Like Money? Buy an NBA team

Forbes just released their 2012-13 NBA team valuations. Topping the list are the New York Knicks ($1.4 billion), Los Angelese Lakers ($1.35 billion), and Chicago Bulls ($1 billion). At the other end of the list are the New Orleans Pelicans ($420 million), Charlotte Bobcats ($410 million), and Milwaukee Bucks ($405 million).

These figures are substantially larger than they were even a mere two years ago. Take a look at this graph of NBA franchise values since 2001:

Those two lines at the top are the Knicks and Lakers. Since the 2011 lockout, the values of the Knicks and Lakers have increased by 80% and 50%, respectively. But this isn't just a story about the big market teams getting richer; since that lockout two years ago, every single team in the league has increased its value significantly. Across the league, the average increase over that time is just under 61%. No team saw a bigger increase in value than the Nets, which more than doubled its value, going from $357 million to $780 million. The Pistons (35.5%) and Raptors (36.1%) are the only two franchises that failed to increase their valuation by at least 40%.

Remember this the next time there is a labour dispute in the NBA: every franchise makes money for its owners. Even the ones that consistently miss the playoffs.

A 61% increase in less than 3 years is insane. At what point do these figures begin to level off?
Since the end of the lockout, the S&P500 has increased 48%. So, comparatively, the NBA has done slightly better than the market as a whole (although we are only including increases in equity value, not dividends or operating income/losses). The lockout probably had some effect, but it doesn't look like it was that much.
what's incredible about the performance of NBA ownership (as opposed to S&P500) is that it does not go down. Yes, since the lockout, both may have been comparable. But look at the graph: it just grows. Look at the S&P graph, and you'll see that the growth since 2010 is due to recovery from a huge dip. S&P500 since 2001 is 35% with a bunch of up and down cycles. Most NBA franchise since 2001 is 300% according to this data.
1 word: inflation.
(the lockout certainly helped as well)
My favorite ownership statement during every CBA negotiation: "Salaries have ballooned X% since the last negotiation!!!!!"

Since the CBA locks salaries in as a fix percentage of revenue, this means, of course, that REVENUES have ballooned by X% since the last one.

The Players should get smarter about this. They should strike during the playoffs the final year of the CBA. They aren't paid for the playoffs anyway, and if they wait for the summer, the owners will lock them out.

By striking during the playoffs, it puts enormous pressure on management, because the playoffs is where the NBA reaps a huge amount of its profits.

Of course, this makes the players very unpopular with the fans, but countless studies show that once everything is over, the fans come back anyway, so the players association should not care.
@Al_S. The recent S&P explosion has been simple restoration of investor confidence after a recession combined with natural recovery growth. Since 1994, it's bounced like a basketball (#ddlovato), with the most recent nadir being the least severe of the past 20 years. It's not accurate to compare a snapshot of a sine curve to a linear supply curve shifting to the right. Given the decreased cost of labor ($/x on y-axis) demand will greatly increase, but unlike other industries, the NBA's static labor force (the x on the x-axis) cannot naturally expand or contract to meet changes in demand. This leads to massive increases in revenue and the appropriate increase in valuation.

NBA teams have steadily increased in value for many decades. NBA franchises appreciated 8%-9% per year from the mid-90s until the lockout, however the lockout changed the entire business model of the NBA. The increase from 43% of BRI to an average of 50% of BRI is unbelievable, considering the league as a whole was already making money, even with many owners treating their teams like playthings. At 8.5% growth, you should expect to double every 8-9 years- the 30% in 2012 and 25% growth in 2013 reflect the new economic reality of the NBA, but prices and valuations should soon settle into a new market equilibrium. At least until Congress finally gets wise and lays the hammer down on public funding for stadiums.

Compare the chart in the article to http://tinyurl.com/pemwd4m over the same period, they're nothing alike. In the S&P you see steady growth until the 80s, the impact of SIGNIFICANTLY increased government spending through the mid 90s, the tech bubble and its burst and then the real estate bubble and its burst. The NBA historical valuation chart looks like the US chart until about 1994, with the increase in slope from Reagonomics essentially matching the increase in cash flow from the new economic realities of the CBA. If the NBA replaces soccer as the dominant world sport overnight or we suddenly find an alien race that can't get enough of Kevin Durant (or we negotiate exclusive broadcast rights with his home planet), we might see something approaching the tech bubble. But I doubt it.

The S&P 500 isn't meant to mirror economic growth, but rather investor confidence. When Market Growth surges ahead of expected GDP growth, expect a recession that returns it to more realistic values. Here's a simple picture of what historical economic growth data looks like. http://www.marketoracle.co.uk/images/2012/Aug/malaysia-income-inequality-5.gif US real GDP growth still follows the same general cycle that it has since before 1700: a nominal sine curve on a 3.2˚ axis with an average period of about 5 years and occasional extreme highs during wartime and extreme lows caused by market bubble bursts.

Sorry for the long post, sometimes you've just got to geek out a bit.
Patrick,
That is a great idea and so good the MLBPA did it in 1994. That's why they are the strongest union. They know what they are doing. People are sheep they will be unhappy until they need the distraction again, then they will be back.
You guys have mentioned before how many teams are operating at a loss, and explained it by saying that rich people aren't buying teams to profit. I think they're OK to operate at a loss because the value of the team is constantly increasing.
The only thing "operating at a loss" does is remove tax liability for that year.
Striking during the playoffs is definitely the way to go. It hits the owners hard (those playoff tickets are expensive), about 1/3 of the fans won't get too mad because their team isn't in the playoffs, and once settled it gives everyone time to cool off for the start of the next season.

But though players are not paid extra (in any significant fashion) for making the playoffs and those games, I believe their salaries for the season are spread over the course of the year and they go into the Summer. So paychecks that were coming will stop during the strike.

The players will never get enough leverage to roll back what they lose during each CBA until they structure an at least plausible alternative league. It has to have real teams, with real games (my suggestion, since there won't be historical significance to the games and they will be in lesser settings, in order to make them be real is that the games be money games with a purse for the winning team), and the games broadcast somewhere with commercials to generate revenue. That needs to be part of the players strategy. Otherwise the owners can always wait them out.
Nathan,

The loss that gets reported can be due to taking huge depreciation charges. Basically they pretend that the value of the franchise is depreciating over time (like a house degrading or manufacturing equipment wearing out). So that counts against income. For sports teams they can even depreciate the value of the player contracts, I think. So the reported income can be very different than the actual cash flow.
It is funny how much the Nets grew in value considering that this year is going to be an economic bloodbath for them. The salary of the team you all know. But the team's performance struggles early in the season really tanked ticket prices. Only about 1/2 to 2/3 of the tickets are pre sold to season ticket holders. The rest are sold on the market, many as game day approaches. They haven't recovered. Even tonight's (Friday) game against Dallas there are plenty of tickets available and at very good prices. There is certainly time to turn around the season (and making the playoffs now seems a lock), but fan interest in attending might take another month to catch up. And there won't be many games left in the regular season at that point.

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