[NY Times] N.B.A. Players Union Files Complaint With Labor Board

This is my educated and experienced opinion of what the NBA is really doing here(I obviously dont have the facts to prove it) .Working for a large corporation like I do, I see daily how the gains and losses claim game works with business operators.

-In a publicly traded company, if not most companies, use accounting procedures which are able to state that the company gained X amount in revenue, but that number is flawed because that figure is before bad debt, returns, etc. (Accounting 101). This is the number that is shown to the public and stockholders, can create a false sense of growth and keep the stock price strong for compensation and bonuses to executives yada yada.

-In the NBA, Stern and Co. are now trying to say that they have lost something around 300 million this year..... ok.... my first thought is, what does this number get factored in before????... Also, how are they recording revenue sharing between owners???... When does that figure get accounted for before Net gains. I know that Revenue sharing can be accounted for outside of the normal capital gains figure so right there that is a red flag.

Im not trying to say that they didn't necessarily lose money, because like 'heypartner' just stated, Owners overspend to increase value of their company or team. My question is how revenue sharing factors into gains and losses from international sales, NBA endorsements, advertising revenue, etc.

I have a feeling that when they go to court and are forced to open their books, those revenue losses wont seem so steep when they are dissected a bit closer.

 

I'm not convinced by this franchise-value argument. The present value of a going concern is worth the discounted value of future cash flows. If the business model is fundamentally flawed and cannot ever generate positive cash flows, it ain't worth ****. They cannot continue to operate in perpetuity losing money and expecting to make the money back when they sell. Who would buy an albatross like that?

Of course, the franchises do have significant value, meaning there is an implicit belief that cash flows will be positive in the future. And, that would be because owners and would-be owners know they'll be able to fix their economic model in this CBA negotiation and be profitable. But, they do have to go out and actually do it and eventually make a profit.

And, it's foolish to think the franchise value will keep going up and up forever. In the past couple of decades, franchise values grew as the NBA achieved greater scale and therefore greater potential for profit. Growth in the future won't be as rapid and franchise values will plateau.

One exception heyP reminds me of -- these franchises are play-toys. It's a good project for a man who has already made his fortune and needs a challenge: buy a team and see if you can make it a champion. On the side, you get pride, cachet, fame, attention, sex with groupies, and so on. In this regard, the price for franchises may be greater than what its cash flows can justify, because owning a team is a lot more fun than owning shares of IBM.

 

I think your business acumen is coming into question. An accounting ' loss' does not equal a failing business model. With regards to capital gains, how many of these owners are pulling out the equity in their teams and using that cash on other business'?

I know Heisley pulled off all the equity in the FedEx forum naming rights($90 million over 20 years). So instead of $4.5 million a year in revenue a season, it is zero but poor mouthing Heisley pocketed $60 million cash.

 

This is the question. How can you believe the NBA when dome of the world's greatest businessmen are fighting to get into the frat?

 

the value of the franchises will go up forever

signed: housing bubble

 

Exactly... Its like buying into the worlds most famous Ferrari Club but complaining because of the cost to fill up the car at the gas pump.

Some NBA owners are comparing this "business" to their business friends hedge funds that are bringing back 50X the profit at the end of the day and thinking an NBA team should bring them back those types of returns.

-side note -In the 90's during the last NBA lockout season, the NBA was a pure monopoly of professional basketball. During this lockout it will be interesting to see if the players will be able to leverage any competition with either European leagues or any other conceptualized leagues that could pose as a threat to the NBA. I can see the owner of Real Madrid chomping at the bit of signing Lebron James and Dwayne Wade for even a week long contract.

 

Speak for yourself. I love my IBM shareholder groupies.

 

My business acumen is just fine. I never claimed an "accounting loss" equated to a failing business model.

This makes no sense at all.

 

you can't apply traditional business models to sports franchises. each franchise is competing with each other for money. they are one big organization, if the league wants a team to stay afloat and it has the resources to help a drowning franchise it will keep that franchise afloat.

edit: are not competing with each other for money

 

pgabriel, the franchise values have performed as I've stated.

