RealGM

If my understanding is correct, current CBA provides that players will receive 57% of NBA generated revenue. This means owners are left with 43% once all salaries are paid. because NBA revenue is huge, i would like to understand how 22 teams can be loss making with 43% of the revenue available to pay for the arena and non players employees plus other expenses. DOes anybody in this forum has an idea of what the P&L of a team looks like? if i try to do quickly the math, 8% of players salaries held in escrow were 160 MUSD => 100% of their salaries were 2,000 MUSD and this was approximately 57% (bit less indeed) of total nba revenue => teams had approximately 1,500 of 50 MUSD apiece to pay for general operating expenses... Seems to me they should be able to pay for their expenses and make a good profit with such an amount. i must be missing something here and would be glad to get explanation from people with good knowledge of the situation

We can speculate on why the owners' share (about $50M per team)) is less than the owners' expenses (about $60M per team) but it's better to get an answer from someone who would know. Here's what the NBA has to say about these issues, in an interview with Stern 's right hand man. It;s informative to note his point that while we as fans don't have all the details on the numbers, the union does.

I've bolded the portion that has the essence of the answer, and deleted the half of the interview that isn't as pertinent to the issue of profit-loss:


TRIBUNE: How do you feel about the overall health of the league right now?

SILVER: From a revenue standpoint, things are great. We generate more than $4 billion a year, and growing, on a global basis. This season, (TV) ratings were up double-digits on all our networks. We’re seeing the same growth for local television rights. The Lakers just entered into a fantastic new television deal for the next 20 years. Global (marketing) expansion is terrific. Merchandising sales are going well.

We’re spending too much on (player) salaries, though, and under our current CBA, we pay roughly 57 percent of gross (income) to our players. At our meeting during All-Star weekend, we told them prospects are wonderful, but the model is broken, and no business is sustainable over time that pays out more than it takes in. By definition, if we pay out 57 percent of the gross, it has to cost us less than 43 cents to generate every dollar, and that’s not the case.

TRIBUNE: Why?

SILVER: Our expenses are up across the board. When I first came to the league 19 years ago, virtually every team had a waiting list for season tickets. The world has changed. There’s a ton more competition now for the entertainment dollar. In every one of our cities, there are a thousand-plus channels on most cable networks and unlimited amounts of programming on the Internet, and we’re competing against those things. The cost of marketing and selling are that much greater.

Having said that, under any new deal, our players will continue to be the highest-paid team athletes in the world, hands down. Shame on us if we can’t find a way to make this work. We are not only the only sports league, but probably the only business, that shares all its audit financials with its employees. That’s what we do with our players association. We’re open book. We’ve said, these are all the financials of our 30 teams. Here are our tax returns, just so there’s absolutely no issues over our financials.

But there is, maybe understandably, a fair amount of skepticism by our players. They ask, how can it be that these wealthy, highly successful businessmen are willing to enter into a business like this and lose the kind of money they are? My response is, they’re living up to the current CBA. I would expect nothing less of them. At the conclusion of this deal, though, they’re saying we need to negotiate a new deal.

TRIBUNE: Is basketball-related income the biggest negotiating issue?

SILVER: The BRI is one. Also, when it comes to distribution of revenue, more now than in any of the CBAs I’ve been involved in, there has been more discussion about competition. (In previous CBA negotiations), the key issue was the split of the revenue and not how it was distributed. We could give you the 57 percent and you can decide how to distribute it among the players.

Clearly, our view has changed. How that money is distributed among the players is a key component of competition around the league. In addition to our desire to create a model where all teams at least have the opportunity to be profitable, we also are focused on a model where all 30 teams have the opportunity to compete for a championship. There’s a recognition out there now that’s not the current model to the extent that we have a soft salary-cap system.

For example, a team like the Lakers has a payroll of $110 million when you include the luxury-tax figure. With the salary cap at $57 million, that’s not a balanced system.

What we’ve proposed to the players is a hard cap. We’ve looked at the NFL, and we’re not ashamed to say that appears to be a better system. There’s a lot more analysis we need to do with the players. I’m not suggesting we’re the NFL. But we believe through shorter contracts, less guaranteed money and a harder salary cap, we can create more parity among the teams in this league. We believe for the long-term success for the business, that’s important.

TRIBUNE: How many of the league’s teams are operating in the red?

SILVER: Approximately three-quarters of the teams are not making money.

