The economics of the NBA lockout

The reason why professional basketball isn't happening at the moment is pretty clear: There is a lot of money in the NBA and the owners want a good chunk of it. So do the players. The money is generated from "basketball related income" or BRI, and comes from things like ticket and concessions sales, broadcasting rights, and merchandising. The owners want the players to accept 50 percent of the BRI, but the players want 52.5 percent. After all, the reason why fans watch basketball is to cheer on their favorite teams and players, right?

How one professional basketball player spends his money

Two economists, Tyler Cowen from the excellent econ blog Marginal Revolution, and Kevin Grier, explain the NBA lockout in Grantland, a sports site launched by Bill Simmons earlier this year:

Why have past CBAs been so favorable to the players?

In the past, traditional NBA owners were in the game for the fun, the control, and the bragging rights. They made money through franchise appreciation; there was less emphasis on maximizing short-run operating profits. The newer group of owners bought high, are more corporate in orientation, and the financial crisis renewed their sense of vulnerability. They’ve poured a lot of money into those teams and they aren’t comfortable with seeing red on their balance sheets year after year.

Why don’t the players settle?

Perhaps because they have done so well in the past, it’s hard for the players to accept that the owners are dead set on hammering them this time. They feel, correctly, that they have been making all the concessions. Imagine trying to redo your “chores deal” with your spouse, with one side giving in on every negotiating point. As human beings, we are programmed to reject one-sided deals, even when surrender might be the rational choice.

So basically, the correct decision would be for the basketball players accept the new deal, play some ball and be content with taking home their combined $1.5 billion salaries. Whatever happened to the love of the game?

Related Links: The sticker shock of being a sneaker freak The most March Madness-obsessed colleges How investor psychology helps you win your NCAA tournament pool