This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
11/29/2011
NBA Union
The NBA and the Players Association have reportedly agreed to a new collective bargaining agreement. After a long negotiation process, all that is left is for both sides to approve and sign the deal. From the text book we read that a labor union's goal is to "restrain the amount of employment so as to raise wages above the competitive level" (pg. 309). But with the amount of money that NBA players make, was it really necessary to hold out for so long? In an article by Tim Reynolds of the Associated Press, a large obstacle to the deal being finalized was "The target [of] a 50-50 split" of basketball-related income between the players and the owners. The players wanted a 51-49 split, which might seem like a lot of money to us, but to an NBA player it is pocket change. Is it fair/ethical for the Players Union to make such demands in order to get higher wages?
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No it is not fair that the players did this. What happened during this time has been a disgrace. There was no regard for the fans of the NBA. All that these arguments were over was money in nearly every instance. I heard on more than one occasion players calling the current CBA an example of modern day slavery and or an exploitation of workers. Does anyone else think that this sounds like a poor statement? I think that one of the most interesting things about the NBA lockout is that Michael Jordan, the owner of the Charlotte Bobcats, vocalized his opinion against a revenue share increase. If the players were owners they would have had the same argument that the current owners have, and the owners would have had the same complaints that the players have.
We as fans and consumers continue to purchase single-game tickets, season tickets, memorabilia, etc. Consequently, this influx of cash means that the money has to be divvied up somehow. I happen to be on the owners side on this one, as they are the ones assuming the financial risks. They can always find more players, and if not, they will play for less, we may just all have to be strong and hold out a year, or two
Mitchell raised the question is it ethical/fair for union members to ban together to increase their wages. My response would be yes, it is fair and ethical. The NBA organization is a business. It exists to make money. If the players feel like they should be paid more, they have the right to petition it. Union strikes are beneficial in that they help to correct poor business practices. With that said, I would be quite ok with the NBA organization ceasing to exist.
I must correct Papa Smurf. The players didn't do this. The owners are the ones that are asking for more money. They are the ones that Lockout the players from playing. This is a fun topic becuase the only loser here appears to be the fans because of the missed games. However; according to David Berri an SUU Perfessor this lockout like others in the past will not have an effect on the fan participation moving forward. All-in-all the players made one vital mistake which makes them the loser of this negotiation. They didn't even play their only bargaining chip. They should have just started their own league.
The economic impact in a struggling economy is what bothers me with this NBA lock-out situation. We have an economy in great need of employment and small business success. I don't care who's side is responsible for the mess, whether it is the players or the owners, it doesn't matter, we are all getting burned here. Part of the reason that our country is hurting is from this greed, which we see in large part from our government elects that take action to benefit themselves, other than for us as the people. In a situation such as this this lock-out, everyone loses...
-1 on Gubler Family for a spelling error.
I think all interested parties ought to go talk to Dave Berri about this. My expertise in this area is non-existent compared to his.
In economics, "fair/ethical" are not ideas that are well-defined. As to the normative question about what split the players should accept, there doesn't seem to be much discussion of why the battleground chosen is in the 49-57% range for the players at all. What do the owners bring that is worth the rest?
Having said my (small) piece, what economics are any of the commenters bringing to the table here? I see lots of bloviation without much content here.
I would like to bring some economics into the discussion. There is a large demand for a professional basketball league in the United States. The NBA is the only supply. In my eyes, the NBA players make up a proportionally larger amount of the supply than the owners do. Not because of sheer numbers, but because they bring more consumer value to the table. In other words, demand would be affected a lot more by the loss of LeBron James than it would by the loss of Glen Taylor (Owner of the Minnesota Timberwolves). This puts the power in the players’ hands. The Players Association did not renew the old collective bargaining agreement for that reason. They felt that they brought more to the table than 50% of basketball-related income, which I agree. I like Dr. Tufte’s comment; why is the suggested split of the basketball-related income in the 49-57% range when it appears that players may deserve more? I think the answer to this question is that players want their money now. They could start their own league or wait for a new league to form that gives the players a bigger split of the income, but that would result in at least a year or more of a lot players not being paid for playing basketball. This reminds me of the issue in economics called faulty discounting. Would you rather have $100 right now or $110 in a week from now? Most would choose the $100 dollars right now. But when you ask if you would rather have $100 in a year from now or $110 in a year and a week from now, most people choose the $110. People are impatient in the short-run.
