clock menu more-arrow no yes mobile

Filed under:

In NBA Lockout, Owners Give Short Shrift To Public Investment

As the NBA lockout continues, owners have ignored a very big investor that makes the business possible: the public who builds arenas.

At the heart of the NBA lockout is the oldest dispute in business: the distribution of revenue between labor and ownership. Many believe the players' best hope of gaining leverage is a complaint they filed with the National Labor Relations Board, which FDR established in 1934 as part of the New Deal.

The NBA lockout, however, is not a typical case. In a capitalist system, owners provide the capital (the buildings, the machines, the infrastructure, etc.) necessary for the workers to create the product. The revenue this product generates in turn compensates the workers for their labor and the owners for their investment.

However, NBA owners are not the only ones providing the capital necessary to run their business. A modern arena is essential to the operation of an NBA franchise; Seattle's refusal to pay to renovate Key Arena or build a new facility was the central issue David Stern cited in helping Clay Bennett relocate the Sonics to a much smaller market in Oklahoma City. Over the last 10 years, local governments have spent $1.75 billion, 84 percent of the total cost, on eight new or renovated NBA arenas.

It's one thing for owners to shut down a business in order to gouge as much money from the workers as they possibly can. It's quite another to do so when they aren't the ones providing a huge portion of the capital necessary to run that business.

The greatest value of owning an NBA franchise comes from the fact that it will almost assuredly appreciate in value over time. As new Golden State Warriors owner Joe Lacob said when asked about the record $450 million he had just spent to buy the team, "sports franchises appreciate 10 percent a year on average over three decades, the last three decades. There's no reason to think [the Warriors] won't appreciate in value."

MLB's Houston Astros are a prime example: Drayton McClane, Jr. bought them for $117 million in 1993 and is selling them for $680 million in 2011. A significant portion of that gain in value comes from Minute Maid Park, a state-of-the-art facility that opened in 2000 and was paid for primarily by the city of Houston. Forget any year-to-year fluctuations in the Astros' profitability; McClane made an absolutely fantastic investment simply by sitting on an asset and benefiting from money the public invested in it.

The fact that the NBA's owners are profiting off public money, money which could be used to pay for better schools or hospitals, and then denying the public the very product they spent so much money on in order to ensure more profits for themselves, is the most indefensible and morally outrageous part of this ongoing lockout.

The FedEx Forum, the home of the Memphis Grizzlies, was financed by the issuing of $250 million in public bonds in 2002. Bonds have to be paid back on an annual basis, and a lost season will mean the city will lose many of the revenue streams that come from Grizzlies' home games, revenues that were earmarked in the budgeting process to pay those bonds.

Some economists have projected that this shortfall could cost the city almost $11 million dollars, over $600,000 annually, over the course of the bond. It's the last thing a city in the midst of a severe budget crisis, one that has forced it to cut the salaries of police officers, public library hours and staff and nearly 600 teaching positions, needs.

It's the same story through most of the NBA, where only six of the 27 stadiums built or renovated since 1990 have not used public funds. For years, the NBA and the other major professional sports leagues have extorted cities to pay for stadiums by threatening to leave.
Even if an owner, like Jerry Jones of the Dallas Cowboys, can't credibly threaten to leave the market, they can still shop around all the various municipalities in the area in order to find the best deal for themselves, as Jones did when he built the new Cowboys Stadium in Arlington instead of Irving.

Owners of professional teams in all sports claim that spending on stadiums causes economic growth, but there's an extensive amount of economic evidence which says that's false. The NBA has a monopoly on the professional basketball business in the United States, artificially restricting the number of franchises in order to make the existing ones more valuable. The cities pay because they have no choice if they want to have a basketball team. There's simply no other game in town.

Donald Sterling bought the L.A. Clippers for $13 million in 1981. In 2011, Forbes valued the organization at $305 million.

Over the last generation, owning an NBA franchise has practically been a license to print money. That doesn't even count all the different ways owners have used them as loss-leaders in business deals -- from creating a real-estate development that could generate over a billion dollars in profit to selling cars and more personal gains. The only ways for the average billionaire to become famous faster than owning a sports franchise are a pair of handcuffs or a political career.

The NBA is not a typical business, and the way the owners run their business -- by using their monopoly power to bully cities into paying for their stadiums -- means they have no moral high ground to complain about how much revenue to which they are entitled.

There's only one word to describe an owner going into poverty because he owned an NBA franchise, and the fact they might force cities to cut vital public services because a few of these owners want to extract as much money from the players as possible is horrifying.