There have been many lessons to learn from the "Great Recession." But while the message is often clear, we can't always muster the courage, discipline or consensus to act on these lessons.
The National Basketball Association (NBA) is about to enter its second season -- the playoffs. And for a Laker fan in Los Angeles, there is much to look forward to. However, the current NBA collective bargaining agreement will end and we will have to witness another battle between the billionaires and the millionaires.
Why can't the NBA learn from other businesses that have successfully maneuvered through economic turmoil to achieve profitability?
During the past three years, businesses have streamlined their manufacturing and distribution systems, cut staff, cleaned up balance sheets and focused on core strengths. This is what the NBA needs to do.
Winning teams over the salary cap are still making money. Other teams are losing money, even if they have lower salaries and are under the cap. If you put a team in Helena, Montana, or Mobile, Alabama, they would lose money, even if the players worked for free, so it is not a player issue. The NBA makes more money from TV, advertising, endorsements and sponsorships than from the cities where fans are not filling seats or paying for stars.
If the NBA would contract -- cutting three or four teams -- the pool of money distributed to both players and owners would be more. The talent on the remaining teams would increase the quality of the play. AND with a 10% to 15% drop in teams, you could also cut the bottom 15% of the pool of officials, improving the quality of the games further still.
The improved play would attract more TV viewers overall, since you would always have great matches. No more Sacramento against Cleveland or Minnesota versus Toronto. More profits for everyone and better games too.
Ford (F) closed down unproductive plants. Johnson & Johnson (JNJ) and Procter & Gamble (PG) change their product mix all the time if something is not selling. General Electric (GE) has historically sold off or shut down third rate or noncore enterprises. The NBA should do the same thing. Both the NBA owners and the players do this with all their other investments, so why can't they do that in professional basketball?
Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber currently owns shares of GE, and JNJ.