Friday, April 27, 2012

How to stop teams from tanking: have an auction.

There's a very simple way to stop the tanking that's going on in the NBA: eliminate the draft and replace it with an auction.

The way it would work is very simple:
  • Instead of a draft slot, teams are given virtual money with which to sign players.
  • The worse you are, the more money you get.
  • Prospective players must announce themselves ready.
  • Instead of a draft, teams bid as in an auction for prospects
    • Bids are in order of player ranking
    • The bid amount is equal to the guaranteed contract the prospective player signs
      • Teams can offer two or three year contracts.
      • Rookie scale rules apply
      • The contract counts like a normal salary against the cap.
    • Teams have only the money in hand with which to bid for all the players they might want.
      • Run out of money, you can't bid anymore
      • Teams can roll over 1/2 of the money not spent last year.
  • Prospects can decline to sign with any team.
    • Contracts are only guaranteed if committed to by the end of the auction.

Sunday, November 6, 2011

Why a players league is the answer.

As I've mentioned before, in the NBA's superstars, the players have distinct leverage over the owners, and for them to move forward the NBPA has to recognize this fact and use it. Nobody goes to a basketball game to watch the owner (except maybe in LA or Dallas), or even to watch bench players.

It's the stars they comes to see, and always has been since the days of George Mikan, and unlike the NFL, putting on games with replacement players won't cut it for the owners.

In order to win, the players need to do two things:
  1. Earn money to neutralize the owner's leverage.
  2. Put the squeeze on the owners by severely reducing the value of their NBA assets.
As I've proposed earlier, an 80 or 96 man league, set in Las Vegas, and playing a 28 game schedule + playoffs is the way to go. A few things need to be borne in mind:
  1. After expenses, *all* revenues go to the players & the NBPA (or whichever organization replaces it), and not a percentage.
  2. Most of the NBA's revenue comes from two sources: merchandising and TV, and these are the easiest kinds of deals to set up. For superstars, who could now take a cut of that revenue that they generate, this could be a very attractive proposition.
  3. By playing in arenas that already exist, the NBPA would be able to leverage a much smaller expense base, making the start-up cost fairly manageable.
  4. A short season  allows the NBPA to make a deal with the owners, and salvage what's left of the season.
Now, there are issues that the players and their representatives themselves have to address:
  1. Fair revenue sharing. Players who aren't invited to the tournament need to be fairly compensated.  Strictly speaking, this isn't an issue after decertification, but it's the right thing to do, and it will curtail scab players returning to the NBA.
  2. Fair revenue sharing.  How to split revenue between the superstars and everyone else.  It's an issue right now, because many superstars like Dwayne Wade don't feel like their compensation reflects the money they're generating for the NBA.
  3. How to resolve endorsement conflicts.  Bear in mind that for companies like Nike & Adidas, active players are far more valuable.   In order to combat any NBA retribution, it might be wise for these companies to gang up into a neutral group.
  4. If this goes on for a couple of years, what happens to veteran players, when they decide to retire?  Players like Duncan and Nash only have a small window before they're gone. This is the NBA's real long term advantage: the ability to cultivate and market new stars, although what the NCAA does will act as a cover in this case.

Saturday, August 27, 2011

Apple and the SIlicon Valley spirit

In the late 70's, when Apple was created, Silicon Valley and Route-128 were full of innovative, engineering driven companies, trying to improve the world with better products, including DEC, Data General, Fairchild, Varian, Lockheed Martin, Nat Semi, Intel and many others.

They all stood pitted against IBM, the company that didn't so much represent evil, as banal conformity, corporate blandness and a company that dictated how the world would work in its image. A company run by salesmen, with their blue suits, crisp white shirts and company songs.

Leading the rebellion was HP, who at the time made a lot of things, including computers and test equipment, but were famous for their calculators, and the quality of their products. Corporate, to a degree, but this was the one company, with its mythical HP Way, and ethical spirit, that everyone wanted to emulate.

These companies, and their smaller brethren, often built products because they were simply cool, and that impulse led to the creation of the PC and the modern computer industry.