TRIBUNE: And the biggest loss for a single franchise?

SILVER: The union has those figures. We don’t disclose them publicly. But it’s double-digit millions of dollars. The losses are real, and they’re large. The players are taking the position, these wealthy owners must be willing to incur those losses. Otherwise, why would they have bought the team? My response is, if that’s your view, we’ll end up with a work stoppage, because it’s going to be a test of will. If you really believe they’re willing to incur those losses, you must believe there won’t be a lockout, or there will be a short lockout, because the owners will cave.

TRIBUNE: In some cases, a team would fare better financially during a lockout.

SILVER: There are several teams from a financial standpoint that would do better if we’re not playing games. And that can’t be a good state of affairs.

Looks like Silver wrote the questions the Tribune asked.

The obvious question Silver should have been asked is why the NBA doesn’t solve their own financial problems rather than asking the players to take less pay than their value. The NBA could divide TV money evenly among teams as the NFL does rather than allowing large market franchises to have most of the revenues.

d-train wrote: The NBA could divide TV money evenly among teams as the NFL does rather than allowing large market franchises to have most of the revenues.

If you're losing 300 mill as a league, reshuffling the TV revenue (or any/all revenue, for that matter) doesn't solve the issue of a net loss of 300 mill. It simply moves losses from one owner to another. Spread it evenly, and all 30 owners would have been a loser (in the red 10 mill each) rather than only 22-23 of them - which still would seem to be a totally unacceptable outcome for the owners.

While the union will demand to have input on owner-owner issues like rev sharing, their real issue should be the bottom line amount of player payroll to be provided. Revenue sharing really has nothing to do with the players as its an owner-to-owner sharing/balancing issue on income, as well as hard caps for each team which have to do with balancing spending by each team on players.

DBoys wrote:

d-train wrote: The NBA could divide TV money evenly among teams as the NFL does rather than allowing large market franchises to have most of the revenues.

Spread it evenly, and all 30 owners would have been a loser (in the red 10 mill each) rather than only 22-23 of them - which still would seem to be a totally unacceptable outcome for the owners

I am sorry, but it changes something : the perception of the problem, and with all team in the red, they would all be on the same voice, and it would be easier for everybody to see what are the real problems. All the players would also be concerned more in a same way than now, because now, we have some owners and some players that are happy, and others are not happy.

With 30 teams in Red (said orange if it would be lower losses than we can see now for some teams), it would be easier to know that some players are at least a bit overpaid.


@ d-train, I agree that a better sharing of TV revenues could help, but I don't like one point :

d-train wrote:The obvious question Silver should have been asked is why the NBA doesn’t solve their own financial problems rather than asking the players to take less pay than their value.

What in your eyes is their value ? And from what it comes from ?

One thing I understand (maybe I am wrong ) is that if there would be no team to outbid some others like we can see sometimes, the value would be lower. The actual system makes their value higher than they should be.
I am not a fan of hard cap at all (owners should be because it also allows them to cut their capologist cost...), but there is a problem with the actual system, and IMO, part comes form the league, but other comes from players too, not by themselves because they are not the one that make the offers, but by the fact that they can get a lot higher than they should in some case.

How teams that are in the Red could make good offer (I am not saying big offer) while some team in the Green can offer more because they don't care about any tax. If they are all in Orange, it would different. And starting from Orange, which could be positive or negative, it would be more simple to know what % of BRI should be get by the players. If higher % makes it goes to negative, then it's not good, if lower % put teams in green, it's OK.

And yes teams need to be in green, because everybody would get revenues.
Remember than 57%, 60% or even 45% of the BRI are all revenues for the players, they almost don't have other costs (actually, their agent, and the part that need to be adjusted), and are guaranteed to be in Green, and never in Orange or Red.

The lower salaries are not the problem, but once you get tons of dollars like lots of players get, you have to accept that it has to be adjusted on the real revenues more than it's made now.
When you're making $20M a year, I am sorry, you're not a simple employee, and I don't even want to talk about guys who could get 15M$ or more, but don't care about making playoffs while it's what can bring money to the team (and by extension too them on the long term view).

It's a big problem, and you can't find a good solution if you can't imagine owners and players POV.
Their value need to be set by a better system, but it's not the system that needs to be set on the actual value of players, because their are nothing without a system.

d-train wrote:Looks like Silver wrote the questions the Tribune asked.

