NYTimes article: Forbes and Finiancial World estimates say owners making profits

[nickagneta]

Great article with lots of relevant data comparing the financials of all four American sports leagues and reasons to seriously doubt the owners view on their claims of losing money.

http://fivethirtyeight.blogs.nytimes.com/2011/07/05/calling-foul-on-n-b-a-s-claims-of-financial-distress/?utm_source=twitterfeed&utm_medium=twitter

[Vermont Green]

Very good article.  I have had the sense that this is what is going on.  I can see that there needs to be some level of revenue sharing (teams in places like Charlotte can't compete with teams in LA, Miami, etc.), a "harder" cap (the NBA has too many loopholes), and something to prevent player collusion (a la the Heat).  Not sure I get why the owners appear to be going overboard on this and it would really suck if we lost games because of it.

[Roy H.]

Two interesting things:

1) Even though the league may be profitable, it's profits are very close to the NHL's, a league with a smaller fan base and that lacks a stellar television deal.

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

Based on those two facts, I absolutely see why the owners are pushing for a major change in the way things are done.  Revenue sharing clearly has to be part of the final picture, but the owners also have a legitimate concern about the profits they're making compared to their sports peers.

[LooseCannon]

1) Even though the league may be profitable, it's profits are very close to the NHL's, a league with a smaller fan base and that lacks a stellar television deal.

I wonder how much of that has to do with the demographics of the NBA fan base.

[Lucky17]

I would be interested to know the raw data that goes into these categories of income/expenditures, right down to the line items.

As Silver says, if the league cares about winning this dispute in the court of public opinion, owners need to open up their books and demonstrate exactly how they have lost this money. (I suspect they simply don't care. They just want to win this dispute, fan reactions be [dang]ed.)

I'm skeptical that the NBA really isn't more profitable right now than the NHL. That just doesn't compute for me, especially in terms of the at-the-gate revenue.

[nickagneta]

Two interesting things:

1) Even though the league may be profitable, it's profits are very close to the NHL's, a league with a smaller fan base and that lacks a stellar television deal.

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

Based on those two facts, I absolutely see why the owners are pushing for a major change in the way things are done.  Revenue sharing clearly has to be part of the final picture, but the owners also have a legitimate concern about the profits they're making compared to their sports peers.

Agree, but there are some significant differences. The NFL is a $9 billion business. MLB is a $7 billion business. The NBA a $3.5 billion business and the NHL a $3.1 billion business.

The NBA should not try to be competing on a profit level with teams such as baseball and football. They are 2 and 3 times smaller than those leagues and shouldn't expect profits on the level of a league with a television rights package larger than the entire NBA revenue or baseball that has double the games and stadiums with double and triple the capacity of NBA arenas.

They should expect more in line with profits the size of the NHL or larger on average per team. Revenue sharing has to be part of the solution but I think the players need to concede some things. Like:

-options to terminate long term bad contracts, perhaps with language stipulating the need for MPG and games played needing to equal a certain minimum per year per million dollars of annual salary. Not sure that can even be done but at least it would allow termination outs for contracts like Arenas', Redd's, Curry's and others that have crippled franchises.
-smaller length of guaranteed contracts
-smaller percentage off BRI guarantees of about 53-54%
-better compensation to teams losing tier 1 superstar free agents
-smaller exceptions top the salary cap to reduce the NBA's middle class salary

[CaptainJackLee]

Two interesting things:

1) Even though the league may be profitable, it's profits are very close to the NHL's, a league with a smaller fan base and that lacks a stellar television deal.

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

Based on those two facts, I absolutely see why the owners are pushing for a major change in the way things are done.  Revenue sharing clearly has to be part of the final picture, but the owners also have a legitimate concern about the profits they're making compared to their sports peers.

This suggests 3 things:
- that NBA owners are more incompetent than their counterparts in keeping non-players salaries expenses under control;
and/or
- that NBA owners are more incompetent than their counterparts in generating revenue;
and/or
- that NBA owners are more incompetent than their counterparts in establishing internal revenue-sharing rules that minimizes the problem created by the difference in revenue generating potential amongst teams.

It certainly retracts poorly on NBA owners and their demands of gigantic salary suppression to make up for their incompetence.

[Roy H.]

