strong advocates but could never work in the UK in isolation because of the very real possibility that an overseas team may be willing to pay the top players more.
“The result would ultimately be a weakening of the Premier League’s position as the most popular league in the world, with top players moving away and broadcast deals, which form the bulk of many clubs’ revenues, dwindling.
“The only way a salary cap could be successfully implemented in football is on a global basis, which appears completely unrealistic.”
Dave Lemon, partner in the Sports and Entertainment Group, suggests otherwise however, referencing rugby union’s Aviva Premiership as a shining example: “The Aviva Premiership has successfully introduced a salary cap.
“The league continues to innovate, for example through the availability of a marquee player, to ensure that clubs remain satisfied with the rules around the cap, and to enable them to compete with salaries on offer for top talent in other leagues.
“Sound financial management should certainly be the aim of all sports clubs worldwide, managing salary costs within the overall budget of the club to ensure that they remain on a sustainable financial footing.”
