The NBA lockout is not about greed. That’s not to say individual parties aren’t greedy. But “greed” itself is an external value judgment. When a media commentator declares the NBA owners “greedy” because of the demands they make of the players, it’s an entirely subjective argument. One man’s greed is another man’s good business sense.
The current lockout, like all sports work stoppages, has a simple economic explanation. They all represent, in varying degrees, the failure of socialism. I use “socialism” here in a broad sense. I don’t mean Soviet Communism. Rather, I refer to the use of central planning as a substitute for the market-based price system.
In a free market, NBA players would be “at-will” employees like other non-regulated laborers. They could quit or be fired without further obligation on the part of either party. The price system would thus provide continuous feedback about a player’s value.
While critics claim “at-will” employment exploits labour to the unjust enrichment of management, in truth it is the only system that eliminates coercion from the economic relationship, as Jeffrey Tucker explained:
It is critically important for the employee to understand that he is doing no favours to the employer by working there, nor is the employer to be regarded as a generous distributor of funds, much less someone who is under some positive moral obligation to dish out. The employee is there because the nature of the world and the ubiquity of the scarcity of time and resources make it necessary. In order for there to be peace amidst this arrangement, there must be mutual benefit, always.
When that mutual benefit ceases to exist, it is in the interest of both parties to dissolve the relationship. The employee can leave for greener pastures. In the same way, the boss can stop paying the employee in exchange for services that he no longer believes are a benefit to the company. To be fired only means that the employer takes the initiative in ceasing to fund further engagement. Both or either side of this exchange could be wrong, of course, but all human decision-making is speculative, and we can only act on the information we have.
Professional sports leagues have long preferred coercion — often disguised with the term “leverage” — over voluntary exchange. The NBA represents a cartel of independent firms that restricts labour movement through price controls and bureaucratic mandates that discourage or prevent teams and players from ending bad relationships. The cartel represents a massive tax on the league’s business, which in turn creates economic stress that leads to work stoppages.
The collective bargaining agreement is nothing more than an attempt at economic planning. There’s a dazzling array of price controls. Newly hired players are subject to a “draft” — where the selection order is partially determined by random chance — and assigned to a given club and paid a predetermined wage. No player can earn more than a specified maximum wage. Every team is subject to a “cap” on total salaries that nonetheless contains a number of arbitrary exceptions. For example, teams over the official cap can still spend a fixed amount on one or more additional players.
The cumulative weight of all these rules and price controls minimizes, if not outright eliminates, the role of entrepreneurship. According to the planners, building a successful team doesn’t require weighing risk or reward. It’s simply a matter of “waiting your turn” for a star player and then using the bureaucracy to prevent him from leaving.
The media portrays lockouts as a battle between owners and players. The one group we rarely hear from are the general managers and coaches caught in the middle. NBA owners don’t run their own basketball operations. They hire professional managers. Yet they saddle these managers with all these centrally planned restrictions, in effect reducing them to bureaucrats. There’s no room for innovation or genuine competition.
In the non-sports market, for example, firms with lower revenues can offer alternative compensation to hire and retain top employees. A startup might offer stock options, for example. This is strictly verboten in the NBA because of the salary cap. No team would ever offer a player — even one who is clearly the cornerstone of the franchise — an ownership interest, even a small-market club that doesn’t have as strong a cash flow as, say, the Los Angeles Lakers.
In the centrally planned NBA, bureaucratic managers do what the rules indicate they “should” do rather than take risks that might prove more profitable, both on and off the court. Consider Player X who plays for Team A. When Player X attains free agency, the rules say Team A can offer him more money than any other team, up to the maximum permitted salary. Even if Team A believes Player X isn’t really worth a maximum-salary contract, the system rewards both parties for complacency.
The exceptions prove the rule. Look at the negative counter-reaction to the teaming of LeBron James, Chris Bosh and Dwyane Wade in Miami. This wasn’t supposed to happen in the planned NBA. Three “max” players shouldn’t end up with the same club. Yet critics failed to acknowledge it was the NBA’s own price controls — capping individual player salaries — that made the Heat’s bold move possible.
The Heat incident exposed the lack of true entrepreneurship in the NBA. The players felt compelled to make a move because the bureaucracy had trapped them. Whether you agree or disagree with the decision — a subjective value judgment — is irrelevant. Certainly, the new-look Heat didn’t hurt the NBA’s popularity or profitability. If anything it did more to enhance both than any act taken by NBA leadership in the past decade.
Central planning elevates bureaucratic management over entrepreneurship, and thus over profitability. We see this in the enormous power wielded by NBA Commissioner David Stern. Again, I don’t want to engage in value judgments about Stern’s tenure. Even assuming he is a wise and benevolent leader, the economic problem remains, namely that he is neither an owner or entrepreneur. He doesn’t produce the product. He regulates the product. A private regulator may be more ethically palatable (at least according to libertarians) than a government regulator, but a bureaucrat is still a bureaucrat. He exists to create and enforce rules, not take risks or engage in economic calculation.
The ultimate goal of the present lockout isn’t to make the NBA profitable across-the-board. It’s to preserve the political viability of the 30 franchises. It’s to prevent any meaningful change in the status quo. This sounds counterintuitive given the public statements from Stern about the need to change the system. But what he’s talking about is adding additional layers of regulation. It’s no different than when government responds to some massive failure by immediately creating new bureaucracies. It’s a vicious cycle of failure.
Economically, the solution to the NBA’s labour woes — indeed, to every sports league’s labour woes — is to end central planning and accept “at-will” employment as the standard. That would eliminate the role of third party interlopers, including the commissioners, union leaders and labour lawyers — and restore control to the team executives and players. Or, put another way, allow the price system to do its job.
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