~ A Mediator's Musings ~

April 11, 2012 ~ Malcolm Gladwell, the NBA and the Lockout:
A Mediator’s Dissent (part 1)

My kids’ holiday gift to me was a subscription to a quarterly compilation of selected pieces from Grantland, a sports and pop culture website brainchild of sports maven Bill Simmons. Now, I don’t look at the Grantland website regularly, so the first issue I got from my kids included stuff that was already several months old when I saw it for the first time.

The compilation included a piece by Malcolm Gladwell, the New Yorker writer andbest-selling author (e,g., The Tipping Point, Outliers) on the NBA lockout—obviously written before the lockout ended. He says that the owners’ rationale for wanting to cut the players’ share of the revenue, the major reason for the lockout, is that many of them are losing money, which a business can’t do. He goes on to say that NBA basketball teams—and, therefore, one would assume, all sports franchises—aren’t really businesses at all; since they aren’t businesses, the owner’s objective can’t be to make money. The sports team owner has to own his team for the “psychic benefits” involved–namely, the pleasure he gets from that ownership; you don’t love basketball enough to own an NBA team if you care whether you lose money with it. Even if you buy Mr. Gladwell’s argument, I am not sure where that leads. Were the NBA owners just supposed to fold up their tents and give the players whatever they wanted in the lockout-based negotiations? I can’t tell. But if so many disputes in the sports industry center on who gets what piece of the vast revenues it generates, then the thinking of the team owners has to affect how those disputes get resolved, as it inevitably did in the outcome of the NBA negotiations.

Are sports franchises really businesses? I think they are, and you’ll see why I disagree with Mr. Gladwell as you read on. Let’s look at Mr. Gladwell’s points1:

• “They don’t operate in a free market, the way real businesses do.” Really? Are fans compelled to go to games? To watch them on TV so that the broadcasters can pay these enormous sums to show them? What’s unfree about it?

• “Their employees are 25 years old and make millions of dollars a year.” So do many movie and TV stars, and even some authors and writers—indeed, big rewards at the top are characteristic of the entertainment business. Does that mean these people don’t operate in the world of business?  As for the ages of their employees, so what? Many movie stars (and successful authors) are young too.

• “Their customers are obsessively loyal and emotionally engaged in their fortunes…” My first reaction would be to say bully for the business that can create that kind of loyalty; certainly that doesn’t make it less of a business, only a more successful one. But someone who would claim that sports fans and teams are unique in this regard hasn’t read People magazine lately.

• “They get their labor through a draft that would be the envy of other private sector owners…” Yes, sports are different from other businesses. Every NBA owner wants to win the championship, but they all know that the league won’t last long unless there is some mechanism to ensure that pretty much every team can compete. Fans won’t pay to see the Lakers play the Little Brothers of the Poor. If the owners cared only about Mr. Gladwell’s “psychic benefits” and not about their businesses, then the owners of the Lakers, Knicks, Bulls and a few other teams would make sure there was no draft (and no other rules that the NBA has implemented to promote competitive balance) so they could sign all the best (read “most expensive”) players for themselves and win all the NBA championships. The draft makes NBA ownership look more like a business, not less.

• “[T]hey are treated by governments with unmatched generosity,” referring to baseball’s antitrust exemption and the public funding of stadium/arena facilities. Many, many businesses receive subsidies from governments, but that does not make them any less businesses. Banks get deposit insurance and bailouts. Alternative energy companies get loans and salable tax credits. Companies routinely receive subsidies, tax abatements and the like to locate or keep facilities in a particular locale. And baseball’s antitrust exemption has proved to be of limited value to the team owners; it hasn’t kept baseball’s agreement with its players from being less favorable to the team owners than that of any of the major sports.2

• “Under the federal tax code, [the NBA]… is classified as a nonprofit organization” and thus doesn’t pay income taxes. So what? The teams, where the profits are made, or their owners or both pay income taxes, like you or I do or like whatever business we might work for or own does. The league isn’t supposed to make money and, if it does, it can’t distribute the profits to anyone if it wants to keep its tax exemption.

That’s enough for now. We’ll finish discussing Mr. Gladwell and the NBA lockout in another post…

— Your “still looking for psychic benefits” mediator

1 I am assuming that Mr. Gladwell was not just putting his tongue in his cheek when he wrote this piece.  I could, of course, be mistaken.

2 By the way, baseball’s antitrust exemption was not granted by Congress, but, in effect, by the Supreme Court in a 1922 case involving the Federal League. In that case, the Court, speaking through Justice Oliver Wendell Holmes, held that the playing of baseball games, even where the teams were from cities in different states, was not a business in interstate commerce and therefore not within the scope of the antitrust laws. It’s hard to see such a result being reached under today’s interpretation of what constitutes interstate commerce.  The case has stood for so long, however, that the Court would be probably be unwilling to overturn it if a case ever presented the issue again and, indeed, has refused to do so on at least two occasions, the most recent being the Curt Flood case in 1972.