The next time you hear Pacers Sports & Entertainment President Jim Morris or Mayor Greg Ballard saying that additional public subsidies for the Pacers is needed to keep the team afloat, let them know just how full of it they are. Forbes magazine reports that the average value of NBA teams has increased 30% over the past year due to higher revenues from television, new and renovated arenas and a new collective bargaining agreement that reduced player costs from 57% to 50% of revenues. Smaller market teams like the Pacers also benefited from higher payments being made by the big market teams to the smaller market teams. The average team is now worth $509 million.
The Pacers, according to Forbes, are valued 24th in a league of 30 teams with a value of $383 million, a 28% increase in the value of the team as estimated by Forbes in 2009. The Simon brothers originally paid only about $12 million to purchase the franchise. That's quite a return on investment with no small contribution by Indianapolis taxpayers, who first built Market Square Arena, which was later torn down after taxpayers built a the $200 million Fieldhouse for the Pacers. Forbes also claims the Pacers realized a profit of $11 million, which runs counter to what Morris has been telling the public. He claims the team has lost more than $150 million since it moved into Banker's Life Fieldhouse with annual losses in the tens of millions per year. You can bet the team performed some fancy bookkeeping to keep those profits that low on paper.
..."and the rich get richer
ReplyDeleteJust because something is worth a lot of money doesn't mean it generates income. A diamond is worth a lot of money, but it generates no income and, if you factor in insurance and security for it, a diamond actually loses money. Team values are not an indicator of profitability.
ReplyDeleteYour analogy is a false one, Jeff. Gems and precious metals aren't valued the same as a business. A diamond is a tangible, fixed asset whose value is driven by its size, cut, color and clarity, in addition to general rules of supply and demand. It's an investment, a hedge against inflation. An NBA's franchise is largely based on its value as a going concern, and the fact that it is able to operate free of the general anti-trust restrictions that apply to other businesses. The income they are generating is a driving factor in the team's value as evidenced by the fact that the three most valuable teams are in the largest markets, New York, Chicago and LA.
ReplyDeleteNot exactly. Teams in New York and Los Angeles have the highest value because they are in the largest media markets, period. They have the most potential fans, the most potential eyeballs for TV sets, the most potential purchasers of said teams, the most potential purchasers of merchandise, and the most potential income. Key word being "potential." They are also valuable simply by being one of a very few major league teams. It does not mean they have the most income. It does not mean they have the most profits, or any profits at all, or any income at all. My original comparison stands. Just because something is valuable does not mean it generates income, whether it's a diamond, a Picasso or a 1956 Chevy Bel Air. That the Pacers are valuable does not mean they are profitable. Their player salaries can easily outstrip their income from attendance, concessions, and TV and radio contracts. They can be and likely are losing money. The Cleveland Browns under Art Modell were one of the NFL's most valuable franchises, but were infamously losing money and nearly went bankrupt under Modell. The Pittsburgh Penguins were one if the NHL's flagships, yet they went bankrupt in 1999 due to a terrible arena lease. This does not mean I think the Pacers should have a subsidy or that the CIB should be bending over for them. But you cannot hope to successfully challenge the CIB or the Pacers or the Colts if you do not grasp how sports economics works.
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