Last Post about the NBA and its Inferior Stucture

The subtitle of this Bill Simmons piece states: “Yes, the Sonics divorced Seattle, but you can’t blame Oklahoma City for picking up the pieces.”

Reading this piece made me think of some Russian village back during the days of the Soviet Union, where some communist official decided how many food stores there could be in a given town and everyone was fighting to have the store nearest them.  There is an obvious solution here: allow there to be more stores, and eventually the ones that are in good locations will make money and stay, and the ones in bad locations will not make money and go bankrupt.  And it’s entirely possible that instead of two neighborhoods fighting over the store, you could have stores in both neighborhoods!  You can have as many stores as demand affords.

So why can’t there be a team in Oklahoma City and Seattle, since there is clearly enough demand in both cities for an NBA team?  Because the NBA functions as a cartel that limits outside entry in order to maximize the profits of the current NBA owners.  The benefit of the cartel to the owners is protection from competition for their financial share of top-level basketball, and as many have pointed out, the threat of moving to another city allows teams to extract financial concessions from the public in cities that are desperate to keep their teams.

The whole thing is ridiculous from the perspective of both meeting the demand for basketball in this country and for growing the sport.  How many future basketball fans is the NBA losing by not having a team in Seattle?

Compare it to international soccer, and you see how bizarre it looks.  For example, a few years back in England the owner of  the soccer team in the town of Wimbledon wanted to move, so he took his team FC Wimbledon 56 miles down the road to another city.  The fans of the team were outraged, but instead of being powerless, they took it upon themselves to get another team going, and now they have a new team in Wimbledon called AFC Wimbledon.

You can do this in soccer because there is no barrier to entry into the sport of soccer.  You do have to start at the bottom league and work your way up over the years (there are several tiers of soccer, and AFC Wimbledon is currently one league below the FC Wimbledon that moved away and became Milon Keynes Dons) , but there is no structural barrier preventing any team from a city of any size from competing, provided the team meets the minimum stadium-seating standards for a given league. (For example, if your stadium only holds 5,000 people, your team would need a new stadium before being allowed into the Premier League.)

This is not a problem limited to the NBA.  It’s preposterous that a huge market like Los Angeles doesn’t have a football team.  These leagues are denying top-flight sport to fans who would love it.  It’s part of a larger theory of mine that this closed economy works against the sport when it competes against other sports, and it only works right now because the cartels don’t need to compete for market share outside America yet.  But they will, and when that happens the lack of economic dynamism is going to really hurt them.  I am not an economist, and I’m still working out the details on how this will occur, but I don’t see how it is possible for a sport to artificially limit the supply of top-flight teams without that pushing down wages for the players (thereby pushing young athletes into other more lucrative sports) as well as diminishing demand for the sport.

I could also go on about how the minor league system in MLB and the developmental league in the NBA inhibit economic potential of baseball and basketball overall in order to keep the money in pockets of owners who currently own franchises, and how this also detracts from the overall sport as product (because who wants to watch teams that aren’t really trying to win but are only developing talent?), but that’s for another day.

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