Between checking the box scores from the Vegas summer league, hearing the rumors about Boozer and wondering just what is happening in Miami with Dwyane Wade, you may have forgotten the biggest news of the off-season. No it wasn’t Hedo’s flip flop between cities with bad weather, Yao’s enormous feet, or LeBron getting posterized by a teenager; it was the NBA lowering the league salary cap for the first time since 2002. Amid a world in financial crisis, a reduction seems reasonable and if anything, necessary, which is exactly what the NBA wants you to think. There is no denying the incredible impact the global economic downturn has had on professional sports and the NBA, especially as tickets are the NBA teams’ main source of revenue, and fans in every city have listened to their owners complain about huge losses over the past year. Commissioner Stern has come out multiple times and spoken about the financial state in the league, and usually been more doomsday than upbeat. Although most of the losses happened during the season last year you may have noticed that through the year attendance didn’t change much, which is because season tickets were purchased a year ago, significantly before the big losses in October and November of 2008. All those season ticket holders’ bank accounts have gone through a year of recession since then, and this will be shown through a decline in season ticket renewals and purchases this summer.

Tickets in the NBA are usually purchased with disposable income, and are considered for most people to be a luxury good. As families across the nation attempt to cut costs, stepping back on an expensive season ticket package is seen as reasonable place to start, unless of course you value watching Spencer Hawes over sending your kid to college or paying off your creditors. Sacramento fans know how much the economy has affected residents, and although the King’s performance hasn’t really motivated people to keep their tickets, Sacramento was hit hard by the failing mortgage market. It isn’t a coincidence that our attendance has dropped so severely considering this (check out Zach’s gate receipt post), and without any sign of a huge turnaround it would be tough to anticipate this changing for the better, if not getting worse.

Although huge corporations aren’t big employers in Sacramento (a main reason we don’t have a new arena), they still play a huge role in our local economy. All the mortgages and debt people accrued in contributing to the huge residential boom in the suburbs of Sacramento and the Central Valley are tied to the big banks on Wall Street. Without diving too much into the whole mortgage crisis (people well more qualified than me should be left to explain this), you can understand that this affected securities backed by the mortgages. As people defaulted it exposed parts of the economy intertwined with others, bringing large parts of the market down. If you lost your house or job in the last year you probably you probably won’t be going to as many games as before.

The owners have joined in complaining about the economy, and many claim to have sustained heavy losses.  There is no doubting that drops in attendance have lead to losses for many teams, but these are relatively short term losses. In the long term these franchises are still money making businesses, as franchise value increases every year. Although securing a buyer is the only way too truly see how much a franchise is worth, projections are still meaningful. The Chicago Cubs and Wrigley Field are not financially equivalent with the Kings and Arco, but the fact remains that they have multiple bids over $1 billion for the package the Tribune Company is offering during this economy. This shows that in a sports crazed nation that seems to have stopped expansion that franchises have sustained their value. The Maloofs weren’t just giving the media lip service in 2002 when they said that they were “in it for the long haul”” and that owning the Kings was “priceless”. They have known all along that if they can sustain short term losses that there is incredible long term gain. Forbes values the Kings franchise at $350 million, putting them 16^th among NBA franchises in a small market as far as NBA cities goes. Although this number has dropped in the past year, it is still a far cry from the $156 million they paid to purchase the team in 1998, even when factoring losses during that time. Also consider the pending arena plans, if a new arena is constructed and the team can muster enough wins so the lottery isn’t the most exciting part of the season the value of the franchise will climb significantly. The Maloofs are businessmen, and they wouldn’t be so successful if they weren’t adapt at managing their money, but there is no reason to feel sorry for them, and no rationalization for their refusal to increase payroll.

Yet the Maloofs have spoken out about their financial losses (although conveniently not citing an exact figure) as have other owners, and the league has continued to belabour this point. The reality of this is that it’s in their best interest. It’s a technique employed by MLB and Bud Selig in past years as attendance was shattering records and teams were more successful than ever. Why did Selig say that the league was in a tough situation? Because that’s what they want people to think. It’s how they rationalize fans continuing to shell out money as prices increase.

This brings us to the salary cap reduction and what it actually means. The new salary cap for 2009-2010 is $57.7 million, just down from $58.68 million in 2008-2009. Now this isn’t a world changing drop, and in reality less than the minimum salary for an NBA veteran. You might also notice that the number is still higher than 2007-2008 when the cap was at $55.63 million and the economy booming. This reduction and all the accompanying media attention is the NBA and its owner’s way of signalling and leveraging their short term losses to fans and players. The NBA has also been releasing reports that the cap will continue to fall during the much anticipated summer of 2010, cutting into team’s salary and luxury tax spending capacities. Looking at that incredible free agent class you may think that this is interesting, after all isn’t there set to be a huge spending spree by teams? Isn’t that why there hasn’t been as much action for big contracts this summer? Why someone like David Lee hasn’t gotten a sniff in (restricted) free agency? Huge contracts are not in the best interest of the league or the owners, because well, they’re expensive. Sure any team with the means would max out LeBron or D-Wade, but these max deals are felt throughout the league and set the bar for the rest of the contracts. The interesting thing about 2010 is that teams would be willing to shell out extra money to get some of the free agents, and the league is effectively stopping them so they don’t drive up the market price for all players. For the league and owners to whine and claim huge losses one year and then go out and spend billions on players an off-season later would be a huge PR deal, and lose much of the fans respect, not to mention hit their bank accounts. It would also give the players a ton of leverage heading into 2011, the year the new collective bargaining agreement is negotiated. Teams are willing to invest in players because it wins games, increases attendance, boosts franchise value etc. but the amount of money they make depends on how much they have to pay the players. This reduction kills teams like New York, whose begging for cap room and willing to break the bank for LeBron if the cap lets them, and the Blazers who are trying to sign LaMarcus Aldridge and Brandon Roy long term. Is it good for the NBA to stop the Knicks from becoming a power and stifling the financial capabilities of up and coming teams like the Blazers (or Thunder a couple years later)? In terms of product it hurts, but financially it’s a necessary evil for the betterment of the league.

