Has "financial Armageddon" for the NBA arrived?

[mysticbb]

That's only because the NBA decided to let them defer 4million they owed them. Check this out:-
http://www.atthehive.com/2010/12/7/1862 ... profitable

Nice finding. Didn't see that at the first glance.

But I still would like to know how the $111m in loans happen. Because the operating income over the last 10 years (according to forbes) was $51m.

Well i dont know if I was Shinn and had to put in 3 million dollars its still 3 million less in my pocket. Unless I sold the team which he did.

He gained interests due to that too, thus he wasn't doing that for free. ;)

Hmm, that does contradict Stern. I tend to believe Stern who has actual figures over a guess from plunkett.

Forbes is taking those numbers from the financial statements of the teams. Thus I believe those numbers are correct. I guess Stern is just adding the debts of all teams together and is coming up with that number. Just a different view.

No. Stern says that as a whole the NBA lost money. There are fewer big market teams than small market ones.

Well, different question then: If the league is making profit as whole, but only a few teams are really making money, would you agree, that revenue sharing is the bigger issue here?

You also have to keep in mind, that some of the teams are losing money, because the owner wants to win it all and is willing to spend the money. The money will be given out as loans, obviously and they expect to get that money back later, at latest when they sell those teams.

[HartfordWhalers]

The NBA and game tickets are a discretionary luxury good. The US economy just had the worst recession since the Great Depression.
The nba, like almost all discretionary luxury goods, didn't have a very good time.

Arguments based upon how teams did during that time don't really carry much weight with me, as why would teams and the league be fully insulated from the economy.

Forbes figure is operating, and I'm almost positive before financing costs. Thus the average team made ~7 million. Per their financials hornets made 5.8 in 2009. Then of course they had to pay 7 million in interest, etc. Stern takes this last number and low and behold, the average team makes 7 million but pays 12 million in interest so it lost 5 million.

Sure, the problem could be the economy. Or the CBA.
Or that owners are buying 300 million dollar teams with maybe 150 million down, and expecting for that 150 million dollar purchase price to have the team go up in value 5% a year (15 million), pay for all the interest of the 150 million in borrowings, and then turn a net profit on a yearly basis regardless of the economy.
If that were the case, owning an NBA team would be an awesome investment (20%+ returns, courtside seats, and celebrities!), and the price would go up (a lot). And guess what? Someone would be then trying to buy a 450 million dollar franchise with only 200 million and expecting to have the team go up in value 5% a year (22.5 million), pay for all the interest of the 250 million in borrowings, and then turn a net profit on a yearly basis regardless of the economy.

The Hornets had more debt as a percentage of franchise value than Ireland's government did as a percentage of GDP.
(using 205/300 for the Hornets, which probably understates it significantly based off the last year having Chris Paul injured, and 66% for Ireland last I saw,although extra bank guarantees =unknown obligations)

I think the takeaway from this is letting owners borrow up the wazoo isn't necessarily the brightest idea. If nba teams didn't allow team debt (league bylaws), then Stern's figures would match Forbes.

The argument that the debt is the result of not enough past money doesn't really hold water: even in the height of the recession the teams made money before interest costs. If teams didn't start with debt, they wouldn't have debt still. Instead, the reason the teams have so much built up debt is they started with so much built up debt.

Feel free and joke about Sprewell's yacht getting repossessed, but Shinn's Hornets look like they just did. If anything, I think this helps the players, they were always the only ones assumed to be that broke.

And I really don't see the reason for a hardcap in any of this. BRI% is BRI%, the escrow situation (almost) caps league salaries finally paid just like a hardcap's official goal. Least of all how hard a hardcap would be to implement. Least of all that it eliminates the easiest window to accomplish revenue sharing.

[ranger001]

Well i dont know if I was Shinn and had to put in 3 million dollars its still 3 million less in my pocket. Unless I sold the team which he did.

He gained interests due to that too, thus he wasn't doing that for free.

How much he profited depends on how much he sold the team for. Since nobody wanted to buy the team I think its reasonable to assume that Stern didnt pay top dollar for that team and Shinn didn't get a whole lot of interest.

Hmm, that does contradict Stern. I tend to believe Stern who has actual figures over a guess from plunkett.

Forbes is taking those numbers from the financial statements of the teams. Thus I believe those numbers are correct. I guess Stern is just adding the debts of all teams together and is coming up with that number. Just a different view.

You cant ignore debt though. It impacts cash flow. And unless cash flow is positive then you have to keep putting money into the team which is what Shinn gave up on.

No. Stern says that as a whole the NBA lost money. There are fewer big market teams than small market ones.

Well, different question then: If the league is making profit as whole, but only a few teams are really making money, would you agree, that revenue sharing is the bigger issue here?

I'd agree if the league was making profits every year that are in line with the investment value of each franchise. ie. the profit should be better than a bond. I don't believe thats the case. It used to be that the asset value was rising quickly which is why the owners were ok with losing some cash flow but that seems to not be the case anymore.

You also have to keep in mind, that some of the teams are losing money, because the owner wants to win it all and is willing to spend the money. The money will be given out as loans, obviously and they expect to get that money back later, at latest when they sell those teams.

As long as the value of the team rises faster than the loans they give them. But the ideal situation is that they not have to give the team any money to keep operating. Someone considering buying a team has to feel comfortable about making that huge investment.

[HartfordWhalers]

Figured I would add this over here as well.
It really is amazing that the NBA business model has developed to let owners borrow unsustainable amounts. And whenever this borrowing needs to be from the NBA (or owners) and not directly from a bank that should really really raise red flags.
I would guess that there is just a nasty shortage of billionaires willing to plunk a full 250 million into a team. The alternative is that franchise values are overinflated and only supported by loose lending standards and the hopes of flipping the franchises before the debt comes due (sounds eerily familiar).


Bobcats look pretty rough, similar to Hornets.

Jordan's group paid 275 with 150 million of that in debt.

Conservatively assuming they are paying 5% interest the team needs to have an operating profit of 7.5 million to cover that debt, and I'm guessing the team had some other debt outstanding.

Meanwhile, they dropped ticket prices from last year and mid season I can find row 4 (D) season tickets available lower center or club as they call it. That is not good at all. And they have a mid 60 payroll and are unlikely to make the playoffs.

Before debt payments they lost 15 million for the last year that Forbes has data, so they would have need to turn that figure around by about 25 million just to be staying afloat of their current debt load.
The only teams with more debt based on the last Forbes figures were the Nets (refinanced when bought), Wizards (bought), and Memphis (that is before conley and gay...). Even the hornets had less debt, and the Jordan deal didn't change that making Charlotte just as much a mess financial as the team that just got repossessed.

So in my opinion Charlotte is easily one of the top 3 teams most likely to need to sell tickets badly.