Box Score Beat

A $200 Million Non-Bailout?

Posted on 27. Feb, 2009 by Collin Orcutt in NBA, Sports Journalism, The Sports Economy

By now you’ve probably heard the NBA borrowed $200 million yesterday. The money, offered and lent to the league by JP Morgan and Bank of America, will reportedly be used by franchises to help cover operating losses acquired in this shoddy economy (the number of teams that will use the money is either 12 or 15, depending on which news outlet you check). The Magic and Kings will supposedly make use of the money, but the Pacers will not.

(The original report on the loan was filed by the Sports Business Journal on Feb. 16, 2009)

NBA Commissioner David Stern was quick to say that this move wasn’t a bailout, but rather an example of how well the league is doing:

“It’s exactly the opposite” of a bailout, Stern told The Associated Press “This was a show of strength in the creditworthiness of the NBA’s teams.”

…

“It’s a great sign of confidence in us and that’s wonderful that the market is opening up, so we’ll take it,” Stern said. “And we turned to our teams and said, ‘OK, we’ve got this much more to distribute under the facility for those of you who want it now.’”

What he says makes some sense — why would banks lend that money if they weren’t sure the NBA was a solid investment? At the same time, if the league has an existing credit facility of $1.7 billion, doesn’t it seem a little strange that they are jumping at the $200 million and have already planned how it will be allocated (evenly between the needy franchises)? Can we trust what Stern is saying?

The NBA is known for keeping its financial info under wraps, and Stern for always presenting the league in its Sunday best (no jerseys please). That’s not to say Stern is lying about the league being affected by this economy — he’s spoken fairly openly about it at times — he just doesn’t seem to be telling the whole truth.

The Atlanta Journal Constitution had this tidbit from All-Star weekend:

Commissioner David Stern said the financial crisis makes growth difficult, but the league is holding steady. “I have been concerned for 25 years, and so I always worry about everything,” Stern said. “But … we are going to maintain our attendance and our revenues.”

It seems that Stern’s claim of maintaining attendance numbers is a bit misleading. The league says attendance numbers are up slightly from last season. But, attendance and turnstile numbers are two different things — teams are allowed to share the numbers of tickets they distribute, but not the number of trips through the turnstile.

The Sports economy blog Sparty and Friends offered this interesting fact:

Richard “Grits” Walker, who covers the Bobcats for the Gaston (N.C.) Gazette, reported that a recent Wolves-Bobcats game with a crowd count of 9,285 had an actual turnstile count of 4,003. How can teams really expect to make money in that type of environment?

Bill Simmons delved deeper on the issue in his epically long article “Welcome to the No Benjamins Association:”

How did we get here? The economy turned in August, well after deposits had been sent in for season tickets, courtside seats and luxury suites. The league would love for you to believe that attendance hasn’t been affected, but the NBA’s official tally counts only total “customers,” counted as paid tickets, comps (seats given to celebrities, sponsors, friends of the team or whomever, a number that can be fudged any way you want), discounted tickets and no-shows. The numbers don’t reflect any falloffs with parking money, concessions, merchandise and restaurant/bar revenue around arenas. (For instance, at least half the concession stands have been closed for every Clippers home game this season — except when the Lakers or Celtics were the opponents.)

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Again, don’t trust those attendance numbers. Walk-up sales and short-term packages (12-game packs, eight-game packs and the like) haven’t gone into a free fall only because of steep discounts, and the drop-off for the Big Attendance Three (premium season tickets, suites and courtsides) won’t be felt until next season.

Misleading attendance numbers weren’t the only signs of trouble Simmons touched on. He wrote that a source told him “20 of the 30 NBA teams will lose money this season.” Simmons spent a good portion of his article writing about teams putting finances first and nothing else second this season, something he found especially noticeable at the trade deadline.

Perhaps the best example of that was the Tyson Chandler trade that was nullified. Chris McCosky of the Detroit News offered this perspective on the deal that wasn’t:

… the New Orleans franchise, always a fragile business enterprise, is bleeding money. When New Orleans was trying to lure an NBA franchise, certain financial inducements were offered. With the economic collapse, those inducements have gone away.

The Hornets will be luxury taxpayers next season, which is why they tried to trade center Tyson Chandler to Oklahoma City for two expiring contracts. Since that trade was nullified when he failed his physical, you can bet they will try to deal him again this summer.

As All-Star forward David West told the Times-Picayune, “The move had nothing to do with basketball. It was strictly a business decision. Using some common sense, that’s what it came down to.”

I’m not sure why David West is the right person to talk about team business matters, but he says what many others have: the move was only about the money. McCosky went on to say that because the Hornets are in penny-pinching mode, young star Chris Paul could be shipping out of New Orleans before his contract expires in 2012. That means he thinks the Hornets would consider trading the best point guard in the league to save money.

With all these financial woes, with talk of a lockout in 2011, team relocations, and a falling salary cap, what are we to make of the $200 million credit loan? Knowing Stern to be the shrewd manager and businessman he is, can we believe that it is shows the league’s staying power?

The loan seems to hint that things could be far worse than anyone has yet to grasp. It should be worthwhile to watch the battle of information play out over the next few months — Stern trying to keep the situation hush and reporters (hopefully) pushing to expose it.

Tags: Atlanta Journal Constitution, Bank of America, Bill Simmons, Chris McCosky, credit, David Stern, Detroit News, ESPN, JP Morgan, loan, lockout, NBA, Sparty and Friends