G. Mill and the future of the Jazz

[kamazilla]

Yeah, this is a long post. If you care about the competitive future of the Utah Jazz, please read it and post your own thoughts. But seriously, read it first. Thanks.

Over the past two seasons, Greg Miller has stated his willingness to pay the NBA's luxury tax penalty in order to field a team capable of making a deep run in the playoffs. Yet, through personnel moves clearly motivated not by basketball promise but by financial savings, he has caused the Jazz to hemorrhage the much needed player talent necessary to make that run. If the Jazz or the Millers were on the brink of financial ruin, such action would be easy to justify, as many here have attempted to do. This is not the case, however, as I will demonstrate below. The moves served only to ensure the Jazz never achieve the success that their personnel assets seemed to suggest was possible over one year ago. Though that team never quite met expectations, there was a great deal of promise in the young players which were lost, while the Jazz received nothing of value in return.

As we now approach this years trade deadline, I'm stunned by the number of posters who are resigned to seeing AK go the way of Maynor, Brewer, Korver and Matthews. Many are hoping a deal occurs which will inevitably return less talent. I am so tired of the fans whose hearts bleed for the Miller family and their financial constraints. These fans act as though there is no choice for ownership but to give up some of our best players in addition to very valuable role players who profoundly impact the outcome of games in order that our dear poor owners don't incur the ruinous tax penalty. In an effort to dispel any notion that current ownership is eternally strapped for cash and maintains the Jazz only as a benevolent gesture for the benefit of hard working fans who can appreciate a self made man, I've compiled actual financial results achieved by the Jazz from the time Miller purchased the previously insolvent team.

In April of 1985, Larry Miller purchased a 50% equity stake in the Utah Jazz NBA franchise for $8M. A year and a half later, he bought the remaining 50% for $9M plus the assumption of all debt held by the organization. This debt was immediately offset by incoming revenue, as the Jazz under Miller's leadership turned a profit of $123,000 in 1987. The Jazz have since become a remarkably consistent profit machine, racking up annual profits of $3M, $2M, $14M, $28M, $9M, $1M $6M, $9M, and $8M in the years 2001 to 2009. Last year was the first year the Jazz have not made money this millenium, losing $4M.

Total profit for the decade 2001- 2010: $76,000,000.

Bear in mind that the team during those years was well past its competitive peak, rarely making deep playoff runs, and missing the playoffs completely twice. I have not tracked the down numbers from the 1990's, but there is no doubt you can safely add tens of millions of dollars to the total profit earned by the franchise during Millers' tenure as owner.

Turning our attention now to franchise valuation, Miller bought the Jazz for $17 million in 1985/ 86. Yes, he assumed about $7 million in organizational debt in addition to that, but as stated previously it was offset by incoming revenue. The Jazz is now conservatively valued at over $350M, an increase in value of an astounding 2000%. This equity holding represents not only staggering value in and of itself, it may be leveraged in order to invest in other business interests, which Miller has done masterfully. He has capitalized not only on the financial windfall that has been the Utah Jazz, but also the cache which NBA ownership brings in order to grow and diversify his many business endeavors.

Total franchise value appreciation 1986 - 2011: $340,000,000.

It will be impossible to accurately estimate the positive financial impact Miller's ownership of the Jazz has had on LHM companies, but suffice to say that many, many opportunities were created which would not otherwise have come to fruition. One obvious example is Energy Solutions Arena, which Miller built as a result of owning the Jazz. It too has appreciated since opening in 1988, and creates a great deal of revenue apart from hosting NBA basketball games.

Total franchise financial growth
(demonstrated) 1986 - 2011 $450,000,000.

When considering the ESA, the overall direct impact the Jazz have had on LHM's financial empire are clearly well over $500 million. In estimating the indirect impact, such as opportunities derived from leveraged equity loans for re-investment purposes, it is not unlikely that all other LHM companies could have earned an equivalent additional amount during the same period.

Total financial impact (estimated)
Utah Jazz an all LHM companies $500,000,000 - $1,000,000,000

As one can see, the Jazz as well as the Millers are in tremendously sound financial shape. Should AK or anyone else be traded in a profit maximizing move prior to the deadline, fans should not bemoan some phantom force which deems the move a necessity for the sustainability of the franchise, they should rather be up in arms, demanding accountability from ownership for a complete lack of commitment to the fans who have made it possible for the Miller family to earn many hundreds of millions of dollars over the past twenty five years.

[Ziploc]

I'm just glad I have the Jazz... period. I will just enjoy watching them, I think I have abandoned my hopes for a tittle for awhile. Now I'll just enjoy them while they are still here.

[StocktonShorts]

Nice work. You fail to account however for Greg's significant appetite for hookers and blow.