Interesting idea, Jon. You know, maybe this doesn't require any irrationality at all. Perhaps the discount rates of the players are (rationally) very high because they don't know when their career will end.
That is a very good point Dr. Tufte, one that had not come to mind when writing my first comment. I think you are right. NBA player’s discount rates are rationally very high because their careers in the sport are limited. The year or more it would take for a more favorable collective bargaining agreement to be reached is a year or more off the player’s career. Not to mention that a year out of the sport could cause a lot of players to become out of shape or rusty if they do not practice enough. Also, I think there is some intrinsic value of the NBA to the players. The NBA has been around for a long time and current players grew up watching their heroes play in the league that they are now apart of. In conclusion, I think the Players Association agrees to collective bargaining agreements in the 49-57% range because the players cannot afford to take a year off their limited career. If basketball careers were boundless, then I think the argument from my first comment may be right, but they aren’t.
I also think there's the added factor that the teams are actively recruiting the current players potential replacements. That's got to raise the discount rate too.
BTW: these are 50/50 comments Jon.
The real question that should be asked is whether or not the players are being exploited by not having access to this money. To determine exploitation, we need to look at whether or not a player is receiving an income that is more or less than what he is producing for the team in marginal revenue product. To be able to determine this, we have to measure a player’s productivity. In some sports, we actually have the means to attempt these measures. Basketball happens to be one of those sports. We can track how productive a player is, based on his function of wins produced. The algorithm to determine wins produced by a player can be viewed on the Boxscore Geeks website.
In the business world, how much someone should be paid is actually a bigger issue. We have several articles in this blog regarding minimum wage. In all reality, this is another one, with the focus being minimum wage within an industry. The problem with the minimum wage debate is that, unlike the sporting world, we can’t measure a worker’s MRP. Because of that, it is really hard to say what someone is worth. We hear in the news about a CEO who makes an exorbitant amount of money. The question that always closely follows is: “Is it ethical to pay him that much when his lowest paid workers are only making minimum wage?” The reason we have to make this an ethical issue is because the economic issue is unclear. The market paid a worker a certain amount, but was that worker actually worth what he was paid? Do we really know? No, we don’t. However, the market says, “Yes.”
To come back to the original issue regarding player exploitation, we would have to acknowledge that some of them are being exploited. On the other hand, however, some of them are paid much more than their MRP. If basketball actually functioned as a free market, some players would make triple what they now make. However, our sports leagues today function like a monopsony. Because of that, we will always see strikes and lockouts.
John Smith: 50/50
So I don't know who John Smith is (although I suppose I could always go cross-reference that pseudonym with the actual names in my gradebook). And I'm not sure who's going to be reading this thread down the road.
So I'm going to play dumb.
Did you know that the method you link to at Boxscore Geeks was developed by an SUU professor (Dave Berri)? Part of the reason that economists actually work with sports data is because it's a lot easier to measure productivity from all the relatively objective data that is collected.
I guess it's correct to say that we can't measure MRP. But I think we can estimate it. The real issue is how comfortable we are dealing with the uncertainty in those estimates. And, how disciplined are we going to be if we don't get answers that we like? More specifically, what if we find out that we ought to have more inequality than we actually do. Could we handle that? To run with the basketball example, how much was Michael Jordan actually worth in game 5 of the 1997 series (that's the one where he pretty much dominated everyone on the Jazz, after the Jazz had regained the momentum in the series, in Salt Lake, with little rest, while suffering from the flu).
This makes me wonder if it's the very best players who are the ones being exploited.
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