Monday, March 03, 2008

Why NBA team ownership can be very lucrative

Joe Nocera's article in yesterday's Play, The New York Times Sports Magazine, headlined Big time Losers describes the "Bad Owner" who runs lousy teams:
Why does the Bad Owner seem so impervious to it all?

Actually, there is a reason, a very good one. To own a franchise in any of the three major sports — football, baseball or basketball — is to enter a club in which it is nearly impossible to come away a financial loser.


His case in point is NBA's Los Angeles Clippers; owner Donald Sterling has seen his investment skyrocket from $13.5 million to $300 million.

Nocera writes:
Because there is such a limited number of franchises — just 30 N.B.A. teams, for instance — there are always going to be billionaires, or partnerships of billionaires, lining up to buy them.

...Certainly a good owner can do things that add value to a franchise. But far more important is whether the team is in a big media market and plays in a stadium with modern, high-priced luxury boxes.


(In the New York Sun last Friday, Evan Weiner analyzed the effort of Seattle Supersonics owner Clayton Bennet to move the team to Oklahoma City. Will citizens of Oklahoma City Tuesday approve a tax increase to upgrade the city's six-year-old arena to make it major league--i.e., more suites)?)

The New York example

Nocera points out that the value of the badly-managed New York Knicks has continued to rise, given its stronghold in the nation's major media market.

He doesn't mention the New Jersey Nets, but Bruce Ratner's strategy is consonant with his observation. The Nets are losing money in the Meadowlands and team managers are trying to improve the mix of players. But the key comes in the future: the new arena at Atlantic Yards would prove quite lucrative, thanks to naming rights from Barclays, 130 luxury suites, other sponsorships, and television revenue.

And sports is like?

Nocera suggests only one other business is like sports:
The great exception I mentioned earlier, the one business in which true management skill isn’t necessarily needed to increase value, is real estate. Although real estate is in a rough patch right now, people who buy property and simply hold it generally end up very rich.

That's not to say that Forest City Ratner simply sits on property. But the company, and its parent Forest City Enterprises, is patient enough to weather changing markets. And that's part of why the announced ten-year construction plan, with Atlantic Yards finished by 2016, is completely untenable.

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