In his “Morning Tip” article this morning, NBA.com insider and TNT analyst David Aldridge discussed Adam Silver’s recent comments about NBA expansion, specifically to Seattle. Aldridge spoke to several NBA owners, who are the ones that ultimately make the decision to expand or not. While many of them had positive things to say about Seattle, they also did their share to douse some water on the idea.
“I believe Seattle should have the first shot,” one owner said. “I think a move is more likely than expansion, but right now, neither looks likely.”
The first shot is well and good, except who knows when that shot is coming, or how? The owner suggests a move is more likely, but still not likely. There are no teams with lease agreements coming to expire in the near future. Sacramento, Milwaukee, and Atlanta are all getting new or renovated arenas. A second owner echoed this sentiment.
“I agree with you there are some markets that would be great addition to the NBA but in terms of expansion, I think we need 30 solid teams first,” the second owner said. “If there are teams that are repeatedly losing money every year even after revenue sharing, we must consider moving existing teams to those markets first. Then, once all teams are healthy and making a profit, we can perhaps discuss expansion -- but not until then.”
Despite talk of teams losing money, team evaluations are only increasing. A third owner that Aldridge spoke to said that Ballmer’s $2 billion purchase of the Clippers should be “the starting point” for talk of an expansion fee.
“It may sound like a crazy high number now, but so did the Dodgers (who sold for $2 billion in 2012), Clippers and other team sales prices,” the third owner said. “If you can revitalize part of a city or create a world-class arena that draws a new level of cultural events or anchors downtown, then the economics for the real estate dwarf what happens with the team. For someone who has the wealth and wants to leave his or her imprint on a city and state, an NBA team makes perfect sense.”
At least one owner didn’t even seem as lukewarm as the others. A fourth owner said that he “would never think the money part should override what is best for the long-term viability of the league.”
Aldridge was mostly agnostic on which Seattle location would be preferred by the league, Chris Hansen’s SODO location or a renovated KeyArena in Lower Queen Anne. Aldridge pointed out pros and cons of both, stating that Hansen continues to buy land south of Safeco Field, but lacks political support thanks to the Port of Seattle’s opposition. He also mentions OVG, and specifically Tim Leiweke, having “relationships with most every power broker in the NHL and NBA,” however the Lower Queen Anne location still has major traffic concerns. Time will tell which location wins out, but it doesn’t sound like that time will be soon, at least for the NBA.
Speaking of OVG, Leiweke, along with Director of Special Projects Lance Lopes and investor David Bonderman, were spotted in Seattle today, specifically at Seattle City Hall. They were seen talking to council member Debora Juarez and council president Bruce Harrell. While it’s unknown what was discussed, logic would dictate that Bonderman - who is a UW grad and is worth $2.5 billion - was in town to discuss the proposed $564 million renovation of KeyArena. Bonderman has partnered with OVG and Hollywood movie producer Jerry Bruckheimer to bring an NHL team to Seattle.
The council's Select Committee on Civic Arenas’ next scheduled meeting is next Monday at 10:30 a.m.
Comments
Thanks, David Aldridge, for continuing to ask NBA ownership about us.
….Nice to see some quotes, too.
By Bizzquik on 07.31.17 6:54pm
It's also nice to see the national narrative referencing the political opposition to Sodo as the primary obstacle
rather than the "family-wage job loss/freight mobility/death of the shipping industry" that was the battle cry in the past.
By cortone on 07.31.17 9:17pm
Yes!
Or even "they didn’t support the team"!
Aldridge always does such a good job at reporting both sides of a story. Great to see him take this one on!
By MartinHughes on 07.31.17 11:21pm
Glad to see Bonderman
putting in some face time.
By Paul Rogers on 07.31.17 7:49pm
Agreed
If they want to make a quality proposal it’s nice that they’re putting the time in with the politicians.
By 206er on 07.31.17 9:11pm
I’ve said this before, and there’s a direct quote, but some teams are just not going to be profitable in some markets, while other markets have financial success.
The gap closes and maybe they think about expansion, but the NBA has relocated more than they have expanded. Like any business, if you are not profitable, what are you doing then?
The gap between the top and bottom will get much worse, very quickly, as average franchise values and costs increase.
By Mike Baker on 07.31.17 9:22pm
So why isnt the NBA putting more pressure on those cities/teams that are making more money than they are contributing?
It makes it even more mind boggling how the NBA helped run the Sonics out of town (by not helping the situation) when the Sonics were not even close to the bottom half of profiting cities.
This is what I dont understand. Thats not how you grow a business/league.
By Seattle_Fan1980 on 08.02.17 4:25pm
David Stern actively maneuvered the Sonics out of Seattle.
