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Blog Entry

Is the NBA trying to pull a financial fast one?

Posted on: July 5, 2011 2:07 pm
Edited on: July 5, 2011 10:14 pm
 
Posted by EOB Staff.



Update (9:46 p.m.): The NBA has released a statement in which it disputes the figures linked to below, claiming that it is "indisputably" losing money. The league also disputes conclusions drawn from those figures, originally published by Forbes, but has not yet released more accurate figures.

Original Post: The NBA is losing money. Lots and lots of it. Some $370 million. 

Or at least that's what the league says. We've all kind of been forced to accept this fact to some degree, even though facts like "22 of the 30 teams lost money last year" is a bit of a controversial "fact" that's lobbed around at every opportunity by Adam Silver and David Stern. 

The system has issues, otherwise there wouldn't be a lockout. I think that's obvious. But could there be a little financial trickery going on? Nate Silver of the New York Times did some sleuthing using public financial data and came up with this: The league may not actually be losing any money at all.
Instead, independent estimates of the NBA financial condition reflect a league that has grown at a somewhat tepid rate compared to other sports, and which has an uneven distribution of revenues between teams — but which is fundamentally a healthy and profitable business. In addition, it is not clear that growth in player salaries, which has been modest compared to other sports and which is strictly pegged to league revenue, is responsible for the league’s difficulties.

[...]

First, many of the purported losses — perhaps about $250 million — result from an unusual accounting treatment related to depreciation and amortization when a team is sold. While the accounting treatment is legal, these paper losses would have no impact on a team’s cash flow. Another potential (and usually within-the-law) trick: moving income from the basketball team’s balance sheet to that of a related business like a cable network, or losses in the opposite direction.
Silver lists three more good reasons why we should be skeptical: 

1) The Warriors sold for $450 million (some $90 million more than Forbes' estimated worth), the Pistons sold for $420 million (about $60 million more than the estimated worth) and the Wizards sold for $551 million last year which was about $230 million more than Forbes' valued the franchise. 

2) Silver says, "The NBA’s data has not been made public, although it has been shared with the players’ union. If the league expects their figures to be viewed credibly, they should open up their books to journalists, economists and fans." Point, Silver (Nate). 

3) His last reason is the one I like most. The league signed a new deal in 1999 -- one that owners wanted so badly that the league sacrificed 30 games for -- and renewed that same CBA with just a few tweaks in 2005. For the most part, that deal was considered very favorable to the owners, at least initially. Yes, costs have risen and the league had to endure a recession, so revenues decreased. But Silver says, "But to hear the NBA owners complain about the current deal now, when none of the fundamentals have changed, reminds one of the old Woody Allen joke about two women kvetching at a restaurant: 'Boy, the food at this place is really terrible,' one says. 'I know. And such small portions,' the other replies."

So digest all of that. Think about it. Should we all really sit here and not raise an eyebrow? Hard not to wonder what's really going on here. Hard not to listen to Billy Hunter and Derek Fisher and say, "Yeah, I guess I can see why you guys are a bit skeptical of this all."

But as Silver notes, that isn't to say the league's CBA doesn't need a restructuring. The system does have issues. Costs have undeniably risen and gate revenue hasn't contributed as much as the league needs it to. Some markets and franchises struggle to keep their head above water both financially and competitively. That's not right.

At the same time, if the league truly is fudging the numbers and massaging facts a bit just to try and make sure its owners score big, and games are lost at a time where the league's popularity is nearly at an all-time high, should we all be downright ticked?

Because think about it: The owners got the agreement they wanted in 1999 and stuck with it in 2005. Now the league is producing all-time revenues highs and projects to be incredibly successful over the next 10 years. And so they want a new deal that cuts into player salaries and "guarantees profitability." I don't know about you, but that smells funny to me. At least enough to make me say, "Hmm..."

Henry Abbott asks a very worthy question at TrueHoop today about this whole thing: If any other normally profitable business soured and started experiencing big losses, who would we blame? Upper management, right? Some blame deserves to go on the league office, but Abbott isn't willing to pin it all on The David's head.
Stern, et al, get off the hook, by and large, because their story is that 22 of 30 teams are losing money (more recently the league has said they have lost $300 million in 2010-2011). Stern works for those 30 owners. If 22 of them want to lavish more on their teams than they should have, he has little power to stop them. So, it's a story of bad management, perhaps. But it's not necessarily a story of Stern's bad management, to the extent the story is Mark Cuban deciding to spend deep into the red time and again to try to win a title.
Abbott's entirely right: You can't blame Stern. Owners run their teams, not the NBA -- well, except for the Hornets I guess (I always forget Stern's an owner). But for as great a commissioner David Stern has been -- and he has truly been an outstanding leader for the league -- this is the fourth lockout that's happened under his watch. One short one in 1994, another quickie in 1995, the big 1998 one and now the 2011 stalemate. For as much grief as Bud Selig gets, his league has been humming along for 17 years now without a work stoppage. Think about that one.

Whatever the case, the league and players are extremely far apart and when they get back to the bargaining table in a couple weeks, I'm sure Billy Hunter and Derek Fisher will mention a lot of the exact things Silver pointed out. In fact, I'm sure they've been saying them for two years now.  Both sides have a case, but always keep in mind: Both sides want what's best for them. Players don't care about owners' bank accounts and vice versa. But in the end, the people that feel it the most are the fans and extraneous team employees. So get this thing sorted out, will ya?
Comments

Since: Jul 24, 2010
Posted on: July 6, 2011 11:52 am
 

Is the NBA trying to pull a financial fast one?

The Pistons did not sell for 420 million. That number is way too high and plus it includes the arena plus a lucrative outdoor music venue and another music venue that they manage. all anyone had to do was walk through the Palace and see the half empty stands, knows that the Pistons lost money. Plus manyof the seats they sold were discounted at way low prices.


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