But times have changed. In 2011, as Steve Jobs's health forces him to give up the reins at the company he founded, it's clear that Apple is the only company left that embodies the original Silicon Valley spirit. Dec, Sun, SGI are gone or a shadow of their former selves, and HP makes most of it's money by selling ink in small plastic boxes.

And it's clear what happened. Companies started to employ people without the engineering gene, MBAs without a sense of history or wonder about what the companies they worked for did. Without a sense of mission.

As these people focused on activities that would improve their bonuses, they became marketing and finance oriented, saving pennies in a constant race to do things more cheaply, outsource work until eventually they outsourced their core competencies, focusing on emphemeral things like branding, mindshare and "leadership", losing their attention on the things that got them there, until these companies died from parasitic invasion.

And even Apple got sucked up by this, during Jobs's exile, seemingly on a collision course with oblivion. Until he returned.

Now. some people might say that companies like Google and Facebook are the modern Fairchild and HP, but it's clear these companies don't actually make anything, or at least for the sake of making the thing. Android phones and tablets are simply vehicles for Google's advertising business, no more, no less.

Apple is different. It builds products for the sake of building them, for people to use them, so that they in turn can do great things. Let's be clear, they're no saints, and some of their recent business practices have left a sour taste in the mouth.

But ultimately, Apple brooks no short cuts, no facile compromises, in a crusade to follow a clear philosophy about how the world should look, and to make that world. Religious fanatics? Perhaps, but it's clear they're committed to the joy of creation.

And it should be noted, that Tim Cook, the man Jobs anointed to succeed him, rose through the ranks of the industry via operations, and not through sales or marketing. Someone with hands-on experience of the creation process..

Will Apple continue to kick ass with its products? While Jobs is still alive, I'd have to say yes. But when he's truly unable to engage with the company he created, one only needs to look north to a company in Redmond to see a possible outcome, and that one isn't pretty. Then again, Gates was only ever really interested in making money., and the man who succeeded him was originally in charge of sales.

Saturday, July 2, 2011

A proposal to Derek Fisher and the NBPA (part iii, player compensation)

Let's assume:
  1. non-merchandising based revenue (i.e everything except jersey sales). This includes tv & video game rights, sponsorship, etc...
  2. 80 man roster
  3. up to 3 players can team up, before the selection process. these players must pool and split their salaries. If there are more than 8 groups of players, the commissioner will arbitrate, with preference given to players with the greatest number of NBA all star appearances. Once this is done, the 8 captains will be selected by the commissioner. The order in which teams select will be done by lottery, two hours before team selection commences.
  4. Each team will have 1 head coach and 1 assistant coach
  5. $24 million regular season compensation/team
In an 80 man league, 16 players are designated as centers, 32 as forwards and 32 as guards. Teams are constructed by means of a round robin selection process, and in the first five picks, a team must select 1 center, 2 forwards and 2 guards. Also, this rule prevents 3 forwards or 3 guards from teaming up as about.

From a salary perspective, salaries are graded according to which round the player is selected in:
  1. $3,000,000
  2. $2,800,000
  3. $2,600,000
  4. $2,400,000
  5. $2,200,000
  6. $2,000,000
  7. $1,800,000
  8. $1,600,000
  9. $1,400,000
  10. $1,200,000
also pay the coach $2 million and his assistant $1 million, for a total of $24 million/team. This is done just to illustrate. The numbers could change.

Also we need to take pooling into account. let's say Kobe, Nash and Garnett wanted to play on the same team, then they would pool the salaries of the 1st 3 picks ($3.0 million + $2.8 million + $2.6 million), and split it 3 ways so that each player got $2.8 million. These 3 players would also count as the team's first three selection, so their first pick, in this case, would be a 4th round pick, depending on how Kobe and Garnett are designated, their team would have to select to fill the 1/2/2 criterion described above.

So the total salaries before tournament compensation would be $192 million.