But seriously putting it like this just makes me even more upset about the Wesley Matthews non-deal. There were bad decisions that preceded it (Memo extension for one) but that one will prove to be much more costly to the Jazz than the sum of the contract.

[BarneyGumble]

If I were Greg Miller...I'd be shopping the Jazz right now.

My $0.02.

[DelaneyRudd]

Greg doesn't own the team. He's the CEO, ie an employee.

[Fido]

I think you are approaching the issue all wrong. In a way, it is like wondering why you don't buy more expensive season tickets and using your income tax returns to show why you have plenty of money to be able to do it. I really would not be looking at the total picture.

My opinon is :
- $ spent does not equal value returned. If it was that easy, the Knicks, Mavs, et al would have a ton of championships by now, the Yankees would win a championship every year, etc.
- The argument that the Jazz don't spend enough doesn't make sense when your team is in the top third in team salary in spite of being in one of the league's smallest markets.
- League rules are designed to heavily penalize teams that go over the luxury tax threshold--making costs 2x or more what they would be otherwise. At some point it stops making sense to pay as the return on investment gets crushed.
- Many teams that pay more than the Jazz (like Lakers, and Celtics for example) have been re-upping their existing players as they are contending teams whose foundations have paid off.

I really believe the Jazz would do the same if they were that close. But the problem is not all attempts to build a team work. 2 years ago the Jazz's foundation was going to be Deron - Boozer - Okur. Then with a solid supporting cast like AK and if one of the SGs stepped up they would be right there. But AK plateaued much sooner than anyone hoped. Boozer bailed for personal reasons (money, family, conflict) as much as any. Okur tore his achillies. Injuries have plagued the team from time to time slowing them to at most a bottom half of the playoffs team that can't quite scratch home court advantage.

Does that mean Greg Miller sucks or is not as dedicated as Larry was or is in some way running the team into the ground? No. It is life. You approach each season trying to get better and hope to eventually reach the pinnacle.

Mine is a long read too--but you asked.....

[retiredcoach]

It sure is easy to spend someone else's money. It's like the folks who always want to tax the rich, or in other words everybody but me!

You are quoting operating income from Forbes magaine, which is income before taxes and interest. In years past, the interest payments on the money LHM borrowed to build the arena ate up all the operating income plus some. In most of those years, the team lost money when interest expense was taken into consideration. Unlike most teams in the NBA, LHM financed his own arena. SLC didn't build it for him. The $86 million in debt that he took on to build the arena costs between $5 and $10 million a year in interest expense.

In 2011 I expect the Jazz will lose 10 million and in any year they are over the cap, they don't get $3 mill in lux tax revenue sharing, so that's $13 million out the door--for what? How much they lose depends on how far they get in the playoffs. Each home playoff game earns the Jazz $500 to $800 in increased revenue.

The Laker have $50 plus million in operating income, the Staples Center is paid for, and next year it's going to be even higher because of their new TV deal that adds millions a year on to what they are making now. Even the Suns make $20 mil in operating income compared to the Jazz's $3 to $6 mil.

Not only do fans pay for tickets, they now have to pay for cable to watch the games, and they pay a vig to the Jazz every time they buy a car. The Jazz had to go to cable in order to increase revenue enough to stay close to profitable. Look at all the bitching that has caused!

If you want to pay more for cars, more for tickets and rather than seeing the games on cable, home games could come in an add on package for a few hundred more dollars per year. Then the Jazz could afford to buy some players.

Suppose they won a championship, what would each fan personally get. A banner in the rafters, some excitement for a week, and a feeling of satisfaction that would last, oh, a few weeks or so. Then the fans would start insisting the Jazz repeat -no matter the cost. Oh what fun it is to spend whatever it takes to win, especially when it's other people's money!

[ColdBlue]

Equity.

[hoops4life]

- $ spent does not equal value returned. If it was that easy, the Knicks, Mavs, et al would have a ton of championships by now, the Yankees would win a championship every year, etc.

There is a correlation between wins, especially playoff wins, and payroll. Correlation doesn't always mean causation. You look at payrolls in basketball or even baseball and the more you pay generally the more wins you get.

[ColdBlue]

^ That is my version of the short post. In 20 years the value of the franchise has increased better than Apple... ok maybe not Apple but it's big.

I'm not saying the Jazz could go overspend for a championship (and I wouldn't want them to) but they certainly could handle a loss for a few years and not even dent the value of the franchise. All I want them to do is spend enough to put a real contender on the floor. There is no need to compromise talent over a few million here and there.

[leorn]

So last year was the first year we ever paid the lux tax, and the first year we ever lost money. Greg is also a bit green and took a huge gamble to do those things. I don't blame him for mitigating the loss as much as possible. He started with a profitable business and then turned a loss. That is pretty alarming in the business world.

He has big shoes to fill, but I can't criticize him for not having the guts to spend money his father never spent. He did that.