Exactly. The increased valuation of these franchises as seen in the purchase prices mean the owner are either idiots and don't care or the business model is NOT flawed. I am assuming these billionaires are not stupid. Therefore there are hidden cash flows.

Saying franchises will plateau is forgetting the more billionaires in the world are now able and willing to buy NBA teams -- see Mikael. Is demand increasing? The NBA's popularity is increasing world wide vs previous decades.

As for measurable cash flows besides the human desire to own a team...What could they be?

Stadium ownership, parking ownership (which was huge at Compaq), naming rights, food/beverage exclusive licensing...investing in the sports cable TV. All these can be removed from the books of the actual NBA/Teams. There is probably more. Dobro1229, I think most of your revenue examples are in the BRI calculations to be spread amonst the teams, but yeah, who knows if the $300m factored those in yet.

Leveraging your Equity for Other Investments
Another source of income is the ability to use a Franchise as collateral in another investment. I'm assuming the NBA allows this with right of first refusal to take over the franchise at a steep discount. These are highly valued commodities, and Les could easily make money off leveraging a highly valued asset, at low interest. So, he doesn't have to wait until he sells to actually use the increased value in the Rockets.

Losses to Offset Gains
Another thing, when you own multiple companies like many of these owners do, having accounting "loss" on your books can help the big picture -- especially a loss in operating an asset that is increasing in value.

whatever. Don't join the debate then.

 

you're stating nonsense.

you really think franchise values are guaranteed to ALWAYS increase?

sure, since les has owned the rockets, its value has increased 10x. do you really think that kind of growth can be sustained?

 

right now parking at enron field oops minute maid is $10 next to the stadium. when the stadium was full, it was $25. now i don't know where i'm going with that but i guess the point is the franchise's value does depend on popularity, winning.

also, the reason a lot of franchises have increased in value is something your post alludes to, the boom in new stadiums and arenas. hence a team like seattle hs to move.

and most of those stadiums are publicly financed, where would the franchises be if the people stood up and said no. sports teams took advantage of the good times of the 1995-2000 economy, no way people would vote for those arenas today

 

Yes, and I stated much more than that. Global interest in the NBA is increasing. More perspective owners are coming to the table. Franchise values don't have to perform at 10x. I'm sure owners would be fine with 5% total increase in their initial investment,,,counting operation losses...if they do in fact exist.

You haven't said anything except no one is as smart as you. That's all you've said. Your simplistic notion that owners are idiots and running failed business models...is just that...simplistic.

 

Its foolish and naive to think that any investment will always appreciate.

Actually, I haven't said that.

I believe that some owners are employing failing business models and are losing money as a result.

If all the owners were making profits, why would they be threatening lockouts? Wouldn't they rather maintain their profitable status quo?

 

Lets be clear on definitions. The "business model" is running a monopolistic sports franchise. The "CBA" is the particular rules that govern its relationship to its employees and to other franchises and the league.

In that definition, I agree the business model is great. You see that reflected in franchise prices because owners and would-be owners know that the business model is good and should make a lot of money in the long-term.

However, that doesn't mean the CBA is sound or that their short-term direction under that CBA is good. For the business model to be the success it should be, it can't be governed by a document that would have the franchise show an operating loss every year.

Owners and would-be owners know they can fix that and make profits later; that's why the franchises still hold value. It doesn't have to be because the franchise is generating "hidden cash flows" in the short term.

Besides, I don't know if cash flows are as easy to hide as you think. From Coon's FAQ, this is what is included in Basketball-Related Income:

[rquoter]Regular season gate receipts
Broadcast rights
Exhibition game proceeds
Playoff gate receipts
Novelty, program and concession sales (at the arena and in team-identified stores within proximity of an NBA arena)
Parking
Proceeds from team sponsorships
Proceeds from team promotions
Arena club revenues
Proceeds from summer camps
Proceeds from non-NBA basketball tournaments
Proceeds from mascot and dance team appearances
Proceeds from beverage sale rights
40% of proceeds from arena signage
40% of proceeds from luxury suites
45% - 50% of proceeds from arena naming rights
Proceeds from other premium seat licenses
Proceeds received by NBA Properties, including international television, sponsorships, revenues from NBA Entertainment, the All-Star Game, the McDonald's Championship and other NBA special events.[/rquoter]

So, where are the owners making money on the team outside of BRI that is still relevant?

