No offer, but potential majority buyer in talks for Hawks

[AHF]

So if my air conditioner breaks and I have to take out a loan to replace it in my home then that is proof my home is not a profitable venture?

It is proof that the revenues your house generates while you own it don't cover the expenses and that you as the home owner must pay for the operation of your house out of your personal assets with the hopes that you will be able to recoup that money when you sell the house.

Owning a home is a bit of a bad analogy since (a) homes don't generate revenues and (b) everyone has to have somewhere to live (which means that even if you lose money at the time of sale it may still be preferable to the money you would have lost on rent).

I do agree that you need to figure in the appreciation of the home or franchise into the overall economic equation but I don't think it is unreasonable for owners to expect not to have to pay out of their personal assets when their businesses are generating roughly $3.8 billion in gross revenues.

Even National Basketball Players Association president Derek Fisher acknowledges that the owners are experiencing "true losses."

Edited July 22, 2011 by AHF

[Guest]

I'm not trying to encompass everything that owning an NBA franchise entails into the house analogy, it's meant to be an exercise of focusing away from operating losses (which is what Fisher is referring to as "true losses"). NBA teams aren't experiencing true economic losses just as one doesn't really accrue true losses from owning a home even though you operate in the negative from year to year. This fixation on operating losses makes no sense to me when talking about the sustainability of the league (which is the crux of having a cba).

Now for the A$G, well they are just buffoons. They screwed up their relationship with Belkin that necessitated they buy him out (which almost by definition has to come from their personal wealth because no one is foolish enough to believe the return on investment of owning a team for 5 seasons can account for 30% of it's value). On top of this, the A$G for the most part are relatively poor for the standards of operating a team. A lot of these guys aren't very diversified with their assets (I'm looking at you junior) and so there becomes an issue in being too tied up in one project. Notice the A$G didn't first resort to finding new investors (since that takes away from their stake in the business), but went to the NBA credit facility (low interest baby!) then to capital calls then finally to trying for new investors (looks like they have to give up substantial control, most likely because all investors realize the mismanagement of the A$G).

[AHF]

I'm not trying to encompass everything that owning an NBA franchise entails into the house analogy, it's meant to be an exercise of focusing away from operating losses (which is what Fisher is referring to as "true losses"). NBA teams aren't experiencing true economic losses just as one doesn't really accrue true losses from owning a home even though you operate in the negative from year to year. This fixation on operating losses makes no sense to me when talking about the sustainability of the league (which is the crux of having a cba).

Most sports leagues don't take operating losses year after year. I would be pushing to avoid that situation if I were an owner, and as a fan I don't think it is an unreasonable position.

Now for the A$G, well they are just buffoons. They screwed up their relationship with Belkin that necessitated they buy him out (which almost by definition has to come from their personal wealth because no one is foolish enough to believe the return on investment of owning a team for 5 seasons can account for 30% of it's value). On top of this, the A$G for the most part are relatively poor for the standards of operating a team. A lot of these guys aren't very diversified with their assets (I'm looking at you junior) and so there becomes an issue in being too tied up in one project. Notice the A$G didn't first resort to finding new investors (since that takes away from their stake in the business), but went to the NBA credit facility (low interest baby!) then to capital calls then finally to trying for new investors (looks like they have to give up substantial control, most likely because all investors realize the mismanagement of the A$G).

Lots of teams have made capital calls to pay for things in recent years. That wasn't a specific reference to either the Sonics/Thunder or the Hawks.

I don't think anyone invests big $$ in the NBA without controlling power for their team because the allure of owning the team is the ability to run it the way you want. There is a very significant non-financial aspect to sports ownership which dovetails into the reason(s) why the owners can't be expected to simply exercise salary restraint by themselves. For example, Cuban would rather make a lot less money and spend his offseason polishing a championship ring. If he was dealing with a paper printing company, all he would care about was the bottomline.

[Guest]

Most sports leagues don't take operating losses year after year. I would be pushing to avoid that situation if I were an owner, and as a fan I don't think it is an unreasonable position.

Go and google the lame forbes valuation of teams for 2010. You will see the nhl (comparable in size to the nba) has almost half of their teams operating in the negative, so it's not the case that most franchises do not operate that way. Also go look at mlb, you will see the marlins at the top of operating revenue (a function of the beautiful revenue sharing that takes from those willing to spend and gives to the hoarders who do not invest in their team). Hell if you go back far enough you see the Yankees as being dead last in operating income (i sure hope you don't conclude it isn't profitable to own the Yankees from that, which as far as I can tell you don't).

I'm sorry but I also just can't fathom the "true operating losses" as actually having meaning. When you can put down depreciation of players down as a cost, well you are just in crazy land as far as I am concerned. I understand it's true there are tax laws that allow you to do so, but just because that exists doesn't actually make it true in any meaningful way that I would grant that as a starting ppint for any legitimate discussion.

[AHF]

Go and google the lame forbes valuation of teams for 2010. You will see the nhl (comparable in size to the nba) has almost half of their teams operating in the negative, so it's not the case that most franchises do not operate that way.