Funding a franchise that loses money is one of three things:
1. a way expensive hobby
2. a really stupid business decision
3. a huge gamble, the likes of which make most businesses fail

I agree with the poster that said if you want them to lose money, throw in some more of yours too!

I'm sorry, but this is crazy talk. Losing 4 mill is a very slippery slope, especially in this economy...Greg knows that it can't happen very often and his gamble is that it pays off in the long run. As a fan I hope he is right and that the team starts to make a good profit soon. Hard to see it right now though.

[kamazilla]

coach,

Of course the income figures are before taxes, as is typically the case. Further, there is no need to lump in interest payments on the ESA, as it was addressed separately in my analysis as an investment made possible by the Jazz, which is building equity and earning revenue well beyond NBA gate receipts. I'm not sure what point you wish to convey regarding the Millers' auto holdings, but I think you will find it very difficult to argue that any of the LHM Group's businesses have not benefitted handsomely as a result of their ownership of the Jazz. And if the Jazz ever won the championship, I'm quite sure the event would creating a lasting memory in the heart of every fan; just look at the lasting impact of two second place finishes thirteen years ago.

Fido,

Thanks for your response. First of all, I do in fact find a strong correlation between spending and success in the NBA, assuming all other aspects of management are sound. But really, I did not put this thread together in order to argue that point. My point is, as I have said many times, the Jazz cannot attain the highest echelon of competitive success in the NBA without retaining its best players or receiving like value in return for outgoing personnel assets. The math simply doesn't work.

1. The Jazz very rarely field a team which accrues the amount of losses necessary to gain a high lottery pick, therefore they are relegated to developing players which slip to the second round or late first. Occasionally, they find an undrafted diamond in the rough.

2. Utah never has been and never will be a free agent destination. We feed at the bottom of the free agent pool on other teams cast offs after the big fish have eaten to their fill.

3. The Jazz are paralyzingly conservative in regards to trades. Their approach is good in that over time players may build chemistry and improve from within the organization, but stupid in that when mistakes have occurred in staffing the team, management sticks it out for the duration, seemingly blind to actual results. Wasn't it clear four seasons ago that an Okur/Boozer front-court could never work?

So the Jazz are between a rock and a hard place in regards to staffing a competitive team. Miraculously, through shrewd management and a bit of luck, by December of last year they had accrued player assets sufficient to build a team capable of competing on the highest levels. Most of us agreed what needed to be addressed, so there is no need to revisit that topic now.

Rather than building on strength and reworking areas of weakness, the Jazz allowed most of their player assets to walk for nothing. Call it salary relief if you like, to me it is reneging on a promise and shirking the cost of doing business, a cost ownership can clearly afford.

I am not advocating spending to the point that the sustainability of the franchise is endangered, merely ponying up the money to pay actual starting caliber NBA players. Should AK walk for nothing, I do hope there will be outrage among fans sufficient for Greg Miller to take notice.

[idajazz]

I don't blame them for not going out and spending Like Miami for the 3 they have or like boston, LA, or the knicks, what bothers me as a fan is loosing players already in the fold that you know are going to be good.
Don't tease me!!

[DelaneyRudd]

Disagree with number 3. The Jazz just end up with players who are difficult to trade because they have horrible or magnificent contracts. Very little in between. They don't make fewer trades than your average team. Does it mean they are free wheelers like Dallas? No, but they aren't "paralyzingly conservative."

[retiredcoach]

Of course the income figures are before taxes, as is typically the case. Further, there is no need to lump in interest payments on the ESA, as it was addressed separately in my analysis as an investment made possible by the Jazz, which is building equity and earning revenue well beyond NBA gate receipts. I'm not sure what point you wish to convey regarding the Millers' auto holdings, but I think you will find it very difficult to argue that any of the LHM Group's businesses have not benefitted handsomely as a result of their ownership of the Jazz. And if the Jazz ever won the championship, I'm quite sure the event would creating a lasting memory in the heart of every fan; just look at the lasting impact of two second place finishes thirteen years ago.

Unlike most NBA teams, Miller didn't hold the city or the state over a barrel wanting tax payer money for his business. So he had to pay the interest. Interest payments are very relevant. It's a business not a hobby.

The car business is very relevant. In the early years it didn't make much money and neither did the Jazz. All of LHM was financed with huge amounts of debt. He was really lucky he didn't stub his toe and go under.

Like I said, there's a vig charge on every car for the Jazz. Of course LHM doesn't come out and say that, but it's true.

