Labor Lockouts in the NBA and Their Effects on Large and Small Market Team Attendance and Revenue
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City University of New York (CUNY) CUNY Academic Works School of Arts & Sciences Theses Hunter College Spring 5-2-2019 Labor Lockouts in the NBA and their Effects on Large and Small Market Team Attendance and Revenue Mohammad Iqbal CUNY Hunter College How does access to this work benefit ou?y Let us know! More information about this work at: https://academicworks.cuny.edu/hc_sas_etds/451 Discover additional works at: https://academicworks.cuny.edu This work is made publicly available by the City University of New York (CUNY). Contact: [email protected] Labor lockouts in the NBA and their effects on large and small market team attendance and revenue. by Mohammad Iqbal Submitted in partial fulfillment of the requirements for the degree of Master of Arts Economics, Hunter College The City University of New York 2019 Thesis Sponsor: May 9, 2019 Matthew J. Baker Date Signature May 9, 2019 Gregory Colman Date Signature of Second Reader ~ 1 ~ Contents Introduction……………………………………………………………………...3 Literature Review……………………………………………………………..…5 Background……………………………………………………………………...6 1. 1999 Lockout 2. 2012 Lockout 3. Market Size Data…………………………………………………………………………...10 Methodology and Results…………………………………………………….11 1. Attendance 2. Revenue Analysis………………………………………………………………………...16 References……………………………………………………………………...20 Tables…………………………………………………………………………...22 Graphs………………………………………………………………………….27 ~ 2 ~ Introduction Professional sports leagues across the United States are routinely recognized as profitable businesses. These leagues have enjoyed the luxury of brand recognition and a loyal customer base for decades. Unfortunately, along with all the benefits, professional sports leagues have also inherited the problems of a profitable industry. One such problem is labor strikes, which are commonly referred to as lockouts in the world of professional sports. In the past, the effects of lockouts in the National Football League (NFL), Major League Baseball (MLB), and the National Hockey League (NHL) have been studied to address the question “do lockouts reduce fan support?” The proxy commonly used to examine fan support is attendance. Past research has shown that lockouts across all three major leagues have had similar effects on league attendance, the only difference being the magnitude. These studies have shown that lockouts had negative short-term effects on fan support. Furthermore, Treber and Mulcahy (2016) found evidence that lockouts in the NHL had negative long-term effects on league revenue. The impact of lockouts in one league: The National Basketball Association (NBA) has not been examined. Thus, the question remains do NBA Lockouts effect fan support. Examining the 1999 and 2012 NBA lockouts, this thesis finds evidence that NBA lockouts effects resemble existing studies on lockouts in other major league sports. The NBA, when compared to the MLB and NFL, is new to lockouts, but other major sports leagues have a long history with them. The NFL, which is viewed as the most valuable sports league in America, was also the first professional sports league to experience a lockout in 1968. According to https://www.football-reference.com/ 1the1968 lockout, while short, started a 1 http://www.espn.com/nfl/topics/_/page/nfl-labor-negotiations ~ 3 ~ trend that haunted professional sports leagues and their respective fans for decades. The 1968 NFL lockout was followed by two more lockouts in 1970 and 1974 but all three would reach resolution early on, and thus had minimal effects on fans of the league. It wasn’t until the 1982 NFL lockout where the effects of the lockout would directly affect the fans of the league. Prior NFL lockouts would reach a resolution before the official start of the season. The 1982 NFL lockout, on the other hand, didn’t reach a resolution until the midway point of the 1982 NFL season. This result would shorten the season to 9 games per team. Becoming the first NFL lockout where the fans lost the opportunity to watch a full season of games. The 1982 NFL lockout wasn’t the last one either. The 1982 NFL lockout was followed by four more NFL lockouts in 1987, 2001, 2011, and 2012. It was evident that fans of the NFL hated lockouts because they had the ability to shorten the season. The MLB is baseball’s - commonly referred to as Americas favorite pass time – professional league. The MLB has a rich history of lockouts. Unlike the NBA and NFL, according to https://www.baseball-reference.com2/ the first ever MLB lockout in 1972 would have a direct effect on the fans of the league. The 1972 season had to cancel 86 games because of its lockout. This would be a common trend for MLB lockouts. The 1981 MLB lockout would cancel 713 game and the 1994 MLB lockout out would cancel the entire season a total of 2,430 games plus the MLB world series. Thus, a