Thiel: Every team profitable in 3 years, says Stern


by Art Thiel


Posted on May 9, 2012 at 9:31 PM

In case you wonder why a smart guy like Chris Hansen would invest $290 million in a project that supports a money-losing industry like the NBA, David Stern offered over the weekend a partial explanation.

The commissioner thinks that, thanks to the new collective bargaining agreement that was signed in December after a lockout, every NBA team can be profitable by around 2014-15, about the time Hansen's proposed Seattle arena could be near completion.

“This year, we’ll probably have about 10 teams losing money,” Stern told "Political Capital With Al Hunt" on Bloomberg Television. “And next year, I hope the number will be down to under five. And then after that, I would expect that all of our teams will have the opportunity to make money.”'

Setting aside for the moment the argument over the arena's controversial location in SoDo, as well as Stern's sometimes fanciful deployment of facts, his prediction is based on a strategy that was years in the planning: At the end of the old CBA, beat back players union's previous gains with whatever it took to make operating an NBA franchise in any market at least an eventual  break-even proposition.

Apparently, judging by the reaction of most small-market owners, the plan, which includes much broader revenue sharing and a heavy penalty for overspending, has the controls to achieve the goals. If his forecast proves true, annual franchise operations will have become a reasonable financial bet for perhaps the first time in almost 20 years.

Creating the potential for profiitability was the order given Stern by Portland Trail Blazers owner Paul Allen and other smaller-market owners who believed payroll inequities were helping make the NBA a much more competitively lopsided sport than football or baseball, where restrictions in various forms give every fan base (with one notable baseball exception) some expectation of contention.

The need for smaller-market opportunity is even more vital in the NBA, because Stern knows his business has a better chance to succeed when it occupies one-horse towns such as Portland, San Antonio, Salt Lake City, Oklahoma City and, yes, Sacramento. Stern knows but will never acknowledge publicly that the NBA will be, in nearly all big markets,  the third ticket in towns where the NFL and MLB are entrenched.

That's why he was so easy in 2008 with the the Sonics' departure from the 13th largest market to the 46th largest market in Oklahoma City, and why he fought so hard to keep the Kings in No. 20 Sacramento -- offering loans, time and political, legal and media support to keep the Kings' arena project alive long after some critics said the disastrous tax-revenue problems crippling Sacramento, and many California cities, would ultimately crush the arena deal.

The Kings' owners, the Maloof brothers, have been deservedly demonized for backing out of an arena proposal they had agreed to a month earlier. But the fact was, they've been financially underwater for years and were in no position to make the stretch the proposal required of them. And many new-arena critics believed the city was in no position to stretch to help the Maloofs when basic municipal services were being cut.

Stern sees this as a ghastly turn of events after the new CBA made success possible down the road for even the Maloofs. But the Maloofs can't get down the road because they are already roadkill, victims of the recession and their own foolishness.

Failing in Sacramento is symbolically bad for the NBA. But by going to the trouble the NBA did, which includes propping up the franchise for the past season and probably next season, Stern cannot reasonably be accused of failing the city, as he and the league did in Seattle.

So Stern is now in the process of a back-room attempt to separate the Maloofs from the Kings' franchise, which he will do, because everything is for sale, despite claims otherwise. The Maloofs will continue to say no to selling, until they hear the right price. The trick for Stern is to try to find another Kings owner willing to invest much more than the Maloofs in an arena project in Sacramento -- you know, like what Hansen is proposing for Seattle.

Don't know about those prospects. The Maloofs have spurned previous buyers, and now with the new CBA forecasting profitability for all by its third year, NBA ownership becomes a more plausible idea. But ownership in Sacramento, where the major industry, state government, is in a massive decline, is a sketchier proposition.

Then again, the NBA found new ownership for the Hornets in New Orleans, another franchise that appeared to be flat-lining, in the person of Saints owner Tom Benson. And news came Monday that the NHL secured a private owner for the Phoenix Coyotes, also a ward of the state, in Craig Jamison, who once owned the San Jose Sharks.

But in Oklahoma City, the moneybags behind Sonics swiper Clay Bennett, Aubrey McClendon, is in a heap of controversy with shareholders of his natural gas company. Seems doubtful his problems would have an adverse effect on Thunder operations, but it is good to see McClendon is who we thought he was. Or do you buy Bennett's 2008 explanation that McClendon had a "stroke moment" when he told a reporter that the intent all along of the OKC boys was to hijack the Sonics?

As far as how these developments influence Seattle's proposed arena, it's important to keep in mind that while no CBA, nor set of league by-laws, make pro sports franchises idiot-proof (we're watching you, McClendon), the impact of the NBA's new deal means the chances of financial success are better for all teams than when the Sonics were foundering in the middle of the last decade, which made them vulnerable to predation.

But the increased chances for a break-even operation also makes it more worthwhile for lower-revenue teams to work out deals where they are. In the case of the Kings remaining Sacramento, however, they need a white knight, big time and soon, who sees a future in Sacramento's downtown the way Hansen sees a future in Seattle.

For Hansen, the location remains a civic debate. But investing in the NBA is not as risky a proposition as when the Sonics were guaranteeing millions to Vin Baker and Danny Fortson to mostly grow behinds big enough to be national parks.

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