Econ Essay Example | Topics and Well Written Essays - 500 words

Econ - Essay Example The current salary distribution formula gives the player 57% of the revenues. Another problem with the system is that the NBA salary cap is a soft cap. A soft cap allows teams with greater resources such as the L.A. Lakers and the N.Y. Knicks the ability to pay go over the cap and pay additional salaries paid by the owners. The small market teams are seeking a hard cap at a much lower salary base. The owners want a 40% reduction is player salaries. A hard cap would force all teams to spend up to the amount of salary cap. The current salary cap is $58 million dollars. The prices of the salaries are determined by the deal that the player’s union and owners negotiate. The prices of the players are negotiated similarly to what occurs in the corporate world when labor unions negotiate worker compensation with the managers of the firm. The NBA has to reach an agreement by the summer of 2011 in order to ensure there is not a lockout of the season. A lockout would have catastrophic ec onomic effects on the NBA. Players would lose their salaries, the owners would incur in operating losses since fixed cost must be paid without any revenues coming in. The television networks would also lose because they would not have a product to offer to the advertisers.