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Unclebuck
04-29-2008, 09:20 AM
http://www.jsonline.com/story/index.aspx?id=744590&format=print

Bucks could benefit from league's new revenue-sharing plan

Qualified teams get up to $6 million
By DON WALKER

dwalker@journalsentinel.com
Posted: April 28, 2008

National Basketball Association owners this month quietly tweaked the league's revenue-sharing plan, a move that should provide some financial assistance to small-market teams like the Milwaukee Bucks.

The new plan, approved April 18 at the NBA owners' meeting, covers three years, and begins next year. Under it, qualified teams would receive a maximum $6 million a year. That number would increase over the three-year period.

The total amount to be redistributed to NBA franchises would be $49 million, a $19 million increase over the current plan.

Spokesmen for the NBA and the Bucks would not comment on whether the new plan would benefit the Bucks. But an NBA source said that, given the size of the Milwaukee market and public statements by owner Herb Kohl that the Bucks lose money every year, they would qualify for more shared revenue.

Although published reports indicate the NBA generated as much as $3.5 billion in revenue last year, the amount of shared revenue, compared with Major League Baseball and the National Football League, is tiny. In 2005, for instance, Major League Baseball transferred $300 million from 14 richer teams to 16 teams with lower revenues.

Before the owners' recent move, Sen. Kohl at a press conference praised the revenue-sharing programs in baseball and football. And he reiterated his hope that a better revenue-sharing program could be implemented in the NBA.

"We are a low revenue team, to be sure, in the NBA," Kohl said at the time. "Which makes it necessary for me to make up the difference. And I do it willingly and happily."

In November 2006, Kohl joined with seven other team owners to lobby NBA Commissioner David Stern for an overhaul of the league's revenue-sharing system.

At the time, Kohl and the other owners said in a letter to Stern that the current economic system needed change. "The needed correction is serious revenue sharing, not just modest revenue assistance and we urge you to address this issue on an urgent basis this year," the letter stated.

In general, the NBA revenue-sharing plan is funded by the luxury tax on teams that spend more than allowed under the salary cap and escrow fund. The additional money will come from the league's 30 teams.

Wyc Grousbeck, the owner of the Boston Celtics, told SportsBusiness Journal that the new plan increases revenue to certain teams and gets the league closer to having all teams either break even or be profitable in the years ahead.

Last year, according to SportsBusiness Journal, only 12 out of the league's 30 teams were profitable.

Fool
04-29-2008, 10:07 AM
Do you think its incorrect to say that New York subsidizes much of the American sports world?

Putnam
04-29-2008, 10:26 AM
Good news, on the face of it. Certainly I am glad to hear it. But what will be the actual effect of an infusion of $6 million to the Pacers and other small market clubs?

Will they lower ticket prices?

Will they put plusher cushions on the seats in Legends?

Will player salaries get inflated?

Will they spend it on promotions and advertising?

Or will they do everything as before and use the $6 million to pad the bottom line?


I like the Simons and have never felt they were doing anything but their best for the community and the team, so I mean nothing critical by these questions. But what can/should they do with the revenue sharing boost?

Unclebuck
04-29-2008, 10:27 AM
Do you think its incorrect to say that New York subsidizes much of the American sports world?

The Knicks and the Yankees subsidize the NBA and MLB - that is for sure. In the NFL, I think the Cowboys will have the greatest revenue this upcoming season with their new stadium

sweabs
04-29-2008, 10:33 AM
In the NHL, I'm sure the Rangers are near the top, but I would not be surprised if the Leafs are #1 in terms of subsidizing other teams.

Putty raises a good question. Sure, the six million is nice, but what exactly are we going to do with it? It does not necessarily mean we will be putting it towards players or salaries. I'm not even sure if it would be worthwhile to do so.

Gyron
04-29-2008, 10:40 AM
Well, if the pacers lost $1.5 Mil last year, this should help fix that situation. (I don't know where I got that number but I think it is somewhere close to the number we were hearing)

If the business is turning a profit, all the less reason to consider a move......

NuffSaid
04-29-2008, 01:06 PM
While I'm sure large-market/marquee teams don't care much for revenue sharing, I'd say the big winner is the league and the fans. Sharing the wealth will only allow teams who for no fault than their own than geography to remain vital to the league. You want competition to remain high and one sure way to ensure that competition remains is to put money in the pockets of small-market owners who simply don't have the population growth complete on the same playing field as the large-market/marquee teams, i.e., Portland -vs- Lakers; Bucks -vs- Bulls; Pacers -vs- Hawks. Of course, some of these small-market teams could probrably take some lessons from Mark Cuban and procure some corporate sponsorships beyond mere advertising dollars. (You don't really think it's only the fans who are selling out American Airlines Area do you?)

RamBo_Lamar
04-29-2008, 04:12 PM
Good news, on the face of it. Certainly I am glad to hear it. But what will be the actual effect of an infusion of $6 million to the Pacers and other small market clubs?

Will they lower ticket prices?

