Forbes: despite losses, Brooklyn Nets (with arena company) now worth $3.5B, up 9%; league-wide gains lift all boats. Component values curiously recalculated.

From Forbes

It's astounding, really.

Yesterday, Forbes Sports Money reported that, though the Brooklyn Nets were the only team in the NBA to lose money during the 2021-22 season, their value still went up, to $3.5 billion, given the rising value of all NBA teams.

That includes the combination of the Nets with the arena operating company, both owned by Joe Tsai. (Note that Sportico last December valued the combo at $3.61 billion, which indicates that this is not a fully scientific enterprise.)

The Nets remained at 7th in the league, as per Forbes. Ahead were  the Golden State Warriors at $7B, the New York Knicks at $6.1B, the Los Angeles Lakers at $5.9B, the Chicago Bulls at $4.1B, the Boston Celtics at $4B, and the Los Angeles Clippers at $3.9B.

As noted by Mike Ozanian, "the average NBA team is now worth $2.86 billion, 15% more than a year ago, an impressive feat considering the stock market is down more than 15% over the same span." That results from "aggregate record sponsorship and advertising revenue at the team and league level." Coming by 2025-26 should be a more lucrative national media deal.

About the Nets

Forbes cited reporting from the New York Post that "the Nets and Barclays Center suffered $50-$100 million losses for the 2021-22 season, despite setting records for attendance, ticket revenue, and sponsorships." 

That's compounded by paying off more than $30 million construction bonds, plus "about $100 million in luxury taxes for exceeding the NBA's salary cap." That said, had the Nets gone further in the playoffs beyond the first round, it would've helped the bottom line.

Note: that the operating loss of $34 million is "net of revenue sharing and arena debt service" and, given that debt service was, by my reading, $4 million in principal repayment and $22.1 million in interest, that loss isn't necessarily huge. Then again, I'm not privy to Forbes's calculations.

Compared to the previous year, Forbes' calculation of revenue shoes a jump from $212 million to $405 million, but a cut in the loss from just $80 million to $34 million. Player expenses rose from $156 million to $174 million, and gate receipts from $14 million (COVID) to $76 million.

Note that Tsai has said he aims to get revenue from $405 million to $1 billion, which would surely indicate profits. So, as I've argued (taking off from an observation by Slate's Ben Mathis-Lilley, the presence of the arena has helped increase the value of the Nets, and that makes a case for the city and state capturing the upside.

Note that it's unclear to me that the average ticket price of $70, as noted above, refers specifically to the Nets (the arena does have basketball capacity of 17,732, though it seats more for concerts) or other events. After all, the Post said last year's average ticket price was $144. I posed a query on Twitter but got no response. Last year, Forbes reported the average ticket price at $100.

Valuation breakdown

The numbers below are very interesting, given the contrast with the previous year. While Forbes in 2021 attributed $2,196M of the Nets' value to the sport, given revenue sharing among the teams, now that's cut to $1,286M (because of the luxury tax?).

The value attributed to the market has leaped from $614M to $1,161M, and the value attributed to the arena has skyrocketed from $31 million to $673 million (because the arena went dark during COVID?). Only the value attributed to the brand seems somewhat consistent: from $359M last year to $381M this year.

As I wrote last year, that to me is somewhat arbitrary, especially since the arena in previous years was said to contribute $607 million and $577 million to the valuation. Yes, the arena has not been profitable, but the fact of an arena in Brooklyn, part of the nation's media capital, gave the Nets an international platform to sell sponsorships, and served as a lure to superstars.

About the Knicks

As I tweeted, the New York Knicks' profits--with $155 million in operating income--could easily cover Madison Square Garden's foregone property taxes, which this year are $43 million, per the NYC Independent Budget Office.

Curiously enough, Front Office Sports said that parent Madison Square Garden Sports Corp. lost $35.9 million in the most recent quarter, though the Knicks and New York Rangers are doing well. After all, values keep rising.