[Here's is an extended article from my November Basketball Times column. For subscription information, check out BT's website.]
If you’ve followed our worldwide economic meltdown or if you’ve opened your last month’s brokerage statement (ouch!), the news is bleak. Fear is an appropriate response, although panic is exacerbating the situation. Yes, the economy is mired in a monumental economic downturn, but as my grandmother, a child of the Great Depression, used to say, “As long as we have our health and our family, tomorrow will be a good day.”
How will economic downturn impact our basketball economy?
Before I answer that multibillion-dollar question, here’s a short, simple explanation of what led to our toxic economy. Rather than tell the entire story, I can invoke just six words from Ernest Hemingway’s “The Sun Also Rises" to explain how an individual — or an economy — can bust: “Two ways, gradually and then suddenly.” Whether we are talking basketball or finance, sticking to the fundamentals is the way to win in the long run. Yes, there are temptations to get gimmicky, but fundamental play in basketball and investing is what’s needed. Let’s look at the fundamental economic issues facing college basketball and the NBA and also how this will impact the pocketbooks of players and coaches.
College basketball
Despite a weak economy, programs with large season ticket bases should be fine, since payment was required several months ago, when the downturn was just tipping off. Athletic departments who took on debt to build new facilities, including practice gyms and arenas, will undoubtedly suffer the most.
Many have warned against the so-called arm’s race in college athletics. Few listened. Since many well-formulated arguments to curb spending didn’t seem to work, perhaps these extreme economic conditions will force everyone to become more fiscally responsible.
College players
College players will remain poor. They’ll also be required to sacrifice. For example, schools and the NCAA announced more bus travel to road games in order to save money. (No word yet whether coaches and other athletic administrators who get to fly around on private planes will offer to sacrifice for the greater good.)
On the positive side for college players, at least card companies will stop peddling tempting zero-percent interest credit cards. I do worry how college athletes from poor backgrounds will deal with all this. These are incredibly tough economic times. After Hurricane Katrina, the NCAA allowed schools to provide benefits that would otherwise be considered violations. Schools, in fact, called on boosters to donate money to be distributed directly to athletes impacted by Katrina.
College coaches
One possible, unintended positive: These horrible economic conditions might provide a respite for underperforming coaches with long-term contracts. After all, where are athletic departments going to get money to buy out unwanted contracts? Certainly not from fat-cat boosters who become simultaneously poorer and less generous.
National Basketball Association
The NBA and its teams are bracing for a financial hit. In October, the NBA eliminated approximately 80 jobs and the Charlotte Bobcats reportedly laid off 35 employees. Expect more lay-offs. None of this is pleasant, but that’s what happens during economic recessions.
On the positive side, the NBA salary cap works well in both good times and in bad. Players are guaranteed to receive at least 57 cents out of every dollar generated by the NBA. If the League does well, the players do well. Salaries are locked in for the upcoming season, but the 2009-10 salary cap will include adjustments based on this year’s total revenue. Next year, expect total salaries to decline.
NBA players
NBA players have tremendous opportunity to earn money and, more importantly, save money. When the economy is good, financial mistakes, including bad investments and excessive spending, are often masked by overall market increases. In tough times, it is critical for NBA players to have their financial affairs in order. NBA players cannot control the direction of the financial markets, but they can control spending. That applies to pro athletes making millions – and the rest of us.
--Marc Isenberg
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