The obvious question Silver should have been asked is why the NBA doesn’t solve their own financial problems rather than asking the players to take less pay than their value. The NBA could divide TV money evenly among teams as the NFL does rather than allowing large market franchises to have most of the revenues.

Player salaries are the NBA's single biggest expense. So, yes they are solving this problem by proposing to cut salaries.

zyht wrote:If my understanding is correct, current CBA provides that players will receive 57% of NBA generated revenue. This means owners are left with 43% once all salaries are paid. because NBA revenue is huge, i would like to understand how 22 teams can be loss making with 43% of the revenue available to pay for the arena and non players employees plus other expenses.

Well, the simple answer is that not every team has the same revenue, not every team has 43% of revenue to spend on other expenses and not every team spends only 57% on players.

According to Forbes (http://www.forbes.com/lists/2011/32/basketball-valuations-11_rank.html:

Lakers - Revenue $214mil and player expenses of $91mil (only 42.5% of revenue, despite having the highest player cost in the league).

Magic - Revenue $108mil and player expenses of $86mil (80% of revenue).

Most of the losses are from interest and amortization. I guarantee each team has a positive EBITDA. The players shouldn't be held responsible for the interest an owner has to pay to buy the team.

Sark wrote: I guarantee each team has a positive EBITDA.

All of those who have seen the financials - not only owners but also players - essentially contradict your "guarantee."

The following article does a good job of examining the various accounting "claims" on this stuff by those who have neither the data, nor a proper understanding of the numbers that they've used. It's especially helpful in its examination of some of the articles written that purported to debunk the losses (and then later had to issue retractions because their assumptions were completely flawed).

http://raptorsrepublic.com/2011/07/15/n ... cratchers/

Of significance, those so-called amortization losses - on further examination - have never been a part of the $300+ M in losses on the financials for the league in the negotiations. If they were included, obviously the numbers would be even worse (a total of -$600M or the like?).

Statements by the union lately, as they've given ground, have also conceded that there indeed have been significant losses which they are willing to address.

With all the evidence from those who have seen the financials pointing in the same direction, it's not very smart to think that sizable cash losses don't exist for many and probably even most NBA teams lately.

Sark wrote:Most of the losses are from interest and amortization. I guarantee each team has a positive EBITDA. The players shouldn't be held responsible for the interest an owner has to pay to buy the team.

Forbes also disagrees
http://www.forbes.com/lists/2011/32/basketball-valuations-11_rank.html

Their "Operating Income" is EBITDA and I count 17 teams with negative operating income.

agreed but if i count well it's not 300 MUSD loss that forbes is showing here. Total loss is half this amount and profits are much higher than the losses so that the cumulated op is fairly positive. Based on what i read here, it seems to me the real issue is small team just don't have enough revenue and you cannot be profitable with a revenue close to 100 MUSD.

I don't doubt the number NBA is claiming because i understand they were shared with players who don't argue so it has to be true but still curious how the team spend so much money. Interest would make sense but IMO would be surprise that this is included in the discussion. if not interest i am still wondering.

Forbes has to simply guess at numbers when they write these kind of articles. They can be accurate or they can be way off base, it's just their guess. This summer they tried to take those guesses and turn it into a total analysis of the league's current financial landscape, and the NBA responded with facts not guesses. Here's what they told us:


"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.

zyht wrote: it seems to me the real issue is small team just don't have enough revenue and you cannot be profitable with a revenue close to 100 MUSD.

In a nutshell:

The average revenue for all teams was $120M. The average for a "small team" would depend on where the line is drawn to define a "small" team.

If we simply use all teams, the numbers are fairly easy to average ...

Revenue ....$120M
Non-player expense .... $60M
Player payroll .... $70M
Net ... <$10M>

With those numbers, you can't be profitable without getting the total player payroll below $60M (which would be 50%), and the owners want to make a profit of $10 (8% net) which would require the players total payroll be lowered to $50M (or, 41.7%).

If we can trust the recent reports, the owners most recent compromise offer would put the numbers as follows, per team:

Revenue $120M
Expense $60M
Players $55.2M (46%)
Net to owners $4.8M (4% profit)

Of course, it would require a significant degree of sophisticated revenue sharing between owners (to level the income/expense numbers) and a hard cap (to level the player payroll) to make it come out that way for all 30 owners, but that's the core of where the owners seem to be negotiating from.