11/21/11

NBA Labor Dispute

• It’s unclear if there is going to be an NBA season. Already the season will at best be shortened with games starting no earlier than mid-December.

NBA Labor Dispute

• The reason is that the owners and players have yet to agree on the terms of a new collective bargaining agreement.

NBA Labor Dispute

• To get a better understanding of the labor dispute, let’s review financial information (source: Forbes). Let’s start with Revenue.

NBA Labor DisputeNBA Revenue ($millions)

Year Tickets Sales Other Revenue Total

1989-90 $518 $516 $1,034

1990-91 $578 $783 $1,361

1991-92 $649 $923 $1,572

1992-93 $680 $919 $1,599

1993-94 $775 $1,096 $1,871

1994-95 $826 $1,201 $2,027

1995-96 $950 $1,389 $2,339

1996-97 $2,557

1997-98

1998-99 $1,611

1999-00 $937 $2,038 $2,975

2000-01 $3,091

2001-02 $3,260

2002-03 $1,168 $2,072 $3,240

2003-04 $1,192 $2,231 $3,423

2004-05 $1,220 $2,395 $3,615

2005-06 $1,211 $2,463 $3,674

2006-07 $1,258 $2,562 $3,8202007-08 $1,246 $2,612 $3,858

2008-09 $1,224 $2,661 $3,885

2009-10 $1,146 $2,659 $3,805

NBA Labor Dispute

• Now let’s look at a graph of the Revenue.

NBA Labor DisputeNote the steady increase in revenues, except during the one previous season where there was a strike-shortened season.

Previous strike-shortened season

NBA Labor Dispute

• Notice how revenues have been flat for the past few seasons.

NBA Labor Dispute

• Now let’s repeat the process with Expenses.

NBA Labor DisputeNBA Expenses ($ millions)

Year Tickets Sales Other Revenue Total

1989-90 $420 $394 $814

1990-91 $534 $574 $1,108

1991-92 $686 $598 $1,284

1992-93 $775 $522 $1,297

1993-94 $775 $677 $1,452

1994-95 $934 $520 $1,454

1995-96 $1,097 $785 $1,882

1996-97 $2,297

1997-98

1998-99 $1,830

1999-00 $1,773 $993 $2,766

2000-01 $1,920 $990 $2,910

2001-02 $1,865 $1,093 $2,958

2002-03 $2,021 $1,008 $3,029

2003-04 $2,017 $1,082 $3,099

2004-05 $2,091 $1,258 $3,349

2005-06 $2,166 $1,282 $3,448

2006-07 $2,206 $1,302 $3,5082007-08 $2,219 $1,314 $3,533

2008-09 $2,323 $1,323 $3,646

2009-10 $2,204 $1,418 $3,622

NBA Labor DisputeNotice that expenses have been cut back in recent years due to the decline in revenues.

NBA Labor DisputeAn important statistic is the Operating Income, which is the amount income earned before taxes are paid. This is often a good indicator of the overall economic health of an organization. Let’s look at a table of the Operating Income.

NBA Labor DisputeNBA Operating Income ($ millions)

Year Operating Income1989-90 $2201990-91 $2531991-92 $2881992-93 $3021993-94 $4191994-95 $5731995-96 $4571996-97 $2601998-99 -$2191999-00 $2092000-01 $1812001-02 $3022002-03 $2112003-04 $3242004-05 $2662005-06 $2262006-07 $3122007-08 $3252008-09 $2392009-10 $183

NBA Labor Dispute

• You can see why strikes are such a problem. They lead to dramatic losses in profits.

Previous strike-shortened season

NBA Labor DisputeAnother important statistic is the Operating Margin, expressed as a percent. This statistic provides important information on how a business is growing from year to year.

NBA Labor DisputeNBA Operating Margin

Year Operating Margin1989-90 21.28%1990-91 18.59%1991-92 18.32%1992-93 18.89%1993-94 22.39%1994-95 28.27%1995-96 19.54%1996-97 10.17%1998-99 -13.59%1999-00 7.03%2000-01 5.86%2001-02 9.26%2002-03 6.51%2003-04 9.47%2004-05 7.36%2005-06 6.15%2006-07 8.17%2007-08 8.42%2008-09 6.15%2009-10 4.81%

NBA Labor Dispute

• You can see that since the last strike-shortened season, the NBA’s profitability has declined. This puts added pressure on both sides to strike a deal.Previous strike-

shortened season

NBA Labor Dispute

• The NBA is a in a different position than the NFL. With the NFL the issue was how to divide a growing pie between owners and players. With the NBA the issue is how to divide a shrinking pie.