The NBA responded to this article:

The NBA released an official statement shortly after midnight Wednesday morning in response to a blogpost from Nate Silver of the New York Times that appeared on Tuesday.

The release reads as follows in bold its entirety:

The information from Forbes that serves as the basis for this article is inaccurate and we do not know how they do their calculations. Forbes does not have the financial data for our teams and the magazine's estimates do not reflect reality.

Precisely to avoid this issue, the NBA and its teams shared their complete league and team audited financials as well as our state and Federal tax returns with the Players Union. Those financials demonstrate the substantial and indisputable losses the league has incurred over the past several years.

The analysis that was posted this afternoon has several significant factual inaccuracies, including:

"(The NBA) is a fundamentally healthy and profitable business"

• The league lost money every year of the just expiring CBA. During these years, the league has never had positive Net Income, EBITDA or Operating Income.

"Many of the purported losses result from an unusual accounting treatment related to depreciation and amortization when a team is sold."

• We use the conventional and generally accepted accounting (GAAP) approach and include in our financial reporting the depreciation of the capital expenditures made in the normal course of business by the teams as they are a substantial and necessary cost of doing business.

We do not include purchase price amortization from when a team is sold or under any circumstances in any of our reported losses. Put simply, none of the league losses are related to team purchase or sale accounting.

"Another trick...moving income from the team's balance sheet to that of a related business like a cable network..."

• All revenues included in Basketball Related Income ("BRI") and reported in our financial statements have been audited by an accounting firm jointly engaged by the players' union and the league. They include basketball revenues reported on related entities' books.

"Ticket revenues... are up 22% compared to 1999-2000 season"

• Ticket revenues have increased 12% over the 10 year period, not the 22% reported.

"17 teams lost money according to Forbes ... Most of these losses were small..."

• Forbes' claim is inaccurate. In 2009-10, 23 teams had net income losses. The losses were in no way "small" as 11 teams lost more than $20M each on a net income basis.

"The profits made by the Knicks, Bulls and Lakers alone would be enough to cover the losses of all 17 unprofitable teams."

• The Knicks, Bulls and Lakers combined net income for 2009-10 does not cover the losses of the 23 unprofitable teams. Our net loss for that year, including the gains from the seven profitable teams, was -$340 million.

"Forbes's estimates -- a $183 million profit for the NBA in 2009-10, and those issued by the league, which claim a $370M loss..."

• Forbes's data is inaccurate. Our losses for 2009-10 were -$340 million, not -$370 million as the article states.

"The leaked financial statements for one team, the New Orleans Hornets, closely matched the Forbes data..."

• This is not an accurate statement as operating income in the latest Forbes data (2009-10) is $5M greater than what is reported in the Hornets audited financials.

Link

[Interceptor]

This thread is surreal.

I love Nate Silver, and fivethirtyeight has always been a great resource... for political analysis!  I never would have imagined, in a hundred years, that I'd be following a link to his blog from a Celtics basketball forum.  The world is getting smaller.

[Chris]

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

This is the key to me.  One thing people seem to be ignoring when they make these arguments is that the league is not 1 entity.  It is 30 individual teams that, as of right now anyways, do not share a ton of profits.  And when you have more than 50% of the teams losing money, unless you have a VERY aggressive profit sharing system in place, it really doesn't matter what the numbers for the entire league are, there is a problem with the system.

So, unless they can convince the teams that are bringing in the money to share a lot more with the smaller market teams (insert socialism joke), this system is not going to fixed until the players agree to work at a number that allows the small market teams to remain financially viable.

[LooseCannon]

This thread is surreal.

I love Nate Silver, and fivethirtyeight has always been a great resource... for political analysis!  I never would have imagined, in a hundred years, that I'd be following a link to his blog from a Celtics basketball forum.  The world is getting smaller.

It seems natural.  Nate Silver first came to prominence doing sports analysis at Baseball Prospectus.  Politics and economics are closely intertwined.

[Fan from VT]

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

This is the key to me.  One thing people seem to be ignoring when they make these arguments is that the league is not 1 entity.  It is 30 individual teams that, as of right now anyways, do not share a ton of profits.  And when you have more than 50% of the teams losing money, unless you have a VERY aggressive profit sharing system in place, it really doesn't matter what the numbers for the entire league are, there is a problem with the system.

