The billionaire is most known for his exploits as the owner of the Dallas Mavericks. While owning a professional basketball team alone makes him an expert on media and entertainment, he happens to be much more than a basketball owner. Cuban is the chairman of HDNet, and was the founder of Broadcast.com.
Thus, when the man speaks about the state of media, people should listen…or read in this case. Recently, on his blog, Cuban tried to enlighten sports fans, as well media executives, on the prevailing issues of both the broadcast industry and sports entertainment.
In this post, Cuban highlights the possible changes coming to broadcast television legislation, in which the quality of TV signals may be compromised for cost savings. If this happens, it could effect the quality of your football or basketball games, which could have an impact on viewership, which ultimately could impact future contracts between the NFL and television stations. Cuban ties that to the impending negotiations between the NFL and its players’ union, saying that with the risk of future television agreements being what they are, players must concede to taking on some risk, and owners must concede to giving up some of the backend profits.
Cuban also compares the NFL & Players’ Union lack of regard for the impending risk of TV legislation to that of the recent Subprime Mortgage crisis:
Which makes all of this analogous to the Sub Prime Mortgage mess that helped put us in this Great Recession.
There was so much money being made in banking and syndicating loans that everyone who had money at stake ignored the risk involved. They modeled their finances thinking that there was no way housing prices could drop 30pct. They modeled their businesses thinking there was no way 10pct or more of the loans they bought could default. They bought bonds in companies they thought could never go out of business.
All of these things that never happened until they did, in hindsight, were not complete surprises. The surprise was that the ratings agencies, the bankers, the brokers, the mortgage syndicators, every one involved with the buying and selling of money ignored things they never should have ignored.
That is what the NFL and other pro leagues need to remember. You cant ignore risk. Nor can you assume 100pct of the risk and hope the real bad stuff never happens. The NFL and its owners, since we are using them in our example, are assuming 100pct of the risk of the economy falling again. They are assuming 100pct risk of their bigggest TV customers having their primary delivery systems eliminated. They are assuming 100pct of the risk of trying to convey money from big markets to small markets to try to compensate for an irrational cap system. They are assuming 10opct risk on the capital invested in their franchises, PLUS capital they may have to add to cover any losses.
The players side ? While individual NFL players take on significant risk, the players as a whole take on ZERO risk. If their membership just shows up for games, 53 guys on each team are getting paid. They never have to give the money back or contribute capital to make up losses. ~ Mark Cuban, BlogMaverick.com
Cuban makes some good points, and I think he is right to ask whether or not the NFL is tackling the possible risk of losing perhaps billions of dollars in value should TV signals not be as strong as they once were. However, I don’t think the NFL’s Players Union should have to assume any of the risk. To be fair though, I don’t think they should get any of the benefit of franchises and the NFL increasing their value. Whatever deal the Players Union reaches with the NFL as to what percentage of the revenues they should receive as players should have nothing to do with the fluctuating income of the league.
Why do I feel that way?
Well, if you work at McDonald’s, your salary isn’t based on whether or not McDonald’s stock price goes up or down, or whether the company had a good or bad quarter? That’s just not how the rest of the American business world works.
Sure, McDonald’s will hire and fire people based on their profits, but the salary of labor is not affected by changes in the economy. A worker’s value does not drop because the company’s stock price falls. And just as a McDonald’s worker isn’t affected by a decline in my company, they gain nothing when the state of the business is on the rise. So why does the NFL think it can treat its laborers any differently than McDonald’s does?
They can’t, and they shouldn’t.
Of course, Mark Cuban is treating this from the standpoint of an owner, a guy who would like to hedge his bets and minimize his losses in the event that his sport (the NBA) loses money (which it is doing). And I understand that; he’s got to protect his.
But from an outside perspective, it would make absolutely zero sense for the Players Union of the NFL, NBA or any other league to enter into a fixed-agreement where over that period of time, they agree that their income should go fluctuate with the owner’s overall revenue.
That’s just my opinion though; what’s yours?