Saturday, February 28, 2009

ESPN's Simmons on NBA contraction: "Welcome to the No Benjamins Association"

In a piece cleverly headlined Welcome to the No Benjamins Association, ESPN columnist Bill Simmons points to the parlous economic future faced by the National Basketball Association (NBA).

He notes that, at previous All-Star Games, the topics were various:
This season? We talked about money. Constantly. We didn't even know about the line of credit on the horizon; that didn't leak until the Monday after the All-Star Game. (On Thursday, we learned that 12 teams will accept the league's offer to borrow $200 million from JPMorgan Chase and Bank of America, with between $13 million and $20 million available to each team...) We knew about layoffs of employees within the league and various franchises. We knew various local and national sponsors were bailing, most notably car companies and major banks (two staples for the NBA). We knew certain franchises were losing significant wads of money and reacting accordingly.

Attendance down

Simmons points to the common dodge in which attendance means tickets distributed, not gate count, and the fewer attendees, the lower the ancillary income:
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... They definitely don't reflect aggressive giveaways like Chicago's recent buy-one-get-one-free promotion or Memphis' Pepsi Family Plan Pack (four tickets, four Pepsis and four hot dogs for $48)... So, yeah, attendance is "up" 1.9 percent, as this recent Sports Business Daily story would lead you to believe. But not really. Especially when you include Seattle's move to a sold-out arena in Hijack City and how it skewed the overall numbers.

Hijack City? That's Oklahoma City, a location Simmons cannot bear to pronounce.

Suites lost?

The financial upside in the Nets' move from East Rutherford to Brooklyn would come significantly via naming rights/sponsorships and luxury suites, but Simmons has a warning about the latter:
Here's a little game to play during your next NBA outing: Look around for how many suites are dark. (You'll notice them specifically in the corners or behind the baskets.) A dark suite means either that nobody bought it or that somebody did buy it for the season, then made the decision, "Screw it, let's save the $1,200 [or whatever the number is] on food and drink and not give tonight's suite tickets to anyone." (Note: Only a handful of NBA teams control the concessions in their arenas.) That makes the less desirable suites somewhat of a sunk cost -- those companies can't get the money back for the season, but at the very least, they won't lose more money on that purchase. What will happen next season? They just won't buy the suite.


Home court disadvantage

Simmons cites a phenemonon I noticed in December when I saw New York Knicks fans dominate the crowd in the Izod Center:
That has been a recurring theme in general: Fans of popular visiting teams (Boston, New York, Cleveland, the Lakers) overpowering home arenas of unpopular teams. Flick around on any busy NBA night, and you'll see a staggering number of empty seats between the baskets in the first 15 rows in Miami, Memphis, New Jersey, Charlotte, Indiana. … I mean, we're a few weeks away from the NBA adopting Vegas' current policy of closing off as much of the blackjack area as possible so the open tables seem crowded.

Which teams will move?

Simmons counts the Nets among the teams most likely to move:
Franchise Hot Potato hinges on five factors in all, although only three need to be in play. You need a team with a dwindling fan base and/or bailing sponsors and suite/courtside customers. (I count 11: Indiana, Memphis, Milwaukee, Sacramento, New Jersey, New Orleans, Miami, Orlando, Minnesota, Charlotte and Philly.) You need a team trapped in an aging stadium that can't drum up local money for a new one. (I count three: Sacramento, Jersey and Milwaukee.) You need an owner who purchased his team because he was worth a ton of money ON PAPER … only now, he's worth significantly less and might even be worth $10 for all we know. (Consensus candidates for this list: Phoenix, Hijack City, Jersey, Memphis, Indiana, Atlanta, Milwaukee, Charlotte … and, surprisingly, Sacramento and Cleveland.) You need cities with NBA-ready, modern arenas either finished or about to be finished that would love nothing more than stealing a team. (Definitely Kansas City, Anaheim, San Jose, Louisville, Tulsa and Pittsburgh; possibly Columbus, St. Louis; and just for fun, let's throw in Montreal and London.) And you need a struggling team that can actually extricate itself from its lease.

Note that Brooklyn's not on the list, because the arena doesn't exist yet. Simmons predicts that several NBA franchises (guesses ranged from three to eight) will move cities, get sold or be taken over by the league.

He reflects on the Oklahoma City move:
The other 29 NBA cities learned an ominous lesson from SonicsGate: If you don't heed every arena-related wish of your team, no matter how insane or unrealistic those wishes are, then it might move and the commissioner's office will not protect you. As long as we have cities like K.C. and Anaheim waiting with open arms, teams will keep moving. And they will.

NHL troubles, and Newark

Other sports have it much worse, Simmons suggested, including baseball and hockey; in fact, one executive predicted "fifteen NHL teams would go under within the next two years (and was dead serious)."

What if the New Jersey Devils are in trouble? Surely the city of Newark, which wants those rent payments at the Prudential Center, would want to ensure that the Devils thrive, and that another team joins them to fill open dates.

Attendance promotions

Simmons takes a lighthearted view toward ticket promotions, with his top example from the Yormark twins:
When I write that NBA teams are unleashing aggressive promotions on their fans to boost attendance numbers, I'm not exaggerating. My favorites from this season: Snowbird Ticket Exchange (Nets): New Jersey season-ticket holders can swap their tickets for a pair of tickets for the NHL's Panthers if they're ever in Florida, and vice versa. No, really.

Will Nets be sold?

On NetsDaily, NetIncome (aka Bobbo) observes that the players will lose out if they resist owners' attempts to control costs, and teams will move.

He suggests that the Brooklyn arena has a decent chance, but if developer Bruce Ratner can't get financing, he'll sell the team.

1 comment:

  1. Simmons misses a big point: If luxury suites and ad signage are selling like crap, the marginal value of a new arena goes way down. So while tons of teams are losing money, yes, there's less reason to believe that moving to, say, Tulsa (?!?) will help their bottom line much, no many how luxurious the place is.

    If I had to bet, I'd say more likely is that teams start looking for bailouts from their current landlords, as the Pacers are already doing. (Despite the fact that they already pay no rent and keep all arena revenues.)

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