As the Lockout Continues, the Owners draw the Blame

Don't you believe me?

There is a rather large swing taking place in the matter of public opinion, as Henry Abbott pointed out earlier this month, where the NBA lockout is concerned. No longer are the players the ones who are chided for being greedy and wanting more than is feasibly necessary to earn for playing a game at a high level. It should be understood that the players, however, are also not seen as the victims. They are pieces in the grand scheme of the NBA hierarchy, but they are the pawns. Owners have the power, owners never get traded or benched. They have the money and are not content with what they have.

David Stern has been beating his war drum with the rallying cry that the NBA is no longer a lucrative or solvent endeavor for many of the owners. Namely those in small markets. This cry has deadened the ears of all that pay the slightest amount of attention to the NBA or sports in general. Even NPR has run stories about the lockout in the past week. It is affecting more than the basketball world.

What is at stake is terms surrounding a new collective bargaining agreement. If Stern is to be believed, the new agreement must mean that players should shoulder the burden and take all around cuts so that the owners, and their teams, can yet again become fiscally sound. On the surface that may appear as a reasonable agreement. Players make millions as it is, and if they were to agree to such a deal they would continue to make millions. Just not as many millions of dollars. Money is money, right? What would the owners give up though? What is their concession to help the league profit?

The CBA was structured, up until the lockout, with the players receiving 57 percent of Basketball Related Income from the teams. That is the money earned from the sales of merchandise, clothing, ticket sales, parking fees, television contracts, et cetera. Players, in an attempt to move forward in negotiations with the owners, have offered to lower their BRI to 53 or 54 percent. Honestly, it is quite a concession by the players and their union, but the owners do not seem to pleased. David Aldrigde reports:

A source says last week’s latest proposal from the owners to the players started at 50 percent of Basketball Related Income in year one of the (still) 10-year offer, and dropped into the mid-40s for most of the rest of the proposed deal. Is that better than the initial 61-39 owners’ split offer back in February? Yes. But it is still not anywhere close enough to get a deal with the players. Hard to imagine this isn’t exactly how the owners anticipated this would go, and that there won’t be anything of substance to report until the first game checks to players go unprinted in mid-November.

Owners must really be hurting if they are asking the players to take such large cuts to their salaries over such an extended amount of time. The economy must be especially rough for billionaires. It is so tough, that the owners also want a hard cap so that they cannot over-extend their budgets when it comes to acquiring players and subsequently paying them. Plus a hard cap should make the league more competitive. Right?

Essentially, a hard cap is a way for the owners to check themselves and not over pay on a bad investment. Billionaire business men know that there should be no risk in a high stakes deal so why should they front the burden for their own mistakes? That just does not seem like a fair deal. Owning an NBA franchise is a business, after all. That is what Stern has been saying all along. The owners just want to protect their product and their investors. None of them ever felt that their team was something more than that, something more than a business investment wherein profit was the ultimate goal. Especially not Dan Gilbert, the owner of the Cleveland Cavaliers, and one of the most hardline elements at the labor talks.

“To me, NBA franchises are like pieces of art. There are only 30 of them. They aren’t always on the market, especially a franchise that would have been such a natural fit. … If you just looked at the Cavaliers in terms of revenues, profits and balance sheets — and you paid this amount for it — people would say ‘You’re insane! You’re nuts.’ But if you look at all the tentacles, the impact on our other venues, it makes tremendous sense. We have now opened a Cleveland office [of Quicken Loans] and that’s tremendously successful. Our employees love it that we’re associated with the Cavs and can come to games — that helps us attract and keep better people. There are a lot of nonprofit things that can be done with pro sports. It brings an unbelievable amount of excitement.”

That is a quote by Gilbert. It seems that something must have soured his taste on the beauty and privilege of owning a masterpiece. It sure is a same that players have the freedom to chose what teams they can play for once their contracts expire and they become free agents.

Perhaps, though, Gilbert stumbled upon a novel idea, even if he does not buy into it anymore. Maybe the owners should run their teams like a non-profit. There has been a lot of talk about balanced budgets of late so it could behoove owners to balance their own books. However, it is clear that the task of estimating operational costs, gross income, salaries, and whether the team will be good enough to attract fans and sell merchandise to meet that budget is a hard task but these are professional business men. Plus, teams already do this. Obviously, the details will need to be worked out more but it is an option. One that might never be broached, but an option, nonetheless. Owners are savvy and shrewd, they could work something out.

