Monday, April 21, 2014

Bubble Tops - Buying an NBA Team

It is easy to take shots at Bill Simmons and Grantland. With Simmons specifically, it is what he is capable of writing versus what he often writes. He is also a well paid employee of ESPN/ABC, which also indirectly owns the NBA through its television deal. His column last week on buying NBA teams to be part of the world's most exclusive club was idiotic to anyone with any knowledge of money and the ownership selection process. His framing of the story is because he is a paid promoter of the NBA product and his audience is not entirely basketball fans, so he's reaching out for new viewers. Even digging into the idea, crappy NBA teams going for record deals is a sign of a money bubble near a top.

Simmons is an NBA fan with a masterful book on the NBA on his resume. He even pimped the game when it was at a nadir, and no one on ESPN was enthusiastic about the game. Simmons' own readers mock his slavish devotion to the NBA. Fortunately, ABC/ESPN bought into the NBA with a television deal, and his pimping of the game has been useful. He spent this entire February not talking or writing about the Super Bowl, the Seahawks, Pete Carroll's vindication, the Manning flameout, NCAA basketball or anything else besides the NBA. Pimp the NBA enough, and a sliver of his viewers might watch more playoff games on ABC/ESPN. His claim the NBA's ownership circle is the most exclusive is a joke in itself as Mark Cuban has owned the Dallas Mavericks for over a decade, running it extremely well, while Major League Baseball has repeatedly denied Cuban the chance to own an MLB team (Dodgers, Cubs, Rangers). The NBA had to find a Russian billionaire with a shady past to buy the Nets and only with the promise he could move the team to Brooklyn.

Simmons mentions legit reason for people wanting to buy a team like the new collective bargaining deal and coming media deal, but he does not dig into the mechanics of other reasons. Why did the Dodgers go for $2 billion? What about purchasing cost depreciation and salary depreciation? Simmons will tell his readers these teams are a sideshow for owners but the prestige is so awesome, but he will not explain how they financially help an ownership group in their financial bookkeeping. When a team is bought, 100% of the purchasing price can be depreciated over fifteen years. Other sources said 50% depreciation of tangible assets over 5 years and 100% of salaries over 15 years, but those might be the old rules. This is on top of considering the player salaries as a business expense. Teams can turn big revenue years into small revenue years and low revenue years into losses. Those losses then can be applied to an owners other income. Yes, the 1% use tax loopholes to keep more loot and the IRS rolls over and shows its belly rather than play tough.

It should come as no shock that in the last two sales (the Warriors and Bucks) a hedge fund and private equity maven has been one of the leaders of the purchasing group. These guys have been enjoying the wonders of the latest bubble (the Bernanke Bubble). What better way to hide income from bubble gains than a giant capital investment with huge depreciation allowances and low current revenue? This is where gains for the 1% of the 1% go, baubles. Only their baubles are sports franchises that leech off of municipalities for stadium deals and subsidization. To his credit, Simmons does mention the leagues that hold municipalities hostage by threatening to leave. If I were a big city mayor, I would call their bluff. Simmons and Grantland will not go into those specifics because they are not paid to explain the whys of the sport or business, only push the idea that the NBA is fannnnnntastic.

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