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How NBA Owners Claimed Poverty, Locked Out Players, And Made Off Like Bandits

By Travis Waldron on January 22, 2014 at 3:14 pm

"How NBA Owners Claimed Poverty, Locked Out Players, And Made Off Like Bandits"

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NBA commissioner David Stern

NBA commissioner David Stern

CREDIT: AP

Remember the NBA lockout? It caused the cancellation of nearly a third of the 2011 NBA season, which NBA owners were cool with because, to hear them tell it, they were losing money. The league, in fact, argued that 22 of its 30 teams were operating in the red, and their solution was simple: they had to take money away from players if they were going to remain fiscally solvent.

The Players Association argued then that the cries of poverty weren’t exactly true, but it ultimately relented and gave up a share of players’ salaries to get back on the court. There was plenty of evidence that the NBA was financially healthy at the time — Nate Silver’s examination of their finances showed that much — and it wasn’t too hard to conclude that NBA owners claimed a big victory from the lockout. But it’s interesting and useful to look back at how big that victory was, and thanks to Forbes’ first full-year annual valuation of NBA franchises since the lockout, we can.

What those valuations, which Forbes released today, show is that the league has never been in a better financial position. League revenues are up to $4.6 billion, and all but four teams — the Atlanta Hawks, Philadelphia 76ers, Minnesota Timberwolves, and Brooklyn Nets — are making money on an annual basis. The average NBA team’s operating income, in fact, is nearly $24 million — double what it was before the lockout.

Of course, evaluating teams based on operating income isn’t the best or even a good way to judge them. Operating income can fluctuate and is based on an array of factors and decisions. The Nets, for instance, are losing money in part because they’ve chosen to invest in star players with big salaries. Some of the teams likely aren’t losing money today because the new bargaining agreement created a more generous revenue-sharing agreement. And it’s also not that hard to put yourself in the red if you want to make the case that you’re struggling. That’s not to say all of them do it, but if you want to, you can make profits disappear with a few accounting tricks. Losing money operationally also isn’t exactly a great reason to lockout players. Salaries make up the largest expense for NBA teams, but the share of the pie that can go to salaries is limited by the collective bargaining agreement. Before the lockout, NBA profits were down because its other expenses were rising. Some teams were losing money because they were poorly managed. Neither of those is the fault of the players. Anyway, all that is to say that evaluating teams based on operating costs and profits, especially in the context of labor disputes, isn’t particularly useful.

The better evaluation tool is the value of franchises and how those values are growing, and in that sense, the NBA is also absurdly healthy. All 30 of its teams, in fact, were more valuable in 2013 than they were in 2012, most of them by double-digit percentages. Three teams — the Knicks, Lakers, and Bulls — are now worth $1 billion or more. Nineteen teams are worth at least $500 million. None are valued below $405 million. The average NBA team is now worth $634 million, according to Forbes, a 25 percent increase from last year. All four teams that are losing money on an operational basis saw their values grow by at least 10 percent, with the Nets (47 percent) and Hawks (34 percent) growing in value faster than the average team. The Sacramento Kings, a team that sold for just $10.5 million in 1983, sold for $534 million last year.

NBA teams are certainly healthier than they were before the lockout. But that doesn’t mean the lockout changed the fortunes of NBA teams. Even then, the values of the majority of NBA teams were rising annually, albeit more slowly than they are now (we were, however, coming out of a rather large recession). Rather, the much simpler conclusion, the one supported by evidence from the time, is that they weren’t that unhealthy to begin with, and that owning an NBA team was never actually a bad deal.

So why did we have the lockout?

No less than LeBron James has asked that question, but it’s actually not that hard to answer: NBA owners weren’t satisfied with how much money they were making, and they wanted to make more.

And they got it.

Players agreed, after an arduous negotiation process, to cut their share of salaries to from 57 percent to 50 percent of “basketball-related income,” which sounds fair (50-50 split, and all that) until you remember that basketball-related income doesn’t always include all league and team revenues. Players agreed to some other monetary and contractual concessions too.

So as a result of the lockout, fans saw less basketball, players saw less money, and owners…got richer. And they’ve only continued to prosper since. NBA owners didn’t need the lockout to make them financially healthy. They needed it to make them financially healthier. And it did. The lockout, in short, didn’t save the NBA or owners. It just made owning an NBA team an even better deal than it already was.

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