Will they put plusher cushions on the seats in Legends?

Will player salaries get inflated?

Will they spend it on promotions and advertising?

Or will they do everything as before and use the $6 million to pad the bottom line?


I like the Simons and have never felt they were doing anything but their best for the community and the team, so I mean nothing critical by these questions. But what can/should they do with the revenue sharing boost?


In our case it might be earmarked for subsidizing Tinsley's departure.

Anthem
04-29-2008, 05:28 PM
Putty raises a good question. Sure, the six million is nice, but what exactly are we going to do with it?
Keep the team?

I mean, even if the team is breaking even, it's a poor investment. If I had $300mil in the bank, I'd be making an awful lot in interest. In terms of what their money is worth, the Simons are losing income even when the team posts a profit.

ChicagoPacer
04-29-2008, 10:41 PM
Well, if the pacers lost $1.5 Mil last year, this should help fix that situation. (I don't know where I got that number but I think it is somewhere close to the number we were hearing)

If the business is turning a profit, all the less reason to consider a move......

You probably got that number from here:

http://www.forbes.com/lists/2007/32/biz_07nba_NBA-Team-Valuations_Rank.html

Basically the estimate breaks down as follows for last year:

Revenues $107 million
Salaries $65 million
Other Expenses about $43 million

Earnings (Prior to Income Tax, Interest, Amortization that gets fudged by sports Franchisesand isn't "real" anyway) was about (1.3) million. The issue with this is that no one knows what those "other" expenses are. Travel, marketing, employees are all in there. The tricky part is the lease. Bear with me on the explanation for a minute.

The Pacers pay $1 a year and they get 100% of the event revenues in exchange for taking on the operating expenses. The part that can be deceiving is how much of the annual refurbishment/maintenance they are allowed to recognize. Municipalities often sign conditions into the lease that permit teams to recognize expenses that the city actually pays. The city won't pay taxes anyway, so they're not missing out on any tax savings. It's a way for the local government to actually "pay" the franchise to occupy the facility, and its perfectly legal in many cases. The Bills lease was discovered to have something like this a few years back in a Federal Court case, and it's fairly common. If you figure the maintenance on the place is about 2% of its current value, and to build Conseco today would cost you about $220 million, their income could be under-reported by $4.5 million. I'm sure there are other expenses that could be misleading as well.

You don't make a lot of money, but these losses we hear about might not exist. Which is why you hear about the Pacers pressing on the lease but nothing happens. How can the deal get much better? The only reason to do this is to show a future owner that they aren't necessarily "tied" to the lease, so the franchise is potentially more valuable to a buyer because it has a chance of being relocated. Of course, if a future owner tries to move the team, the city could show everyone that the Pacers aren't really paying these expenses, they are in fact making money, and therefore the lease is still binding. There could be a little political fallout if the lease is structured this way, so for now, it doesn't make sense for the city to come forward with this.

Anthem is right in that you can get better returns elsewhere, but look at the Pacers profile in the Forbes link. Since 2001, the franchise value is increasing at about 6% a year. That's not a bad return when you think of it in real estate terms, which I'm sure the Simons do. It's a pretty similar investment.

King Tuts Tomb
04-29-2008, 10:58 PM
Keep the team?

I mean, even if the team is breaking even, it's a poor investment. If I had $300mil in the bank, I'd be making an awful lot in interest. In terms of what their money is worth, the Simons are losing income even when the team posts a profit.

Owning an NBA team is a fantastic investment. If you look at how much these teams were bought for in the 70s and 80s (often in the tens of millions) and how much they're worth now (the hundreds of millions), your investment has increased 1000% in the last couple of decades. That's a fantastic return, especially considering how much money international expansion and the internet will start bringing in.

There's only a certain amount of teams, thirty, and a large number of buyers and investment groups that want NBA teams. Owning an NBA team is like holding a $300 million ticket that will only go up in price, not down. Short term losses of a million or two are worth how much you can make in the long term if you're smart about it.

duke dynamite
04-29-2008, 11:10 PM
Owning an NBA team is a fantastic investment. If you look at how much these teams were bought for in the 70s and 80s (often in the tens of millions) and how much they're worth now (the hundreds of millions), your investment has increased 1000% in the last couple of decades. That's a fantastic return, especially considering how much money international expansion and the internet will start bringing in.

There's only a certain amount of teams, thirty, and a large number of buyers and investment groups that want NBA teams. Owning an NBA team is like holding a $300 million ticket that will only go up in price, not down. Short term losses of a million or two are worth how much you can make in the long term if you're smart about it.
You need to take into consideration that the money that these teams are worth are now set as standards. Inflation and the ever decreasing value of the dollar have really made it hard to keep a sports franchise let alone in it's city of origin.

I wonder to what effect this will have on the Seattle ordeal.

King Tuts Tomb
04-29-2008, 11:30 PM
You need to take into consideration that the money that these teams are worth are now set as standards. Inflation and the ever decreasing value of the dollar have really made it hard to keep a sports franchise let alone in it's city of origin.

