NBA Economics: Amnesia, Economic Schemes and Handouts for Billionaires

 

(Editor’s Note.  This article is exerted from a column that first ran on Feb. 24, 2012.  Readers can read the entire column here.  Public financing of private sports franchises is a hot topic in today’s economic climate).

About 140 days ago, National Basketball Association Commissioner David Stern was taken to task by the “bad” Gumbel, Bryant – as opposed to the “good” Gumbel, Greg Gumbel – for his leadership during the NBA lockout as the industry’s chief negotiator. Things were apparently not going well for the players in the talks, and Gumbel went on a rant as part of his closing remarks on his HBO show. (It is a bit amazing that Time Warner allowed Gumbel to rip Stern considering that Time Warner owns Turner Broadcasting and is a television partner of the NBA).

Gumbel evoked the days of slavery by saying Stern was “modern plantation overseer” and “treating NBA men like they were his boys.” The NBA Lockout eventually ended, and the season started on Christmas Day. Stern did what HIS owners wanted him to do: get concessions from the players and a better money deal for the owners – what he’s paid to do. He is not a warm, fuzzy character that plays Santa Claus or even Walt Disney for basketball fans or the sports media. (Stern had remarked to this reporter in the 1990s that he wanted all of his 27 NBA arenas to be like Disneyland).

But games returned, and the vitriol against Stern has disappeared. Amnesia has set in as the charges by Gumbel, which were repeated by various sportswriters, have mysteriously vanished. The bad Gumbel’s statement exists on video and can be accessed on devices globally, but Stern has seemingly been forgiven by sportswriters, who like a junkie, could not live without their candy of choice—NBA games.

So the NBA came back to good TV ratings, filled buildings and caught a real break because the Knicks, not Charlotte or Utah, signed Jeremy Lin, and he dazzled the New York media and a Knicks fan base hungry for winning basketball. Dallas Mavericks owner Mark Cuban was right that Jeremy Lin’s performances would have gone unnoticed in Charlotte. But Lin was in the right place at the right time with the right tabloids proclaiming “Lin-sanity” on both the front and back pages of two wretched newspapers, Mort Zuckerman’s Daily News and Rupert Murdoch’s New York Post as well as a monkey-see, monkey-do TV and radio group that cannot figure out what stories to cover until they look at the New York tabloids.

There is no shock that the league is in Orlando for the big cultural event. Orlando was a troubled franchise owned by the billionaire Rick DeVos, whose family fortune came from the sale of Amway products. Rick DeVos is one of those billionaires who thinks he knows best and aims to change public education in Florida and elsewhere, to put it politely.

Apparently DeVos is of the thinking that too many public dollars go to fund schools and pay professional salaries including those of teachers. So the very right wing, conservative DeVos should be against all sorts of public financing, including the taxpayers funding an arena whose main tenant is a private business—like DeVos’s Orlando Magic basketball team.

Surely billionaire DeVos has enough money to fund building a plant for his product, and yet he is on record in wanting to change public education funding. So DeVos no doubt would not want taxpayers in an area loaded with foreclosures and high unemployment not to reach in their collective pockets and fund a public building for a private enterprise?

Facts suggest otherwise.  DeVos demanded a new arena, and eventually Orlando city politicians saw it his way and built a new arena with all of the gadgets (luxury boxes, club seats, wider corridors for the sale of concessions) that were lacking in his old building, which was about 20 years old when it was “decommissioned” after being deemed as antiquated in 1994 when the building was just five years old.

Everything is great. The NBA is back, although it never left and just took a bit of a hiatus (a summer league, pre-season and 16 game vacation). The writers will swoon over the great arena and ask why does Dwight Howard want to leave a good team and that great arena?

Even David Stern, who is probably 180 degrees away from DeVos’ right wing, conservative philosophy, lauds the fact that DeVos threw in a large amount of money into the new building. Everything is super, except for some unpleasant realities associated with the financing of the new building.

The city of Orlando sold $311 million in bonds in 2008 to help finance the facility. But Fitch Ratings downgraded those bonds to junk status in 2010 and warned that Orlando faced the threat of defaulting on the debt payments as early as November 2012. That could mean more public dollars will have to be thrown at the project than had originally been anticipated. DeVos took about $400 million in public financing and gets the lion’s share of the revenues for basketball in the building. Under federal law, an owner can keep up to 92 percent of all revenues generated in a stadium or an arena with the remaining eight percent going to pay down the debt. That is why municipalities have to tap into other tax resources such as hikes in the hotel tax (that was used in Orlando) to pay off obligations.

If there is a default, the glamour of the NBA, the Magic’s “franchise” player Dwight Howard, the billionaire owner DeVos doesn’t mean squat to creditors who want their money.

A similar situation is now being played out in Sacramento, California.  Mayor (and former NBA star) Kevin Johnson has come up with a plan to lease the city’s public parking spaces to a private company for 50 years in exchange for an up-front cash payment that will be used to help fund the new arena.  In doing so the city is giving up $9 million per year in revenues in a city with budget woes and 11 percent unemployment.

The sale of parking spaces runs the risk of raising the wrath of non basketball fans who could suddenly see a hike in parking fees and get nothing out of it because they don’t care about Sacramento Kings basketball. It could also get non-Sacramento residents who support the Kings and go to Kings games upset because the city is trying to add a surcharge to non-city residents for parking at Kings home games.

Believe it or not more people in Sacramento don’t care about the team than do. There is a reason Disney owned ABC television network doesn’t put NBA conference playoffs on prime time during May sweeps month. They don’t get high enough ratings to justify the programming and set advertising rates for future months while the networks clamor to get the National Football League contract so they can have the Super Bowl during the February sweeps. It is all about business and eyeballs. The NBA championship series is relegated to June when TV viewing for advertising purposes doesn’t matter very much.

DeVos got his publicly financed arena and had his handout, yet he wants to make sure public education is damaged in Florida. In Sacramento it is hard to tell who wants an arena more, the owners or the politicians. The fans don’t care as long as their team, their home guys, are still in town.  The economic impact of franchises is minimal, although psychologically for some people it is very important to root for a team. The intangibles are a big deal, stuff that cannot be measured.

Meanwhile for David Stern, all seems forgiven. He is no longer compared to a plantation owner, Jeremy Lin and “Linsanity” is a global event and fans have their product back.  Let’s not worry about small details like cities running out of money at the same time they provide public support for rich men and their private businesses.

Evan Weiner, the winner of the United States Sports Academy’s 2010 Ronald Reagan Media Award, is an author, radio-TV commentator and speaker on “The Politics of Sports Business.” His book, “The Business and Politics of Sports, Second Edition” is available at bickley.com and Amazon and featured on Google books.

 

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