NBA Lockout Will Have Little Economic Impact

Dr. Emily S. Sparvero, a professor in the Sports Industry Research Center at Temple University's School of Tourism and Hospitality Management

As the NBA lockout continues to drag on with no end in sight and the first two weeks of the regular season canceled, The Legal Blitz decided to find an expert who could tell us what in the world was taking so long and how it would impact the economy. Luckily we had one right in our backyard at Temple University’s School of Tourism and Hospitality Management. Dr. Emily Sparvero joined Temple in 2009 after receiving her BA in Economics from Duke University and both her M.Ed. and Ph.D. in Sport Management from the University of Texas at Austin. She focuses her research on sports policy and teaches Sport Governance and Policy, Introduction to Sport and Recreation Management, and Budgeting and Financial Systems.

This is a bit of a naive question, but when a professional sports league has a lockout it always seems to take forever to get the two sides together at the negotiating table. So now in the case of the NBA, everybody knew this lockout was coming. They had a full year to prepare and have now been locked out for more than 100 days, what takes so long?

The reason that the NBA negotiation has taken so long is a matter of each side trying to use time to their advantage, in the belief that as the prospect of lost games got closer, the other side would make concessions in the interest of saving the season. It functions like a game of chicken — where the first ones to give in are the losers.

The NFL managed to not cancel any games, probably because nobody really want to leave so much money on the table. Why do you think the NBA is different?

The main point of contention is the basketball related income (or BRI). BRI is currently at 57%, but owners want to decrease that percentage. As the league revenues grow in the future, a decrease in the players’ BRI share could potentially have little effect on the actual amount, which means that the players’ union can afford to give up a few percentage points in the negotiation and stay at the status quo.

This is broad, but if the NBA cancels its entire season, what does that mean both nationally and locally in Philadelphia in terms of economic impact?

The Wells Fargo Center could remain empty and dark a lot this year without the 76ers

Economically, the effect of a lockout would be very minor. In a city as large as Philadelphia, the role of the 76ers is quite small (in an econometric analysis, the economic impact of the team would likely be rounding error). From a jobs perspective, there are many people employed in a service capacity at the Wells Fargo Center, and these individuals would experience a negative impact. Although, it is likely that ticket takers, parking attendants, and concessionaires also work at the Flyers games and/or events that fill the arena. Plus, it is important to look at who works at these jobs. These are not full time jobs with benefits, and as such, they are largely filled by students, retirees, and others who have additional employment.

Further, the total economic impact would likely be negligible as well because of the substitution effect. Basketball is a substitute for other leisure spending, so if an individual would have gone to a Sixers game if not for the lockout, that individual has other entertainment options (e.g., movies, restaurants, bars, cultural activities). Really hardcore fans might believe that there are no suitable substitutes for Sixers basketball, but that is a very small minority.

Is there a way to calculate the amount of money lost per game cancelled?

Because of the substitution effect described above, any losses would be offset by other spending.

Are there any comparisons between a possible missed NBA season and the missed NHL seasons in 1994 and 2004? Or is the NBA a much more severe loss because of their more valuable TV contracts and larger fan base?

There is limited empirical evidence, but the research that is out there shows that there is no significant economic impact after professional sport work stoppages. This is supported by research that shows that local economies are not negatively affected by the relocation of teams from their community.

How do you think NBA players going abroad to play will impact the game?

The fact that players can go abroad to play makes the BATNA for the players much better (especially as compared with the NFL players who did not have good options). There would be a negative effect on “geographic” fans (those who are attached to their local team because of the location, not the product), and it might be more difficult for casual fans to come back to the NBA.

Is the NBA brand hurt by this? I feel like the NHL lockout really set the league back a few years in terms of mainstream appeal.

You do have two different cases when comparing the NBA and the NHL. The NHL has never had the broad popularity of the other “Big 4″ sports. As such, the loss of fans during their lockout was more worrisome. I believe that the NBA fans will bounce back fairly quickly, although it will become more challenging if the entire season is lost.

Switching topics, you have a background in Texas, so I’m sure you couldn’t escape football down there. What’s going on with the build up of super conferences, particularly with Texas A&M joining the SEC. Is it really all about the money?

The conference realignment is definitely all about money. Leagues see the opportunities for additional revenues — especially sponsorship and media revenues — and schools see the opportunity to get a piece of a larger financial pie. As geographic borders become less important, the competition among leagues increases. This allows schools to issue credible threats about leaving a conference, and they can use their position to leverage the best deal. In the Big 12, UT’s creation of the Longhorn Network created conflict within the league, especially as Oklahoma and UT already received a larger percentage of shared revenues.

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