So, unless they can convince the teams that are bringing in the money to share a lot more with the smaller market teams (insert socialism joke), this system is not going to fixed until the players agree to work at a number that allows the small market teams to remain financially viable.

The quick counterarguments to this are:
1. the successful NFL is successful because it has much stronger revenue sharing

2. the main claim of the league is that it is losing major money as a single entity; this argument appears dubious.

[LooseCannon]

This is the key to me.  One thing people seem to be ignoring when they make these arguments is that the league is not 1 entity.  It is 30 individual teams that, as of right now anyways, do not share a ton of profits.  And when you have more than 50% of the teams losing money, unless you have a VERY aggressive profit sharing system in place, it really doesn't matter what the numbers for the entire league are, there is a problem with the system.

I don't think people are ignoring this.  I'm in the camp that believes that the individual team losses are probably small for all but a handful of teams (something Nate Silver repeats in his blog post) and might be eliminated by reasonable revenue sharing (and perhaps a better economy).

[nickagneta]

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

This is the key to me.  One thing people seem to be ignoring when they make these arguments is that the league is not 1 entity.  It is 30 individual teams that, as of right now anyways, do not share a ton of profits.  And when you have more than 50% of the teams losing money, unless you have a VERY aggressive profit sharing system in place, it really doesn't matter what the numbers for the entire league are, there is a problem with the system.

So, unless they can convince the teams that are bringing in the money to share a lot more with the smaller market teams (insert socialism joke), this system is not going to fixed until the players agree to work at a number that allows the small market teams to remain financially viable.

Seems to me that this is where the conundrum begins. The players say revenue sharing on a major scale has to be a part of the new CBA because if the owners want guaranteed profits then the more profitable teams have to share their profits since, in basically no other business in the world is a profit guaranteed. Its called risk/reward.

If the players aren't going to share in the profits, then why should they sacrifice their earnings to guarantee the profits of owners? If the owners are going to have a system but can't control themselves to ensure their team remains profitable why should the players make sacrifices for poor decision making?

The owners on the other hand don't want to share profits, especially the larger market profitable, powerful team owners and would rather go the more draconian way of suppressing player salaries to levels almost 20% lower than any other American sports league contributes to their players as a percentage of the overall revenue being generated.

And the owners want a ten year deal knowing that the television contracts are up in five years and that a major increase in television contract revenues will be in store, which would pocket them gigantic profits.

I think the owners are dealing the hard ball to break the union, plain and simple. I don't believe their losses are even close to what they claim them to be. Franchises are selling at a rate of about $400 million per franchise, a very healthy number. Ratings are excellent for the NBA playoffs. Instead of dealing in good faith and trying to resolve the real issues(guaranteed contracts that kill teams, length of guaranteed contracts, a major reduction of the MLE to lower the NBAPA middle class, a better compensation system for losing free agents than sign and trades, a reduction of the yearly maximum pay raise, a reduction of the BRI to an NHL level) they have gone nuclear and want a complete redo with a breaking of the union.

[Chris]

2) 17 of the 30 teams, even by Forbes' calculations, are losing money.

This is the key to me.  One thing people seem to be ignoring when they make these arguments is that the league is not 1 entity.  It is 30 individual teams that, as of right now anyways, do not share a ton of profits.  And when you have more than 50% of the teams losing money, unless you have a VERY aggressive profit sharing system in place, it really doesn't matter what the numbers for the entire league are, there is a problem with the system.

So, unless they can convince the teams that are bringing in the money to share a lot more with the smaller market teams (insert socialism joke), this system is not going to fixed until the players agree to work at a number that allows the small market teams to remain financially viable.

The quick counterarguments to this are:
1. the successful NFL is successful because it has much stronger revenue sharing

2. the main claim of the league is that it is losing major money as a single entity; this argument appears dubious.

Absolutely agree with 1.  The problem is, revenue sharing is a lot easier, when it is built in to the system (through the massive national TV deals), where the owners making the money don't really see the money before they give it away, it just goes straight into the shared account.  

It is much harder to tell a billionaire businessman that he needs to share a large portion of the money from a contract he or she negotiated specifically for his or her team, which he or she paid a premium for, because he knew it was in a market that could bring in that kind of revenue.