Sunday, October 24, 2010

So What Do the NFL, NBA and IndyCar All Have in Common?

My answer would be that all three are engaged in some risky games of Labor cost containment. It is well known that the CBA covering both the NFL and NBA are within a year of expiration. Labor / Mgt unrest in both sports may lead to lock outs or strikes. But it strikes me that IndyCar is also in a period of salary adjustment and the stakes are high here as well. Is seems funny that labor costs are an issue in a sport where Alex Lloyd ran the season for virtually little more than a race weekend per diem and the opportunity to keep a career (hanging by a thread) going. But at the top of the sport, where rides are earned not bought, there is a war raging.

The labor struggle at the top of the IndyCar food chain is not a struggle reminiscent of the current NFL situation where a League at the peak of its game is looking to grow owner coffers by expanding the season, yet not compensating the players for the additional weeks on the field. Rather it seem more like the problems the NBA faces.

Recently David Stern, the commissioner of the NBA has come out and said that the league is looking for labor concessions to cut the on court payroll by nearly 30% for the next CBA.

Comparing the NBA and NFL labor arrangements is a study between night and day. In both leagues, there is a salary cap. In the NFL, the cap is hard, there is no exceeding that dollar amount in base pay (signing bonuses are a different thing). In the NBA the cap is soft, you merely cannot sign free agents to exceed your cap amount, but you can sign your own players to larger contracts and exceed the cap as an owner see fit. There is eventually a “Luxury Tax” that sets in where payrolls in excess of a certain amount the teams must pay a penalty to the league commensurate the amount that the payroll exceeds the tax threshold.

A second point of contrast is the binding nature of contracts. In the NFL, contracts are at will and terminable at any moment by the franchise that grants them. If a player is not meeting the expectations of the team he can be cut at any moment freeing up everything except the pro-rated portion of his signing bonus for the team to go sign a replacement player. In the NBA, contracts are guaranteed, if a player is not measuring up, tough luck for the team that holds that players contract, they are stuck with that player and if there is no more room under the cap, the team has to play the roster it has or make a trade that requires special accountants fluent in cap rules and regulations.

It is the combination of these two points that has put the NBA and many of its franchises in jeopardy. What started out as a concession to insure that the Boston Celtics could always pay Larry Bird more than any other team bidding on him in the free agent market has lead to a situation where exorbitant, yet un-terminable “Max Contracts” are bleeding franchises dry. While there is no denial that the teams issuing the contracts are to blame for their fortunes, there remains no recourse or relief for a team suffering the wake of what the Game Theoretical Economist would call “Agent Based Moral Hazard” issue.

It is in this context that the current labor skirmishes in IndyCar must be viewed. In the NBA there is a type of salary called a “Max Contract” where a team pays a player the maximum amount allowed by the league for a player of that relative experience level and can only be issued by a team holding the “Larry Bird” rights to a player. This type of deal was initially created for the Bird, Magic, Jordans, Bryants and Duncans of the world, but eventually began to be issued to the McGrady’s, O’Neals (Jermaine), Marbury and Murphy’s of the world. These contracts were issued based on projections of potential greatness or greatness once attained, expected again, but not since observed.

IndyCar, the equivalent to the “Max Contract” is the $3m per year salary issued by the merit based teams. By my reckoning the following drivers were in that club during the 2010 season: Castroneves, Dixon, Franchitti, Kanaan, Wheldon, Patrick and potentially Briscoe. While perhaps only Briscoe and Patrick’s status in this club were based on a projection of talent, the rest were based on attainment of championships and 500 victories. But as in the NBA, what happens when players or in this case drivers no longer live up to that elite status? When the best years are behind them or when the driver and team combo have no chance of living up to that expected level of performance?

We see what we have already seen this off season, those drivers who are furthest away from their championship seasons or 500 victories are cut loose from their teams or asked to take large pay cuts to stay where they are. Rumblings about issues with Wheldon started last year only to come to the surface again in the closing days of this season. Many are penciling in other drivers into the Panther seat, I still suspect that Wheldon may be back with a $1m contract as opposed to the max deal he had been enjoying. Kanaan’s contract status was announced in tandem with the announcement of the departure of 7/11 as a primary sponsor for his car. I personally think that timing was expedient. I think Michael did not want to be paying that amount of money for a driver whose best days were in the rear view mirror. But, can you blame him for that? Ultimately for Michael it is easier to sell a sponsorship for a $4m program where the driver makes $1m than a $6m program where the driver makes $3m. Similar pressures and dealings were probably at hand with whatever re-working of Ryan Briscoe’s deal took place. But with typical Penske class that laundry was aired in private thank you.

I do not intend to take a stance on who was worth what, or who deserves this or that. This is merely my association of what I see as similar trends and actions. As the NBA is pressuring it’s union to allow the dumping of the Larry Bird provisions in favor of an NFL inspired “Franchise Player “ tags, IndyCar owners have revised the standards for who is invited into the $3m club. Hard ball cost containment of driver salaries has come to the Merit based teams in IndyCar.

In the NFL and NBA these games between management and labor threaten the on the field continuity from season to season without interuption. In IndyCar these moves threaten the inclusion and involvement of Icons and known faces at a time when the series has precious few to put forth to the public. It is a dangerous game all the sports are now playing.

My Blog List