You may not be old enough to have experienced the dealership tactics of LHM in the early days. He paid commission to sales people only if they sold cars and trucks for more than the sticker price. It was sad to watch the sheep get fleeced. Since I've been retired, I've bought exclusively Lexus. Before I retired I bought Mercedes, Lexus and other brands. I also bought several trucks every year. I often had to buy them out of town because the extra's that LHM charged for made him uncompetitive. He depended on naive car buyers and the LDS connection in the early years. So sorry to bust that dream bubble. Everyone who has ever bought a car from LHM has paid for the Jazz. It's only been the last few years when competition has increased with the internet and other dealers, LHM has gotten real about the prices. In the early years, cars heavily subsidized the Jazz.

What's a few million dollars compared to the hearts of the fans! Just go tell that to Lebron, Camelo, Wade and others. Oh those hearts.

I like the way LHM ran the Jazz like a business. That way I didn't have to watch the Jazz relocate. Imagine the hearts of the fans then.

A half a dozen NBA franchises are quietly for sale with no buyers stepping up. The price of the franchise is in decline. It would be very unwise to borrow against equity.

Deficit funding to stick more money in whiny, undereducated, over paid people's pockets because they can shoot a basketball! No thanks. It's been good the way it has been, and I hope it can continue. I hope the CBA agreement can bring some sense to the whole out of control spending mess.

[The59Sound]

It sure is easy to spend someone else's money. It's like the folks who always want to tax the rich, or in other words everybody but me!

Yep. Perfect analogy...

[dr0welf]

Part of owning a team is the luxury to make the decisions. The Miller's have always tried to put a team together that is competitive and yet not lose too much money. If you want to look at the group as a whole don't just report loss on one end of the spectrum. Dealerships, Restraunts, Entertainment all took huge hits last year so I expect that he lost money in many of his businesses. Maybe then you might see the need for some of the MINOR moves they made last year.

[kamazilla]

^^^
I join you without reservation in hoping that the a new CBA will help equalize the competitive advantages large market teams and organizations with uber-wealthy owners now enjoy. However, I see that as an extremely unlikely possibility because the bargaining process freezes out the ultimate source of financing for the NBA economy: fans have no seat at the table.

LHM was an extremely savvy and shrewd businessman. No, local government didn't fund the ESA, but the LHM Group now has control over the arena and has been steadily building equity from the day it was built. Ultimately, the Millers will own the arena outright, a tidy little asset which would not have been possible without the Jazz.

Again, I am not advocating that ownership shells out above market salaries for every player on the roster, but the days of top notch talent like Malone, Stockton and Hornaceck granting a discount for the privilege of playing in a third rate market are long over. If the Jazz can't manage to retain most of the top level talent they miraculously acquire, it will lead to an inevitable permanent decline in competitive prospects. And that is the true slippery slope. Can't turn much profit on perennial basement dwellers.

[blackham9258]

Until the franchise is sold the equity they own means very little. You can't spend what the franchise is said to be worth until you sell it. So, you have to make decisions on a year to year basis, and with a 5 year time horizon.

Also, I look at the one year in the 2000's that the Jazz made 28M, and that was before the interest expense and taxes so the Jazz made what? $5-8M that year. Sorry, but if you have that much on the line in a business you should be able to make more than your players.

In my book that Millers don't make nearly enough, nor do most owners but I greatly appreciate their efforts to field a competitive team.

Also, I think giving up Maynor hurt, but he isn't any better than Watson. In fact I think for now Watson gives us more than Maynor would. Sure Maynor is young, and has upside, but now....now Watson is better.

As far as giving up Brewer, that was a great move, it helped us get a pick that ended up being the asset that clinched to deal for Jefferson. And I believe Jefferson is on his way up now that he has figured out the offense.

Now look at Brewer, he is still overpaid at $4m and he was asking the Jazz for $8-$10per. Had the Jazz done that deal, they would have set the Jazz back for years.

The one that hurts is Matthews. But everyone raised their eyebrows leaguewide when that deal was offered. Portland way overreached on the Matthews contract, but they also knew something noone else knew which was the writing was on the wall for their star SG. If Roy was still there, Matthews would be a 23minute a night guy, scoring 10ppg. Paying that player $8M a year is too much. It just is. I didn't blame the Jazz then, and I still don't fault them now.

As far as AK, I want to trade him for G. Wallace, or Iggy if that can be had so I am waiting to see on AK. AK is playing better this year, but I am sorry...I don't like a guy who loafs, literally loafs and pouts for 5 years and then decides to put in effort in a contract year. I love AK, don't get me wrong, but he has been the most disappointing player in the league over the last 6 years and I wouldn't mind the Millers using him to do whatever they want to at this point.

We aren't going anywhere this year, why not send him somewhere to pick up a wing or shed some salary and resign him next year if you still want to. He shouldn't get more than MLE.

My thoughts.

[TDIDDY]

Being a season ticket holder I haven't seen the ESA SOLD OUT once this year that includes Miami, LA and others if fans want to see the Millers to spend more $ then sell out the ESA 250 times in a row like Portland!