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About the owners losing money, it’s really complicated

Sep 26, 2011, 2:49 PM EST

nets-barclays-center-basketball-2011-4-4-18-10-24 AP

There are NBA owners who have wondered if player endorsements should not be money in the basketball related income pool — those players wouldn’t make their money if not for the teams.

But what about the other side of that coin — money the owners make on other businesses because they own and NBA franchise as well. Owners have complex finances and there are other projects they have that directly or indirectly feed off the NBA teams. For example, Cavaliers’ owner Dan Gilbert has casinos he got a sweetheart deal to build based on his NBA team’s popularity during the LeBron era, for example. That’s not money the Cavs make, but it’s money the owner would not have gotten without also owning the Cavs.

Which brings us to the Brooklyn Nets, the name they will take on next season. Bruce Ratner owned the team until he sold last year to Mikhail Prokhorov and it is one of David Stern and the owners talking points about how Ratner sold the team at a loss.

But Malcolm Gladwell tells a different, more complex story at Grantland. One that involves Ratner making a lot of money on his Atlantic Yards real estate deal — where the new arena will be central to new housing and retail — and needing the Nets to make sure the city and many residents were behind him taking over an existing neighborhood to get this built.

Ratner has been vilified — both fairly and unfairly — by opponents of the Atlantic Yards project (where the Nets new home is going up). But let’s be clear: What he did has nothing whatsoever to do with basketball. Ratner didn’t buy the Nets as a stand-alone commercial enterprise in the hopes that ticket sales and television revenue would exceed players’ salaries and administration costs. Ratner was buying eminent domain insurance. Basketball also had very little to do with Ratner’s sale of the Nets. Ratner got hit by the recession. Fighting the court challenges to his project took longer than he thought. He became dangerously overextended. His shareholders got restless. He realized had to dump the fancy Frank Gehry design for something more along the lines of a Kleenex box. Prokhorov helped Ratner out by buying a controlling interest in the Nets. But he also paid off some of Ratner’s debts, lent him $75 million, picked up some of his debt service, acquired a small stake in the arena, and bought an option on 20 percent of the entire Atlantic Yards project. This wasn’t a fire sale of a distressed basketball franchise. It was a general-purpose real estate bailout.

Did 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.

This is essentially what AEG did with Staples Center (minus the eminent domain) — they got a piece of the Lakers and were able to build a new, modern arena around which they have now built the L.A. Live complex — home to shops, restaurants, condos, the Nokia Theater, hotels and the West Coast headquarters of ESPN. AEG made a lot of money off all that, something that would not have been possible without the energy of Staples and particularly the Lakers. Frankly, Kobe Bryant should be getting a check from L.A. Live.

Which all comes back to how complex figuring out whether a team made or lost money can be. Did Ratner lose money on the Nets in the real sense of the word? If an NBA owner has control of both the arena and the team, there is a lot of ways money can be moved around. Remember, only 40 percent of in-arena sponsorship money is counted by the league as “basketball related income,” but if the owner also owns the building he gets the other 60 percent, too.

NBA finances are a complex web. No doubt the recession has hit the owners and NBA franchises, but be careful about believing everything the league tells you about money lost.

  1. 140chrviolation - Sep 26, 2011 at 3:31 PM

    Lets be honest now… ESPN is the biggest earner for ABC. ABC also owns Disney. Seeing that athletes are what make ESPN what they are, the athletes should own Disneyland. Come to the think of it, Bill Simmons aught to own the word Go… seeing that he drives such a lot of ESPN.com viewership.

    I paid for tickets to NBA games. At games I shout out Lamar Odom. I financed Lamar Odom’s contract and helped to make him a celebrity. His celebrity is what got him noticed by Kloe Kardashian. So, I should get a few love jabs up in Kloe’s “guts”. Actually, since I’m not really into the Mandashian, I’ll instead settle for a (dot)go(dot)com in Humphrey’s Kardashian.

    I can play this game all day, figuring why I should actually own that which I did not earn.

  2. zblott - Sep 26, 2011 at 4:03 PM

    ZERO owners lose money by owning a team. They may make it look like the team is losing money on paper, but no one is getting poorer for owning a club; doing so opens up too many other investment opportunities.

  3. goforthanddie - Sep 26, 2011 at 4:11 PM

    If the NBA didn’t exist, players would still get the endorsements. Another league would dominate (here or overseas), players would still get worldwide exposure.

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