In any case, it isn't a rational business position to say, "I try to lose money every year and hope to recoup it all a decade from now when I sell." Wouldn't it be so much better to earn money and then get more money when you sell? You certainly don't want a CBA designed to make you lose money, which is what an appeal to capital gains is implying.

 

Lets look at franchise value and compare the team with the highest value to the one with the lowest -

Highest franchise value -


New York Knicks
Team Value #1 - $655 mil

New York Knicks are owned by Madison Square Garden, who bought them in 1997 for $300 mil.

and then the least valuable franchise -


Milwaukee Bucks -

Team Value #30 - $258 mil
Milwaukee Bucks are owned by Herbert Kohl, who bought them in 1985 for $19 mil.


-Now you can compare this to the housing market if you want to and say that overtime the bubble will burst, and that would be correct in some respect... However, the numbers dont lie. There is not a team in the NBA that is worth less than when it was aquired.

-The thing here is, revenue of the overall NBA and team are not just tied to ticket sales in one year, you have to look at the whole spectrum... like population growth in current NBA cities, more corporate sponsors, etc.

-Maybe one day the bubble bursts, but for now its safe to say that the NBA as the world of basketball continues to grow, will appreciate unless pure competition hits the market of basketball. Until then, NBA franchises will appreciate.

 

Fixed commodities (with cash flows attached to it) are probably the safest bet to perform like this over time, especially if you own part or all of the stadium. You know, the NBA started as a way for stadium owners to have events to make their stadiums profitable.

I'm not following this logic. A new CBA is a big deal -- a five year contract. You assume the owners are planning to lose revenue by this stretching into the season. There is not much to lose during the summer.

If you ask the owners, "Would you threaten a lockout, if it meant you would lose 1/2 the season like in 1998," I doubt you'd get a majority to vote for that.

Even if a lockout definitely means losing 1/2 the games, my impression is the owners are smelling blood. They feel like the fans and media are on their side and they can negotiate in bad faith and stick it to the players. I don't see them worried about solvency -- dozens of teams on brink of bankruptcy. It's about greed, and getting a major win on a new 5-yr CBA. They see other leagues CBA's they want, and feel like fans and media will apply pressure to make the union buckle.

 

Thanks for posting that. Yeah, they seem to have everything covered.

But let's remember. The BRI means "Basketball Related Income." That implies there is non-Basketball Related Income that the owners wouldn't have to show if they didn't want to. Again, what could it be. Certainly huge if you own a stadium (all non-NBA events) or Cable TV. Les wants to own an NHL team. Using Equity as Collateral (assuming allowed). I'm assuming there is something that makes it worth their while.

I agree; there are parts of the CBA that are flawed. I just don't think 20% reduction in salaries is that impactful. -- assuming the owners will negotiate down from 40 to 20. On average, that's a cost reduction of $12m per team. Does that sound big to you -- make or break? Wouldn't you just re-invest that into better players?

As for an appeal to capital gains, I suppose you're right. I just don't think the capital gains are driven by operating profits vs proven and perceived value of owning a franchise (BRI and non-BRI value).

 

The Lakers, Knicks, Bulls and Celtics have things going their way and the teams like the Bucks, Bobcats, Kings, Bobcats don't under the current <i>NBA business model</i>.

<hr>
L.A.’s TV deal: revenue-sharing tipping point?