Now for the tournament, lets take the salaries of two teams as the total prize money, which in this case would be $48 million. Split the money into 12 shares, and allocate it to the teams in winning order 6/3/2/1. So if a team won the whole thing, they'd double their salaries. 2nd place would increase their salaries by 50%, etc...

For individual players, there some interesting ramifications. Players will be paid according to how highly their fellow players rate them, and superstars who win, will reap the rewards of their play.

Take LeBron, for example. Let's say he teams up with Wade and Chris Bosh, and they win one tournament and come second in another. Then, using the numbers above, he'd make $9.8 million for around 6 months work. Not his NBA salary, but not chump change either, and certainly enough to keep the light running, while keeping his public profile high. Bear in mind, this doesn't include royalty compensation from jersey sales, which could greatly increase that number.

Another aspect is that teams are able to reset at the start of each tournament, so you will see the most competitive players join forces to give themselves the best chance to win. This is the kind of thing that sports writers love, since they get to speculate ad nauseam and generate a huge amount of content.

A proposal to Derek Fisher and the NBPA (part ii, arena revenue)

I wanted to explore this proposal a little bit more, this time from the financial side of things. First, let's take a look at arena based revenue sources:

Some assumptions just to illustrate the math:
  1. 28 game regular season
  2. Playing in non-NBA affiliated arenas that hold 10k+
  3. Playoffs: semis are best of 3; finals are best of 5
For the regular season
  1. There are a total of 112 games (28 x 4, there are 8 teams)
  2. Assuming full attendance, that means there are 1.12 million tickets to be sold
  3. at an average $30 ticket price, total ticket revenue is $33.6 million
  4. average $50 ticket price: revenue is $56 million
  5. average $75 ticket price: $84 million dollars
For the playoffs.
  1. Best case there are 11 total games, worst case 7 games
  2. average $100 ticket price, revenue is between $11 million and $7 million
So the gross ticket revenue, assuming $50 regular season tickets, would fall between $63 and $67 million dollars. This isn't a huge amount of money for a business like this, but even after a 50:50 split with the arenas, it's more than enough to pay for everything except player salaries.

Now, there's a case to made for more expensive tickets, given that the average seat for a Laker game @ Staples is over $100, but the point of the exercise is to keep the fan-base engaged, providing high quality basketball for a low price, while at the same time putting pressure on NBA ownership.

From a financial point of view, assuming this tournament was set in Vegas, then a fan in the greater Los Angeles area could catch a game for the same total price as a seat in the lower bowl @ Staples. With back to backs and doubleheaders in the same arena, a fan could see 4 high quality basketball games over a weekend. That's got to be an attractive proposition to a hoops fan

If the NBPA were smart, they would make a deal with the hotels to offer package deals, making this easier. Now, it's important that all tickets are sold at full price, so what you offer the hotels is not discounted tickets, but guaranteed preferential seating. If you bought your tickets through the MGM Grand or the Bellagio, for instance, you'd be able to get front row or center court seating. Same thing applies to "season tickets".

Bear in mind, that this revenue doesn't include concessions or local merchandising sales. That could easily push total game-derived revenue to over $100 million.

Also bear in mind, the assumption of 10k seat arenas. Bigger or smaller arenas could change the revenue model substantially. Las Vegas has 3 venues that seat 12k+ (Mandalay Bay, MGM Grand, Thomas & Mack), Greater LA has the Forum, Coliseum & the Honda Center with Valley View in San Diego. And on the East Coast, there are many in the Boston->Washington corridor.

A proposal to Derek Fisher and the NBPA

In the lockout, I find myself firmly on the side of the players. It's clear that this dispute is as much about class, in the American sense, as it is about money, which is to say it's really the same old struggle over the balance of power between employers and employees.

Now, the NBPA has one big stick with which to hit the owners, and that's the stars.