The NHL is a debacle. They are the "how not to run a league" example.

If you are telling me that NHL teams take operating losses that only strengthens my argument that this is not how a successful professional sports league should do business.

Also go look at mlb, you will see the marlins at the top of operating revenue (a function of the beautiful revenue sharing that takes from those willing to spend and gives to the hoarders who do not invest in their team). Hell if you go back far enough you see the Yankees as being dead last in operating income (i sure hope you don't conclude it isn't profitable to own the Yankees from that, which as far as I can tell you don't).

I'm sorry but I also just can't fathom the "true operating losses" as actually having meaning. When you can put down depreciation of players down as a cost, well you are just in crazy land as far as I am concerned. I understand it's true there are tax laws that allow you to do so, but just because that exists doesn't actually make it true in any meaningful way that I would grant that as a starting ppint for any legitimate discussion.

Funny that the players even acknowledge it but you think that a business generating almost 4 billion per year should spend more than revenues every year on operating costs.

You are right that I don't view the Yankees that way. The Yankees ranked in the top 3 in operating income every year from 1990 - 2002 and were the top earner over that period by far. 2003-2005 they were in the bottom 2 every year. (Large operating profits over the whole time period.) I am sure there is more recent data out there.

http://www.baseballchronology.com/Baseball/Years/1990/Income_Expenses.asp

I am sure you can find additional recent years in which they voluntarily spent their way into low operating incomes by outstripping the spending of the other top spenders by a ridiculous amount. They could easily post the league's top payroll and large operating profits if they wanted so I don't view them in any way, shape or form as being an example of a team that can't make money in any given year.

In fact, they have made over 50M in operating income in 2010 & 2011 according to Forbes.

http://www.bizofbaseball.com/index.php?option=com_wrapper&view=wrapper&Itemid=126

The Yankees are a team that enjoys great appreciation as an asset and has the potential for nearly as much year to year profit as the owners want.

But looking at baseball is a good example of how a real league functions. Only one team has lost money on an operating income level in baseball over the last 3 years - the Detroit Tigers. Every other team in baseball had millions of dollars in positive operating income over that period. Hence, the only team that could need a capital call to pay the bills in baseball over that team is the Tigers.

That isn't the case at all in the NBA.

[Guest]

Funny that the players even acknowledge it but you think that a business generating almost 4 billion per year should spend more than revenues every year on operating costs.

What are the players supposed to do? Lobby to repeal player depreciation laws? Hell no, that would leave them with even less money to bargain for. It's better from their perspective to leave that issue be and just concede it. But in reality are you telling me that players do depreciate and we should be able to dock that as a loss? That's what's happening and that creates larger costs for teams. This is driving a large part of the "operating loss" argument that still makes no sense to me. The argument is about sustainably and you want to bring up day to day operations that miss the big picture? On top of missing the big picture, the argument involving operating losses is clouded with silly accounting tricks and tax laws.

[sturt]

Sports leagues, as a rule, are an attractive investment largely because unlike almost any other business one operates, there is so very little government intervention, and for all intents and purposes going back to the 60s, no chance of competition.

Do I pretend to know the degree to which any given NBA team has made or lost money? No.

And... my opinion... I think anyone attempting to do so ignores a substantial bias in their thinking in order to accomplish that feat.

Franchises are sold not only on the basis of the income, positive or negative, that they've had, but on the basis of projecting future income... and to accomplish that, it requires just a little more data and analysis... and I dare say at least an MBA... to do so credibly. It is beyond the common fan to make that determination. I'm a common fan. I don't know about anyone else.

(But on the other hand, I can tell you I'm an avid Shark Tank viewer... so, there... beat those qualifications. ;) )

[AHF]

What are the players supposed to do? Lobby to repeal player depreciation laws? Hell no, that would leave them with even less money to bargain for. It's better from their perspective to leave that issue be and just concede it. But in reality are you telling me that players do depreciate and we should be able to dock that as a loss? That's what's happening and that creates larger costs for teams. This is driving a large part of the "operating loss" argument that still makes no sense to me. The argument is about sustainably and you want to bring up day to day operations that miss the big picture? On top of missing the big picture, the argument involving operating losses is clouded with silly accounting tricks and tax laws.

You gave two examples: one league that is an abject failure and runs operating income losses (NHL) and one that is much more successful doesn't run operating income losses (MLB). The NFL runs the same way - the day to day revenues generated by teams cover their operating expenses:

http://www.forbes.com/lists/2008/30/sportsmoney_nfl08_NFL-Team-Valuations_Income.html

I know you realize this but interest and taxes and other obligations like that aren't reflected in operating income so any costs outside of the operations picture come to the bottom line in a net income figure and not the operating income figure.

Why should the NBA want to me be more like the NHL in terms of the operating income and less like the NFL and MLB?

The successful sports leagues pay for their operating expenses out of their revenue stream - not their owners' pockets.