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The Business Of Basketball
Kurt Badenhausen, Michael K. Ozanian and Christina Settimi 12.09.09, 6:00 PM ETThe ball took some bad bounces for the National Basketball Association during the past year.

With their wallets pinched by job losses, pay cuts and higher food and gasoline prices, basketball fans are thinking twice about plucking down $50 for your typical NBA seat. Teams like the Indiana Pacers, Minnesota Timberwolves and New Jersey Nets were forced to slash ticket prices to lure fans to games in the midst of a recession. The high end of the market also worsened: Revenue from pricey club seats and luxury suites fell for the Detroit Pistons, Miami Heat and New York Knicks. That’s a problem for the NBA given that player costs (including bonuses and benefits) increased to $2.3 billion during the 2008-09 season from $2.2 billion the previous year.

Net result: Overall revenue remained flat at an average of $126 million per team, but 12 of the league’s 30 teams posted an operating loss (in the sense of earnings before interest, taxes, depreciation and amortization) during the 2008-09 campaign. That’s the most since the 1998-99 season, which was plagued by a lockout that cut the number of games played in half. The average team value (equity plus net debt) fell 3%, to $367 million, marking the first time since Forbes began tracking league finances 11 years ago that appraisals have declined.

Several franchises are reeling from bad management more than a sour economy. Michael Heisley has been looking to unload the Memphis Grizzlies for years. His team has a sporty new arena, but the Grizzlies can’t win games and can’t draw fans. That’s a serious problem when you play in a small market with relatively few corporate sponsors. The Grizzlies’ value fell 13% in the past year to $257 million.

Robert Johnson is also looking for investors. Six years after the founder of Black Entertainment Television paid $300 million for the expansion Charlotte Bobcats, the team is worth just $278 million. Johnson botched his attempt at starting a regional sports network, which flamed out in less than a year. The team is on its third head coach and is strapped with $160 million of debt.

Then there’s the New Jersey Nets, whose owner, Bruce Ratner, made the brilliant announcement after he bought the team in 2004 that he wanted to move them to Brooklyn as soon as he got a new arena. Talk about losing fans in a hurry. The Nets handed out 5,200 comp tickets per game last season to try and get fans to show up at their current home, the Izod Center. The Nets set an NBA record by losing their first 18 games this season and will not get a new arena in Brooklyn until at least 2011, if they ever do. The Nets are now worth $269 million, $31 million less than what Ratner paid.

Owners looking for a blueprint to follow have several to choose from. Start with the Los Angeles Lakers, the most valuable team in the league at $607 million. Owners Jerry Buss and Philip Anschutz keep the Staples Center packed with concerts and other sporting events. Anschutz has also developed the land surrounding the arena, which keeps business humming year round. The Lakers earned $51 million last season and are ahead on their debt payments for the $375 million, privately financed arena. It helps to have Kobe Bryant and a winning team when you charge $2,600 per game for a courtside seat and $107,500 for a courtside season ticket.

The small-market Portland Trail Blazers, who unlike the Lakers do not have the benefit of a hockey team sharing their arena, are a different example of success. Owner Paul Allen brought in former Nike executive Larry Miller to run the team and arena. Miller has cut costs and done a great job of promoting games and engaging the fans. Revenues climbed 48% in the past two years and the team is now worth $338 million, 16th highest in the NBA, up from 30th two years ago. Portland will turn a profit this year for the first time since the 1997-98 season.

The current NBA season is shaping up to be even worse than last year. Season ticket renewals were 76%, down from 79%, while prices were off 3% on average. The league expects overall revenues to drop as much as 5%.

The Phoenix Suns have been a model franchise for the NBA, but are struggling as the housing collapse has hit Phoenix particularly hard. Its 153-game sellout streak ended in November, and the team laid off 10% of its office staff a few days later. The team traded center Shaquille O’Neal this summer in a salary dump.

One thing that helps soften the blow of falling revenues is the league’s collective bargaining agreement with the players. It calls for player costs to be capped at 57% of revenues. If salaries exceed 57% of revenues, up to 9% of total player costs revert back to the owners. Last season the overage that went back to owners was $194 million, or $6.5 million per team. With revenues sagging this season, player costs should cross the 57% threshold once again.

NBA Team Valuations

#1 Los Angeles Lakers

12.09.09, 06:00 PM EST

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Kevork Djansezian/Getty Images www.lakers.com Team Value1$607 mil The Los Angeles Lakers are owned by Jerry Buss and Philip Anschutz (Net Worth: $6 billion), who bought them in 1979 and 1998 for $20 mil and $268 mil, respectively. Wins-to-player cost ratio8 192 Coach Phil Jackson Metro area population: 12,872,808 Local revenue per fan:9 $26 Valuation Breakdown The skinny The Lakers continue to be a juggernaut on and off the court. The team won its 15th NBA title last season defeating the Orlando Magic in a five game series. The playoff run added $20 million to the team’s revenues last season. The team is favored to repeat this season after adding forward Ron Artest to the squad over the summer. The Lakers are a tenant in the Staples Center which is owned by Phil Anschutz who owns the NHL’s Kings and has a 27% stake in the Lakers. The priciest tickets in the NBA generate $2 million a game for the Lakers’ owners. Major corporate sponsors are Toyota Motor (nyse: TM), American Express (nyse: AXP), Mirage Hotel & Casino, Anheuser-Busch InBev (nyse: BUD), Verizon Wireless, Carl’s Jr.. Naming rights sponsor is Staples (nasdaq: SPLS). Current Media Partners TV: FSN West/KCAL Radio: KSPN AM 710 2008-09 TV ratings: 4.7 Historical Snapshot

1-Yr Value Chg. 4% Ann. Value Chg.2 12%/8% Debt/Value3 20% Revenue4 $209 mil Operating Inc.5 $51.1 mil Player Expenses6 $83 mil Gate Receipts7 $95 mil Facility Information Kevork Djansezian/Getty Images Staples Center Owner: AEG Year Opened: 1999 Capacity: 18,997 Cost To Build: $375 mil Concessionaire: Levy Restaurants Average Ticket Price: $113 Sport: Portion of franchise’s value attributable to revenue shared among all teams. Market: Portion of franchise’s value attributable to its city and market size. Stadium: Portion of franchise’s value attributable to its stadium. Brand Management: Portion of franchise’s value attributable to the management of its brand. Revenues and operating income are for 08-09 season and are net of revenue sharing. NA: Not applicable. Team Logos Courtesy NBA. Rank Team Current Value 1-Yr Value Change Debt/Value Revenue Operating Income

1Value of team based on current arena deal (unless new arena is pending) without deduction for debt (other than arena debt). 2Current team value compared with latest transaction price. 3Includes arena debt. 4Net of arena revenues used for debt payments. 5Earnings before interest, taxes, depreciation and amortization. 6Includes benefits and bonuses. 7Includes club seats. 8Compares the number of wins per player payroll relative to the rest of the NBA. Postseason wins count twice as much as regular season wins. A score of 120 means that the team achieved 20% more victories per dollar of payroll compared with the league average. 9Arena and local media revenue generated per person in the metro area. Populations are adjusted for the number of teams in their metro area.

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