A new outlook on how teams are ran could help the owners save money. Stern has cited on countless times that the small market teams are the ones that are suffering and has used Bruce Ratner’s sale of the New Jersey Nets, soon to become the Brooklyn Nets, to Mikhail Prokhorov, the Russian billionaire, as a prime example of how the owners are hurting. Ratner sold the Nets due to the financial strains that the NBA is enduring even after acquiring (the term is used loosely here) land in Brooklyn, what is known as the Atlantic Yards project, to relocate the team in an attempt to make them more profitable. However, Malcolm Gladwell, who brought to light the Gilbert quote above, sees it differently:

Ratner has been vilified — both fairly and unfairly — by opponents of the Atlantic Yards project. But let’s be clear: What he did has nothing whatsoever to do with basketball. Ratner didn’t buy the Nets as a stand-alone commercial enterprise in the hopes that ticket sales and television revenue would exceed players’ salaries and administration costs. Ratner was buying eminent domain insurance. Basketball also had very little to do with Ratner’s sale of the Nets. Ratner got hit by the recession. Fighting the court challenges to his project took longer than he thought. He became dangerously overextended. His shareholders got restless. He realized had to dump the fancy Frank Gehry design for something more along the lines of a Kleenex box. Prokhorov helped Ratner out by buying a controlling interest in the Nets. But he also paid off some of Ratner’s debts, lent him $75 million, picked up some of his debt service, acquired a small stake in the arena, and bought an option on 20 percent of the entire Atlantic Yards project. This wasn’t a fire sale of a distressed basketball franchise. It was a general-purpose real estate bailout.

Did Ratner even care that he lost the Nets? Once he won his eminent domain case, the team had served its purpose. He’s not a basketball fan. He’s a real estate developer. The asset he wanted to hang on to was the arena, and with good reason. According to Ratner, the Barclays Center (the naming right of which, by the way, earned him a cool $400 million) is going to bring in somewhere around $120 million in revenue a year. Operating costs will be $30 million. The mortgage comes to $50 million. That leaves $35 million in profit on Ratner’s $350 million up-front investment, for an annual return of 10 percent.3 “That is pretty good out of the box,” Ratner said in a recent interview. “It will increase as time goes on.” Not to mention that the rental market in Brooklyn is heating up, the first of Ratner’s residential towers is about to break ground, and his company also happens to own two large retail properties directly adjacent to Atlantic Yards, which can only appreciate now that there’s a small city going up next door. When David Stern says that the “previous ownership” of the Nets lost “several million dollars” on the sale of the team, he is apparently not counting the profits on the arena, the eminent domain victory, the long-term value of that extra 14 acres, or the appreciation of Ratner’s adjoining properties. That is not a lie, exactly. It is an artful misrepresentation. It is like looking at a perfectly respectable kasha knish and pretending it is a ham sandwich.

*Please read the entire article, it is one of the most important ones to date concerning the lockout, NBA, and the owners.

As Gladwell points out, the men who buy NBA franchises are not looking to solely profit from the revenue that the teams create. The team is merely a small part in a grander scheme that can net millions of dollars for the owners separately from just the day-today of basketball operations. Some owners purchase teams in order to secure concession rights to exclusively sell products that they also own. Texas Rangers Ballpark in Arlington sells Nolan Ryan beef products (hotdogs, hamburgers, sausage on a stick) exclusively. Ryan is the owner of the Rangers. Mike Ilitch, who owns the Detroit Red Wings and the Tigers, founded Little Ceasars Pizza. It is not hard to imagine what the official pizza of those two teams is. The Cavaliers play in Quicken Loans Arena, it is no coincidence that Dan Gilbert is the chairman and founder of Quicken Loans.

Others, like Ratner are in it for the real estate. A new stadium generates a lot of potential growth for an area immediately surrounding it. With that growth comes na obscene amount of profit potential. Ross Perot Jr. purchased the majority interest in the Dallas Mavericks in order to develop the area surrounding the American Airlines Center into what is now Victory Park. Mark Cuban, who has had a nasty legal dispute with Perot Jr., is now the majority owner of the Mavericks, but Perot Jr. is still a minority stake in the team. It is clear why he gave up ownership of the team. It was the same reason Ratner sold the Nets. The teams had served their purpose. NBA franchises are not works of art. They are business collateral. The new arena that will be built in Sacramento to placate the Maloofs and the NBA in order to keep the Kings will be yet another prime example of this.

By demanding that the players take drastic cuts to their salaries, the owners are attempting to move their ownership of the teams from a prestigious business tool that can garner them more in the long run to a possible longer term business holding. Not only would their developments make them the money, but there would also be an added benefit of their teams making them more money than before. It would no longer mean that a successful team would make money, under the owner’s plans even the teams that drag along the bottom of the league would be financially sound because the players would be the ones taking the cuts.

As more and more information reaches the public on how the owners, not all of them, operate the more their opinions shift. It is not the players who are greedy, they just want their share. David Stern can beat his war drum all he likes, circle the owners’ wagons, and declare that the financial sky is falling. Why stop now? What he must realize is that many owners see the teams as an expendable building block. Why should the players be the ones to suffer most? Fans do not pay money to see the business operations of an NBA team on game night, they pay to see their favorite players perform in the highest professional level of the sport in the world. As the lockout wears on, it is the owners who will start to be the ones who take more of the blame. They have not only locked out the players but also all those people who work in the arenas and parking lots during the games. Beyond that, they have locked out the fans. They have locked out the NBA after one of its most successful seasons and keep demanding more. Patience has a limit, and patience with the owners  is wearing thin.

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Filed under NBA at Large, NBA Lockout

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