It’s best to think of the NBA as an enormous pie, shared at a pilgrim-esque table by all of the owners, the league, and all the players. Everyone sitting is very hungry and tries to get as much pie as they can. This is why owners raise prices of tickets whenever they can, and why superstars still make their hometown teams pay to keep them around even if it means the team is worse off. The owner’s representative, David Stern, and the Players Association’s head, Billy Hunter, negotiate the percentage of pie for the owners and players. Stern is always good about representing the best interest of both parties, but the fact of the matter is that he is there for the owners, and in charge of insuring their financial success. Lowering the salary cap means cutting costs for owners, and even if it’s worse for the players he has to do it. The owners have shared interest, and although on the court they are adversaries, in a business sense they are partners. They share ticket revenue, television and other sources of income in addition to providing each other a means to display their product. Although the Knicks and Blazers (remember who owns them) have incredible financial resources, and not being limited by a salary cap would actually help them by allowing them to improve as they please, they understand the greater significance for the league’s overall health. The owners want very tangible ways to protect themselves against risk like a limit on the length of salaries. Nothing infuriates Stern and owners more than players like Theo Ratliff, Raef LaFrentz and Kenny Thomas’ greatest value being their contracts. The league wants to pay players what they’re worth, and although they promote their product, they are the first ones to criticize how much the players make and rationalize why it should be less and why they shouldn’t be taking the owner’s pie.

Billy Hunter knows this, and knows that the upcoming labor negotiations between the league and him are the real reason the NBA is lowering the cap. In effect the league, claiming that their stomachs are hungrier, are making their move for a bigger piece of the pie. In reality both parties are equally hungry, because they both have insatiable hunger for pies. In the end this, like any negotiation has to do with how you get yourself a bigger slice, and over the next few years we’ll see attempts by both sides to increase their helping in the short and long term. Hunter is in his position for a reason, and knows that the NBA’s pie snatching attempt comes at this time for a reason. He cautioned the league’s efforts recently by saying “If it later turns out that the league did not have a good faith basis for making these projections (on the summer of 2010), the NBPA will pursue all available legal remedies, including a treble damages claim for collusion.” This is a nice way of saying that if the league was simply using this as leverage for labor negotiations in 2011 that you can bet the NBPA will be using that with arbitrators and judges, crushing these futile attempts. You see, the pie grabbing and maneuvering comes from both sides, and is a constant struggle only settled by collective bargaining.

How does all of this affect the Kings? It could actually end up being a positive. If the Maloofs are willing to spend up to the salary cap, something that they may not be willing to do, the league’s move may have helped them in limiting others. They have said that they will not increase payroll, but lets say for a minute that they back off this claim and want the team to get better outside of lottery picks. The Kings already have significant cap space, and will have even more in the summer of 2010. Previously their biggest problem was competing with other teams for luring free agents, but with a lower salary cap other teams lose their financial means while the Kings preserve theirs. This means that the Kings are in the minority of teams with enough cap space to make contract offers. They are certainly in a better position than a team like the Knicks, as they have more cap space and better talent. Here, New York’s power is decreasing, and will decrease by even more if (and when) the league lowers the cap in 2010. There are certain free agents the Kings could overpay to come like Nowitzki, Amare, Boozer, and Josh Howard, but they are going to be hot commodities if they produce near their career averages this year. What the Kings should do is use their cap space to make offers to players that their teams won’t be able to match, won’t be willing to match, or that put their rivals in deep financial trouble. Will the Celtics resign Paul Pierce and Ray Allen? If they do, why not make an offer for Rajon Rando? If the Blazers are having issues why not make a run at Roy or Aldridge (assuming they don’t sign an extension)? If the Blazers match the Kings win because they will have raised the price. Do you think the financially strapped Grizzles will be matching offers for Rudy Gay? Can you see him filling the 3 on what could be a promising line-up? What about the Bulls (or Jazz) for Tyrus Thomas? The options could seemingly be endless.

If the Kings are willing to spend, they will have the opportunity to improve because others won’t. If the Maloofs continue to point to their short term losses and refuse to get the team back to respectability then the Kings will have missed a golden opportunity to capitalize on market conditions. The league has lowered the cap for a reason, and it isn’t entirely the one they’re saying. In looking at the players and the big picture for 2011 negotiations we can see why they did it, and why they will continue to do things that position them better. Much is made of money hungry agents and players are criticized for extravagant spending, but in reality the owners are the same way, and like all good businessmen make decisions that are good for business. Now you know that it’s not the basketball business, it’s the pie business.