Whatever his relation to Clay Clay was, it led him to ‘pull Bennett into a closet’ to tell him about the availability of the Sonics and begin the process of leveraging them out of Seattle. We can conclude that it paid Bennett and friends back for the good turn they did during the Katrina tragedy, and it paid Seattle back for some early defeats Stern suffered as a result of Seattle, in particular the Spencer Haywood lawsuit that Stern lost as the NBA’s lead council. Who knows what else motivated Stern?
The only ones who fully understand are Stern and Bennett, I’d say. I don’t think logic or good business decisions were involved.
By cortone on 08.02.17 4:41pm
Yeah, Im aware of all the other shenanigans that went on
but Im looking at this from a pure profit aspect and growing the league. Trimming the fat so to speak coughbobcatscough. I would love to own a business that can lose 10 million a year in a shared revenue design and have ZERO repercussions. The NBAneeds to raise the bar on those cities or the league will never get better, let alone expand
By Seattle_Fan1980 on 08.02.17 10:09pm
They recognized that it was not handled well
And we became an example of what not to do.
But this message of every team being healthy is not new, it was dependent on the new CBA and tv contract. The subsidy, if I remember correctly doesn’t get better, but worse. So, there is financial pressure to make markets work with profits from sustained revenue.
Their margins and ability to absorb a sizable change in overall revenue is not great. At the same time they need to keep up on player salary, win, without long contracts or they risk getting caught short with a sudden drop in revenue.
By Mike Baker on 08.02.17 5:36pm
I love this
Any other business would make this determination. The fact that Silver keeps bringing up the fact that there are still not 30 successful teams in the league necessitates a look at markets that are simply not "additive" to the league. It makes far more sense then to move those teams to markets that are going to be best for the teams themselves and the league as a whole.
At some point, this will come to a head. Trying to stilt relocation presents the facade of stability, but you run the risk of ultimately harming yourself. After the massive TV/media contract that should’ve floated everybody, if there are teams still struggling, they either don’t belong where they are or they don’t belong existing. The league will look at relocation long before contraction, so I would not be surprised to see this come up more and more.
The other school of thought is possible expansion to better markets to infuse cash to help bolster those other teams as well. Contraction looks like a failing league; expansion presents the story of a strong league in growth. I could see that becoming a stronger possibility as well.
By Matt Tucker on 08.01.17 4:14am
That's what I thought about both Sacramento and Milwaukee
and there doesn’t seem to be any pressure to do anything with New Orleans. I wonder what other markets are troubled.
By Thane of Cascadia on 08.01.17 5:49am
The pressure will increase on N.O. when the lease gets closer to expiration
They can’t move for ~ 6 years (2023/2024 or thereabout). When the date gets closer, I would assume the pressure will increase to see if it’s possible for that team to be financially viable.
By ksmith1984 on 08.01.17 8:42am
Lease buyouts are a regular part of business
By cortone on 08.01.17 8:58am
Can be, yes...
But the cost of buyouts can be prohibitively expensive. I’m not sure what the clause is in N.O. but I recall it being prohibitively expensive. However, i’m not sure how relevant N.O. will be for the next few years anyway. Tom Benson will never sell the team to out of town owners. Nobody knows what intentions his wife has (who will assume control after he passes) when that time comes.
By ksmith1984 on 08.01.17 9:46am
And they can be re-negotiated.
I don’t know how much the city of NO is subsidizing the team at this point, if at all. Lots of options for willing partners.
By cortone on 08.01.17 1:30pm
Certainly
I believe N.O simply fronted money for an arena renovation a few years ago but nothing ongoing. Could it happen? Certainly, but the first shoe to drop would have to be finding a willing seller. That is not (yet) an option. I think you could offer Benson $2 billion and he wouldn’t sell.
Memphis is another one that’s been rumored – I have no clue if they are one of the 3 franchises still losing money – but they have a lease that is getting closer to expiration but has a number of clauses that make it extremely unlikely they’ll be able to move. (attendance has to plummet starting with the 2018-2019 season). http://www.sportsbusinessdaily.com/Daily/Issues/2012/03/26/Facilities/Grizzlies-Lease.aspx
If they meet the attendance benchmarks, breaking the lease is virtually impossible, the above article lays out exactly why. Yes, one could go scorched earth like Clay Bennett and play the courts game, but i don’t think that’s likely an option. As for those benchmarks… The Grizzles would have to have attendance levels drop below 14,900 by the 2018/2019 season. They’ve been above 16,000 every year for the last 5 years and haven’t been below that since 2011. I can only see this happening if the team gets significantly worse starting this coming season.
If you look at the bottom of the NBA attendance charts, it’s hard to see any other team becoming available with many of the bottom feeders or recently receiving new/renovated arenas (thus also have difficult to break leases) or are larger markets suffering from team performance related downturns in attendance. The Nuggets, who have struggled with attendance for years, could relocate at any time. Only problem? Stan Kronke owns the team – his family owns the Avalanche and he owns the arena. No way in hell they move.
