Malcom Gladwell On The Nets

This great Malcolm Gladwell piece on David Stern’s efforts to turn the New Jersey Nets into a poster child in why the NBA needs concessions from greedy players is why I’m proud to be part of the backlash against the anti-Gladwell backlash:

Did [Bruce] 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. “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.

All well said. Part of this just speaks to the fact that looking at accounting profits of something like a basketball franchise can be very misleading. Especially given that owning an NBA team is fun if you’re a basketball fan, there’s no particular reason to think the Nets or any other team should register operating profits at all. The real business question here is whether you can do what Ratner did and capture the benefits of secondary economic activity.