If I were Derek Fisher, I would try to put together a mini league under the following conditions:
  1. Eight teams, consisting of the NBA's best 80 or 96 players
  2. Make Oscar Robertson or Bill Russell the commissioner. Important to have the old-time union connection.
  3. Allow for the desire of some players to team with others (up to 3 players on a team), then designate a captain for each team.
  4. Have a selection event, kind of like a draft, where the captains select other teammates, in round-robin fashion
  5. Play a mix of FIBA/NBA rules (4, ten minute quarters, 22ft 3pt line, etc...)
  6. 3 pts for a win, 2 for an overtime win, 1 for an overtime loss
  7. Each team plays each other 1,2,3 or 4 times depending on the desired length of the season
  8. Most points wins the tournament. Tiebreakers on points differential, points scored, etc...
  9. Top four teams go into a semis/finals best of 3/5 playoff for the title
  10. Make the finals a big prize money competition.
Revenue is simple:
  1. Set the tournament somewhere like Las Vegas, or any area that has multiple 10k seat arenas
  2. Let the hotels accommodate the players as sponsorship in kind.
  3. Ticket sales.
  4. Let the NBPA sell the tv rights worldwide (who wouldn't want to see Kobe & Nash on the same team?)
  5. Let the NPBA sell video game rights.
  6. Offer one of the major networks Christmas Day games.
  7. Let the NBPA sell jersey/merchandising rights worldwide
  8. Sponsorship, jersey advertising
Where does the money go?
  1. A big chunk of money goes to the active players, but 50% to the NBPA's general fund
Why would there be an audience?
  1. Most of the players will be the NBA's stars, so this would be like an all-star tournament
  2. Short season. If every team played each other 4 times, that would equate to a 28 game regular season. Include the playoffs, the whole thing could be done in a short 3 month season.
  3. More exciting basketball
  4. Rebel league factor
Why would the stars go for this?
  1. Loyalty to the union
  2. A chance to play with other stars.
  3. Better level of basketball than in Europe
  4. A chance to stay in the public eye. Makes sponsorships valuable.
  5. Can make not great, but decent money
  6. reduced travel.
I should point out, that with the current economy, Las Vegas could use a boost like this, especially if teams played back to back on Saturday and Sunday (midweek games Tuesday, Wednesday and Thursday). Plus the chance to stick it to David Stern, who has refused to allow an NBA team to relocate to Vegas is hard to resist. And with a short 28 game season, it would be possible to have two tournaments per year, perhaps in different cities. Even shorter seasons (14 & 21 games) open up the possibility of staging this tournament abroad.

The issue with such a league for the players is revenue, and how much such a venture could generate.

In 2010, NBA merchandising sales across the US and Canada alone hit $1.93 billion, and you can easily double that when taking the rest of the world into account. Most jersey sales are for the top 25 or so players in the league, and most if not all those players would participate in a rebel league. It goes without saying, that this revenue stream comes at the expense of the NBA, as people buy the new, more exciting, rebel merchandising over the existing official wares.

So, in my mind, $250 million per tournament is within easy reach when one takes into account all the sources of revenue, and I don't think it's too far fetched to think that it might hit $500 million, or even a $1 billion. And each tournament offers a new opportunity for merchandising sales, as players change teams, etc...

Bottom line is that kind of revenue would definitely put pressure on the owners to settle, as the more successful the rebel league becomes, the more the NBA loses value.

more thoughts:
part ii:
part iii:

Monday, June 13, 2011

Dear LeBron...

I know things kind of suck right now, but your time will come.

The first thing you should realize is that your team overachieved this year. Forget all the crap from these modern day Max Mercies in the sports press, but you really weren't expected to win a title this year. Getting to the finals was a big achievement in itself, although you should have put up a stronger fight.

What you need to take away from this is the understanding that team coordination and planning often trump individual talent, and that the most important muscle is the grey one between the ears.

So where do you go from here? Well, you need to develop some mental toughness. Not easy, but here's how:

At Liverpool (which you own part of), there's a man called Kenny Dalglish, the original King Kenny. This man has been through more than you could possibly imagine, and come out a winner. He also happens to be the mentally toughest sportsman to grace this fair planet, on the same level as Bill Russell and Mohammed Ali.

Go to Liverpool's training camp, this summer, and listen respectfully to everything that man is willing to teach you. He will provide you with the tools that you need to step up to the next level.