grand total of 3,229 MLB games have been lost because of MLB lockouts. This pattern of lockouts plaguing professional sports leagues would soon enter the NBA. The first NBA lockout took place in 1995. Fortunately for the fans, the 1995 NBA lockout would 2 https://www.sportingnews.com/us/mlb/news/mlb-free-agents-labor-dispute- history-1994-1981-strike-1990-lockout-marvin-miller- mlbpa/lhl6crvxn0ya1xrc5n9m915xf ~ 4 ~ only last three months and ended prior to the start of the official NBA season. Thus, this lockout had little to no effect on league attendance. Similarly, the 1996 NBA lockout would not affect fans either, the lockout only lasting a couple of hours. The 1999 NBA lockout would bring a change to the past historical trend of NBA lockouts reaching a resolution prior to the start of the official NBA season. Evidently, the 1999 NBA lockout would cost the league and its fans a total of 982 games. According to https://www.basketball-reference.com/,3 the 1999 NBA lockout would shorten the season by 32 games per team. This new phenomenon of lockouts having a direct effect on the fans would continue in 2012. The 2012 NBA lockout would also shorten the NBA season by 16 games per team, a grand total of 480 games lost that season. This alarming trend of lockouts costing professional sports leagues games, attendance, and revenue had become a new area of study for past researchers and this thesis. Literature Review Research done on the effects of past lockouts seems to lead to similar conclusions. Schmidt and Berri (2002) examined MLB lockouts in 1981 and 1994 found evidence that the lockouts had negative short-term effects on league attendance. Schmidt and Berri (2002) along with Treber and Mulcahy (2016) commonly use the phrase short-term meaning the effects of the lockouts likely dispersing after 2 years. Coates and Harrison (2005) examined the same MLB lockouts in 1981 and 1994 and found a similar short-lived effect on league attendance. Neither was able to find conclusive evidence of the lockouts having effects that last past 2 years. 3 https://www.theatlantic.com/business/archive/2011/06/the-nba-lockout-heres- what-you-need-to-know/241251/ ~ 5 ~ Schmidt and Berri (2004) subsequently studied lockouts that have occurred in the NFL and NHL. Schmidt and Berri (2004) once again found no evidence of long-term effects on league attendance across all three major league sports. Treber and Mulcahy (2016), on the other hand, when expanding the research done by Schmidt and Berri (2004), found evidence to the contrary. Originally studies on lockouts were examined to determine if there was a possibility of lockouts hindering fan support, as measured by fan attendance. Treber and Mulcahy (2016) however used revenue as their proxy for fan support. When examining these leagues as a business the financial effects of these lockouts become transparent. Every lockout involves sizable upfront costs for all parties involved. During the duration of lockouts, players lose game- day salary and team owners will forego revenue. But the true cost over time owes to the loss of fan support, which is feared to be permanently altered by lockouts. It is this fear of lookouts altering fan demand that leads to the question, do lockouts fundamentally change fan support? Thus, examining the effect of the lockout on revenue along with attendance should show if lockouts have the potential to change support. Schmidt and Berri (2004) and Coates and Harrison (2005) didn’t have the luxury of studying the revenue effects of lockouts because the data was unavailable at the time. Treber and Mulcahy (2016), on the other hand, had revenue data available. Treber and Mulcahy’s (2016) examination of the 1994, 2004 and 2013 lockouts on NHL revenues and attendance found evidence of long-term negative effects on league revenue. It remains to be seen if these effects can be observed in other sports leagues, such as the NBA. ~ 6 ~ Background 1. 1999 Lockout Before studying the statistical impact of the lockouts, it is important to understand the details and circumstances the led to the lockouts experienced by the NBA. The NBA, as one of the most prominent sports leagues in the Untitled States, had been reaping the benefit of decades of success, but signs of a downturn in the year 1998 were beginning to create concern. Sales of NBA apparel were down, and teams were losing money. Paul D. Staudohar (2014) During his research found that attendance had fallen by 15 percent in certain cites during the 1998 season. There was no clear reason as to why the league was facing this unexpected downturn. Thus, with the leagues experiencing some unfamiliar turmoil both the team owners and players knew there were going to be changes made to the collective bargaining agreement. The collective bargaining agreement was a legally enforceable contract for a specified period between the management of an organization (team owners) and its employees(players).