<i>
In possibly related news: The NBA does not have a robust revenue-sharing system. Teams do not split gate receipts, as they do in the NFL; the home team keeps them all. And though revenue from the league’s national television deals get divvied up, revenue from local TV deals — like the one the Lakers just signed — does not, according to Andrew Zimbalist, one of the world’s leading sports economists and a professor at Smith College. Nearly 280,000 local households watch every Lakers game on Fox Sports, according to recently released numbers in the Sports Business Journal. About 11,000 watch an average Bobcats game in Charlotte. The Bobcats could be an elite team for a decade, and their TV deal will never approach what the Lakers, Knicks, Celtics and Bulls can get on the open market...

...But Zimbalist isn’t arguing against revenue sharing. He says the NBA needs it — badly. Why? Because the numbers show a lot of small-market teams don’t earn enough to make a profit. Teams like the Bobcats, Pacers and Bucks may not bring in enough income to justify spending the minimum required — an amount they have to spend anyway.

“The problem is that the salary cap brings salary floors, and small-market teams can’t really afford the salary floors,” Zimbalist said. “Half the teams are generating operating losses every year. That’s not viable.”
</i>

<hr>

Rise and fall of LeBron's teams

Code:

VIEWERSHIP
Top 6
Team 	        RSN   	        Avg. no. of HHs
L.A. Lakers 	FS West 	278,000
Chicago 	CSN Chicago 	141,000
Boston 	CSN New England 	118,000
New York    	MSG 	        115,000
Miami 	        Sun Sports 	85,000
San Antonio 	FS Southwest 	85,000

Bottom 6
New Jersey 	     YES 	22,000
Sacramento 	CSN California 	22,000
Oklahoma City 	FS Oklahoma 	19,000
Memphis 	SportSouth 	17,000
Milwaukee 	FS Wisconsin 	16,000
Charlotte 	SportSouth 	11,000

<hr>

Jeanie Buss: “We have to consider” contraction


<i>...“I would hate to see us lose teams, but I think contraction is something we have to consider,” said Buss, who is on the NBA’s labor relations committee and is the Lakers’ executive vice president of business operations. “We may be in some markets we shouldn’t be in.”</i>

<hr>

Jackson against move

<i>
The Sacramento Kings have until Tuesday to file a request with the NBA to move to Anaheim, though there's already some public resistance from a fairly important neighbor.

The state capital seems like a perfect place for the Kings to reside, according to Phil Jackson.

"I think we'd like to see them stay there," the Lakers coach said Wednesday.


Naturally, neither the Lakers nor the Clippers want to split their lucrative corner of the NBA pie with another Southern California tenant. Both Los Angeles teams would get a small share of a relocation fee paid by the Kings' owners, but it wouldn't be as financially sound as maintaining an absolute grip on sales of pro basketball tickets and merchandise in the region.

Even though Jackson said Los Angeles was not a "saturated town" because it still lacked pro football, he said three NBA teams would be "a little bit overdoing it."

The Kings have struggled financially in recent seasons and have been unable to secure funding for a new arena. Jackson wasn't completely unsympathetic to their plight.

"You don't want to see a franchise go under simply because they can't support themselves," he said.</i>

<hr>


If the Lakers organization was really concerned about the NBA being viable & competitive (Kings, Bucks, Bobcats etc included), they would take the lead on redoing the <i>NBA business model</i>.

Jeanie Buss doesn't want to share and would rather fold some small market teams.

Phil was <i>fake</i> when he showed concern about the Sacramento fans possibly losing their team.



I don't know if it would require a simple majority (16 - 14) or a greater percentage to change the current <i>NBA business model</i> (local broadcast revenue sharing, live gate split etc).

Until the middle tier owners help the small market teams redo the <i>NBA business model</i>, the Players Association will be faced with the fact that the small market teams are living on the edge in regards to income versus expenses.

 

Television is key to why franchise values in different sports have sky rocketted. but the flip side is that every franchise doesn't enjoy high ratings and that's the problem in baseball, and the reason the nfl has the greatest "business model" in sports.

if you are in a small market and aren't pulling it in at the gate in the NBA, you're losing money.