Just like Jay-Z, Joe Tsai likens NBA franchises to coveted art objects. So scarcity, not profit, drives value. Side benefit: #sportswashing.

Fifteen years ago, Jay-Z (aka Shawn Carter), in an appearance on the on Howard Stern Show keyed to the release of his book Decoded, offered some illuminating observations about sports team ownership that soon were no longer accurate.

HS: "Are you making any money with the Nets... It's gotta be profitable, right?"

SC: "No, It's not really profitable."

HS: "It's just an ego thing?"

SC: "Yeah, NBA teams are like paintings for billionaires."

As I wrote in 2013, Jay-Z had done very, very well with the team and the arena, leveraging his career, advertising, and a free suite. And the value of the team, thanks to the Brooklyn move and the NBA's new collective bargaining agreement, had skyrocketed.

Today, the increase in value is exponential, goosed by the government assistance including tax breaks, direct subsidies, tax-exempt financing, and more.

 

About Joe Tsai 

 

 A July 28 interview with BSE Global owner, AMBITION: Joe Tsai talks to NetsDaily about his rising sports fortunes, takes it to the next level.

 

“Soaring team values is a phenomenon in the top-tier leagues like NFL and NBA,” Tsai told NetsDaily. “These franchises trade like art – valuation is based on supply and demand as opposed to profits or cash flow. Demand far outstrips supply, and supply is strictly controlled and limited (that’s why they’re called ‘franchises’). The cachet of owning a team in a top league is always attractive to people who can afford it."

Indeed, the valuation of his BSE Global skyrocketed when he and wife Clara Wu Tsai last year he sold a 15% slice to the family of Julia Koch.

NetsDaily's summary:

Quietly over the last decade, the 61-year-old co-founder and chairman of Alibaba and his wife have acquired control or pieces of teams in the NBA, WNBA, MLS, indoor and outdoor lacrosse leagues as well as things like esports, sports data and analysis, digital sports of all kinds ... and the world’s third highest grossing venue in Brooklyn, N.Y., which increasingly looks like the center of where they are headed, toward a venue-based entertainment district.

I'd be very cautious about using gross, not net, since the venue is still well behind original projections. (Wait for an update on that tomorrow.) 

That said, the fact of a Brooklyn arena has leveraged extraordinary gains in the value of the Brooklyn Nets and New York Liberty, which is why I think New York State should get significant value in exchange for making Ticketmaster Plaza permanent as part of a revised project plan.
 

Billionaire time

Stefan Szymanski, University of Michigan sports economist, observed to NetsDaily that sports teams were once small businesses but now, as they've grown in value, are controlled by billionaires.

That means not just profits and wealth-building. “The other rationale in economics is called the amenity value,” Szymansk told NetsDaily. “You want to own these things because they bring prestige. the pleasure when your team wins and business connections you can make by entertaining your business clients. You never get the attention you get from owning a sports team. There are many reasons why you might want to own one of these teams.”

Or, in some cases, #sportswashing.

Both the Koch family (their late patriarch a funder of right-wing causes) and Tsai (an apologist for authoritarian China) benefit from the mostly benign sports press.