I wonder to what effect this will have on the Seattle ordeal.

Of course inflation has occurred in the past twenty years, but not at a rate of 1000%. The Simons could sell the Pacers right now and make back all the money they've spent over the years and still make a ridiculous profit.

duke dynamite
04-30-2008, 02:49 AM
For them one could only hope.

Anthem
04-30-2008, 09:24 AM
Owning an NBA team is a fantastic investment. If you look at how much these teams were bought for in the 70s and 80s (often in the tens of millions) and how much they're worth now (the hundreds of millions), your investment has increased 1000% in the last couple of decades.
:laugh: No offense, dude, but I'm glad you don't handle my investing. For fun, let's have two scenarios. In both, the year is 1970 and you have 30 million dollars. In scenario 1, you buy the Pacers. In scenario 2, you invest that money at a relatively low rate of return (7%). Scenario 2 gives you a current value of $392 million, which is more than what the Pacers are worth. Plus, you've never lost money in all that time, while the Pacers have had plenty of loss years. PLUS, the 7% rate is pretty low in terms of what you can earn when you've got $30mil in your pocket. Bottom line is that NBA teams have been a fair investment but not an amazing one.

But that's not the point. The point is that NBA teams will NOT continue increasing in value the way they have over the past 30 years. If we go back to our previous scenarios, #2 gives a monetary value of $772 million by 2018. There's no way the Pacers are worth that kind of money in 2018.

Look, say you bought Microsoft stock in 1983. You'd have been a billionaire by 2005, right? Well how much do you expect the stock to go up from there? Not much... it's been flatlined since. So you sell MSFT and buy some other stock that you expect to go up. That's where the Pacers are right now... if somebody's willing to give you $400mil for the Pacers then you take the money and run, because there are better (monetary) uses of $400mil than owning a sports franchise.

People buy franchises to be involved in a game they like, not because they make good investments.

Anthem
04-30-2008, 09:26 AM
The Simons could sell the Pacers right now and make back all the money they've spent over the years and still make a ridiculous profit.
True. But they wouldn't make as much as they could have if they'd spent their money in other ways.

Putnam
04-30-2008, 08:34 PM
Excuse me for bumping this, but I'd like to hear thoughts on what revenue sharing might mean for the Pacers.

The automatic answer that they'll go out and sign better players is out. The Pacers are already near the salary cap and determined not to go over.

I think the Pacers do enough promotions and giveaways. I'd be glad to see cheaper tickets, but I don't think Pacers tickets are out of line with other forms of entertainment. All tickets should be cheaper, but there's no reason why the Pacers should cut their rates when Verizon music center has a full schedule of dates where they're selling tickets at top prices for dried up old farts in their 60s imitating the best acts of the 70s.

Anthem's suggestion that the organization just pad the accounts with the money might be the most reasonable idea.

Hicks
04-30-2008, 08:59 PM
No need to apologize for bumping it. :)

King Tuts Tomb
04-30-2008, 09:46 PM
But that's not the point. The point is that NBA teams will NOT continue increasing in value the way they have over the past 30 years. If we go back to our previous scenarios, #2 gives a monetary value of $772 million by 2018. There's no way the Pacers are worth that kind of money in 2018.


With TV shares in what will probably be a global basketball league, reaching into China and Europe? I don't think that's impossible, or improbable.

Of course there are better investments. There are also far worse investments. Pair the money you're assured with the prestige of owning a local institution and you can see why so many people wants teams.

Anthem
04-30-2008, 09:54 PM
With TV shares in what will probably be a global basketball league, reaching into China and Europe? I don't think that's impossible, or improbable.
I do. TV in general is dying, and the NBA will be ahead of the curve.


you can see why so many people wants teams.
I don't disagree with this part. But you can also see why NBA owners would be willing to sell... there are better ways to tie up your money.

In the end, the only reason to have $400mil tied up in an NBA franchise is if you really like basketball (Cuban) or you really like your city (Simons). If you're just in it for the business of it, you're in the wrong business.

King Tuts Tomb
04-30-2008, 10:05 PM
I do. TV in general is dying, and the NBA will be ahead of the curve.


I don't disagree with this part. But you can also see why NBA owners would be willing to sell... there are better ways to tie up your money.

In the end, the only reason to have $400mil tied up in an NBA franchise is if you really like basketball (Cuban) or you really like your city (Simons). If you're just in it for the business of it, you're in the wrong business.

But what about Donald Sterling? He doesn't seem to particularly care about having a good team ad from all accounts just lets the money roll in.

But I agree, the best owners are the Simons and Cubans, owners who look at their teams and the league as something that is a part of the community as a whole, not just a money making machine.

Anthem
04-30-2008, 10:30 PM
But what about Donald Sterling?
Several things. First, he's in LA so he sells out every night. Second, he's in LA so his ticket prices can stay above average. Last, he has historically had the league's lowest payroll so his expenses are down.

You couldn't do that here in Indiana.