How the NBA Lockout Is Like the Debt-Ceiling Debate

Posted by Matthew Yglesias

Debt ceiling, NBA Lockout, Sports, Politics, Finance, Business
With the nation’s capital gripped by a tedious-yet-terrifying standoff over the federal debt ceiling, I’d like to take solace in the world of professional basketball. But not only is it the off-season, the NBA is locked in an intractable dispute of its own. Congressional Republicans say they won’t raise the debt ceiling without massive concessions on spending cuts from President Obama; the NBA owners say they won’t stage a 2011-2012 season without massive concessions from the players on salary.

Once the mind begins to focus on the depressing parallel, similarities seem to abound. You have in both cases a group of wealthy, unaccountably angry white men (owners, congressional Republicans) insisting that they are the real victims of the current recession facing off against a tall black guy (National Basketball Player’s Association head Billy Hunter, Obama). Women are largely absent from the negotiations on both fronts. And in both cases, the people looking for givebacks are oddly unwilling to admit their own role in creating the disaster.

In the case of basketball, for example, it’s unquestionably true that NBA spending has been increasing at a rate that simply can’t be sustained. But why focus on player salaries?

After all, one important point the owners have obscured is that it’s impossible under the terms of the current collective bargaining agreement for the ratio of salaries to revenue to rise. Total compensation is capped at 57 percent of basketball-related income. If revenues fall, player salaries fall. If revenues grow slowly, player salaries grow slowly. And if the league booms, player salaries will go up. It’s completely understandable that the owners would rather pay their players less (you don’t get to be rich enough to own an NBA team by forgetting about the profit-making possibilities of tax cuts), but it’s simply not possible for player salaries to have turned a once-profitable league into an unprofitable one.

The truth is that while revenues and player salaries have both increased by an average of 2.4 percent per year since 2005, non-player expenses have ballooned 11.9 percent per year. Of course a team spends some money on coaches, trainers, marketing, etc. But the main point of increasing investment in the front office is supposed to be to grow the team’s revenue. If you insist on hiking up management spending much faster than your revenue is growing, that’s poor management, not the player’s fault.

Somewhat similarly, the national debate over debt and taxes seems to be taking place in a vacuum where the Bush tax cuts never happened.

The original sales pitch for Bush’s tax cuts focused heavily on the existence of a budget surplus. “A surplus in tax revenue, after all, means that taxpayers have been overcharged,” he explained back in February 2001. “And usually when you’ve been overcharged, you expect to get something back.” And boy, did rich people get something back. Now those surpluses are long gone, the country’s been borrowing money for years, and fortunately for us global investors remain willing to extend us loans at extremely cheap interest rates. But in order to keep rolling over the debt and paying our bills, Congress needs to increase the Treasury secretary’s authority to borrow money. Many members of Congress don’t want to do that without an agreement on a long-term program to reduce borrowing. Personally, I don’t see that as necessary, but it’s not a crazy idea. But just as NBA owners want to make players pay for cost overruns that happened on the management side, congressional Republicans are arguing that the budget needs to be balanced entirely with spending cuts even though the surpluses were intentionally eaten up with tax cuts.

Where analogies break down is that NBA players aren’t without leverage. There are professional leagues in other countries. New Jersey Nets star Deron Williams has signed an agreement to play with a Turkish team if the lockout continues. Dwight Howard, the league’s best center, is also looking to foreign shores. And while it would be a bit humiliating for American NBA fans to find ourselves watching a foreign league come fall, at least it’s something.

The global economy, by contrast, has no place to run if Congress insists on defaulting on our obligations. Bond yields on Greek, Irish, Spanish, and Portuguese debt have been high for months. Last week, Italy joined the parade of nations with shaky finances. European leaders can’t seem to agree on how to proceed, and bond markets are bracing for panic.

The United States is supposed to be the ultimate financial safe haven. Today there’s nothing stopping us from continuing to play that role except the obstinate refusal of congressional Republicans to either raise the debt ceiling or agree to a balanced package on debt reduction. It’s enough to turn me into a baseball fan.