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Economies of scale: European expansion gets a new twist

It’s coming.  Whether David Stern wants it or not, the NBA is expanding into Europe.  At its current state, the players are leading the expansion all on their own.   The league is missing out.

No one was alarmed when guys like Carlos Delfino and Bostjan Nachbar left the NBA for Europe this summer.  After all, those guys originally came from Argentina and Slovenia before immigrating to the U.S.  Once we lose one of our own to the exchange rate, then we have cause for concern.

I blame the collective bargaining agreement.  The economy of the NBA is such that rookies are locked into three year contracts below market value.  These contracts can’t compete against the Euro.  Also due to the fact that players are developing at younger ages in the U.S. and Europe, their value is on the rise.

The NBA seeks to control the market for it’s own high school players by instituting an age limit to wait a year before declaring for the draft.  One of the best players in the nation, Brandon Jennings, decided instead of playing college ball that he would either sit out the year and train or go to Europe.  Europe is become more and more of a viable option for players who want to opt out of a broken system.

You have to consider the market for European talent.  The best players are already making millions by the time they are NBA draft eligible.  The risk many teams face when drafting a European player is that they will stay in Europe instead of taking a cut in pay to play in the NBA.  As one example, the Orlando Magic selected Fran Vasquez of Spain with the 11th pick in the 2005 draft.  Three years later, he’s still playing for FC Barcelona.

The latest developments though are geared to the players that fall into the mid-level exception range.  The NBA salary cap leaves limited dollars to go around and players who are worth more than the median are stuck without contract offers.  You have the players who get the big contracts combined with the players who are locked into the rookie scale, with the middle ground some tough terrain to negotiate.  That is where Josh Childress fell into.  The opportunity in Europe affords one the opportunity to earn double what they would otherwise staying with their teams.

I’ve been saying it for awhile now that the salary cap is ruining sports.  It’s like sports communism, all in the name of competitive balance.  We live in a free capitalism enterprise.  When you start talking about competitive balance in sports, you are talking about controlling the market for winners and making the opportunity equal across the board.  The truth is that it’s impossible to manage all the implications.

The market will adjust if we let go of trying to control it.  The globalization of the NBA wasn’t going to result in a flawless system anyway, so it’s no wonder then when things come full circle.  Give up the salary cap and restructure the collective bargaining agreement.

To really fix the economy though, we will need foreign dollars invested in the U.S.  The same goes for the NBA.  Perhaps David Stern saw this coming with news this spring that the league is considering expanding the NBA to include some teams in Europe.  It’s starting to look like a necessary step for the league to grow.  At this moment, the growth is in Europe and abroad.

This entry was posted on Friday, July 25th, 2008 at 9:00 am and is filed under United States, Argentina, Brandon Jennings, Euro, Dollar, FC Barcelona, Fran Vasquez, Slovenia, Europe, Bostjan Nachbar, David Stern, Orlando Magic, Carlos Delfino, Spain, The NBA Source, Josh Childress, NBA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.