Anyway, i’ll stop rambling. My primary point is that the NBA could have a big issue in a few years if some of these teams are financially unviable but have iron clad leases because of new arena ventures that simply didn’t pay dividends. Otherwise, there are very few possible teams that can relocate free and clear…
By ksmith1984 on 08.01.17 2:23pm
Pelicans Are Profitable, Though
So when we talk about failing teams, who are we really talking about?
The general benchmark for a successful franchise is 10k season ticket holders. Pelicans have 11k and reported a $19 million profit in the last year before the big money kicked in from a new TV deal.
It’s something the league has been saying for as long as I’ve watched the league, sometimes as an excuse to hold back on expansion. But more often to plead poverty in CBA negotiations. While there are clearly troubled NHL or MLB franchise, I cannot think of a single "troubled" franchise in the NBA that winning wouldn’t fix.
By Journeyman223 on 08.01.17 4:25pm
Non-Profitable NBA Teams
From this Forbes article, the 2015-16 season saw three teams make a loss – the Cavs, Clippers and Thunder. All three were due to massive luxury tax bills. Fair to say the Thunder, and probably the Clippers too, won’t be having that problem in 2017-18…
By MartinHughes on 08.01.17 6:48pm
Do you know the Pelicans are profitable?
I haven’t seen data, so i’m genuinely curious. The NBA has made clear they are concerned about teams who are non-profitable because of market reasons, not excessive spending. One is self inflecting and intentional, the other is not. So if there are 3 teams according to Silver that are "not profitable" – who are they?
Also, where do you get the "general benchmark for a successful franchise is $10k season ticket holders…" I’ve just never heard this and would love to know how many teams fall below that mark. However, I do see that the pelicans were 17th in the NBA in terms of % of capacity, which is a good sign.
Last point – wouldn’t average price per ticket be a better indicator of profitability? With teams splitting the national revenue pie, the primary differentiation between the rich teams (Lakers, Clipps, Warriors, Knicks, etc.) and the poor teams would seem to me to be the average price point per ticket. The Warriors and Pelicans could both sell-out their arena’s and yet generate a significantly different amount of money. That’s probably an obvious statement, i’m just trying to hypothesize the economics of the NBA and various markets.
By ksmith1984 on 08.02.17 5:35am
Your Obvious Point Says It All
I could search the internet for the articles I’d read that outline where the Pelicans stand in terms of profitability, or the 10k benchmark (I think it was an si.com article just before the All Star Game about how the franchise was saved with a uniquely Nola season ticket drive).
But your real point is the last one, and the one that fans of any small market team should worry about: Golden State will make a lot more money with a sold out house than New Orleans will. Not just due to average ticket price, but the value of regional broadcast deals, and merchandise sales.
There is obviously more money to be made in New York than in Phoenix, and more money in Phoenix than in Salt Lake. But thanks to the massive national TV deals, every team is stable. BUT… there are teams that could make more money elsewhere. And that’s what small market fans should be worried about, unless they have an ownership group that’s okay with making less money than they can make in a larger market. Some owners, like Tom Benson (or Clay Bennett for that matter), are committed to having a team in their city. Others will want to be where the money is greatest. But there are 30 teams now, and hopefully 32 soon; so not everyone can have a big market.
Seattle almost lost the Mariners in the 90s over this. There were supposedly better markets than "small market" Seattle. Really, Tampa??? But then the stadium issue was solved; and then TV deal, which had been among the smallest in MLB. Seattle hasn’t been called a small market since.
By Journeyman223 on 08.02.17 11:35am
But are they getting their profitablity
from the revenue sharing pie? There’s more to that pie than just the TV/media deal.
I would be surprised if the Pelicans are not a taker in the revenue share equation.
Ultimately, I think that’s what it comes down to. Which teams can stand on their own and which teams actually require the revenue share to be profitable. I’d be curious to know if the Pelicans actually need the share to be profitable or if they make it above the line on their own (and then bolstered by the rev share).
By Matt Tucker on 08.02.17 2:23pm
Yes, exactly.
What really turns this on its head are all the media revenue streams that aren’t broadcast, and that some small markets do not have the same ubiquitous media saturation as Seattle.
at some point in the analysis that team or teams will still not make money a decision to not deny an owner half a billion in pure profit could happen
in the ASG address Silver said 3 teams are not healthy.
By Mike Baker on 08.01.17 11:19am
In the King 5 article about Bonderman.
Daniels mentioned that Bonderman has a stake in CAA, which represents athletes in both the NBA and NHL. I wonder if that is something you could tap into for future NBA/NHL teams.
By Otto Rogers on 08.01.17 6:47am
Bonderman
Surprised he was even allowed to enter city Hall due to his Uber comments. Maybe enough time has passed now.
By Knottsrus on 08.01.17 12:04pm