NBA losses justify player pay cuts? Open the books and show us
By Ken Berger
CBSSports.com Senior Writer
July 13, 2011Tell Ken your opinion!
In the crusade of public opinion during the early days and weeks of the NBA lockout, the league has stridently defended its position that players must capitulate to its salary demands because the league is drowning in red ink.
The only thing the NBA has clutched more dearly than its talking points about devising a system that allows "all 30 teams to compete for a championship and make a profit" is the actual financial data proving its argument.
League officials have released lengthy, point-by-point rebuttals each time their figures are questioned, saying the documents turned over to the National Basketball Players Association prove that the league is sustaining "substantial and indisputable losses" -- $300 million last season and a whopping $1.845 billion during the six seasons of the collective bargaining agreement that expired on July 1. But the NBA has resisted the notion that publicly releasing the financial statements would end the debate and bolster its position that player costs must come down dramatically.
It's almost as though the documents would reveal, say, the purchase of an $87,000 Zamboni for a new arena that doesn't even house a hockey team. And, in fact, one such expense was incurred by the city of Orlando and the Magic as part of the $480 million cost of a publicly financed playpen known as Amway Arena.
No wonder the players didn't cave by the July 1 deadline for a new CBA to be reached, resulting in a lockout that has shut down the league and threatening the 2011-12 season.
The NBPA maintains that a substantial portion of the owners' stated losses consists of non-operating expenses such as interest and depreciation, which resulted from purchasing the teams or building/renovating their arenas. The players should not bear the burden of these expenses, the union says, because they do not receive a cut of the equity when teams are sold.
The most recent back-and-forth about the owners' stated losses and accounting methods came last week, when the New York Times published estimates compiled by Forbes Magazine showing that the NBA actually made a $183 million operating profit (less interest, taxes, depreciation and the like) in 2009-10 -- the same season the league says it lost $340 million. The NBA issued a lengthy rebuttal, calling the figures "inaccurate" and saying they "do not reflect reality."
Each side has its own take on the numbers, and a clear agenda to go with it. Since the discrepancy in these figures is the very fulcrum of the labor impasse between the owners and players, there's only one way to end the debate: Publicly release the audited financial statements and reveal the source of the losses.
Asking a private business to disclose its most closely held financial secrets to the public is tricky at best. Short of a lawsuit or congressional inquiry, there is no way to compel the NBA to release these figures and subject them to public scrutiny.
"One of those things people have been trying to do for decades is pry the actual books of sports leagues, and they defend them extremely closely," said Neil deMause, author of the book Field of Schemes and editor of a website by the same name. "Water boarding or someone leaking them to Deadspin are probably your two best bets."
Unsurprisingly, the league said it will not be publicizing its confidential business records.
"We have shared with the union, the party with whom we are conducting private negotiations, our complete league and team audited financials, along with our state and federal tax returns," NBA spokesman Mike Bass said in a statement to CBSSports.com. "These are confidential business documents. Like virtually all private companies, we don't publicly disclose our line-item financial statements, and we see no reason that making them public would get us any closer to reaching a new collective bargaining agreement."
But publicly releasing the figures actually could speed up collective bargaining one way or another. The NBA is either indisputably losing this money and stands to gain leverage against the players by releasing proof, or it isn't -- in which case the players would gain leverage. Either one would provide momentum toward a compromise.
But that isn't really the point. The point is, there have been billions in public costs associated with the NBA running its business -- primarily from the construction and renovation of arenas. Taxpayers do not get to depreciate those costs on their tax returns. Cities that rely on NBA games to generate economic activity and produce tax revenues needed to pay for all their arena debt have no recourse when the industry that demanded those inducements shuts itself down.
Residents of Charlotte and New Orleans, where the Bobcats' Time Warner Arena and the Hornets' New Orleans Arena were 100 percent publicly financed, do not get to lock out the debt collectors when the bills come due.
"Across the league, taxpayers have a substantial interest in the success of the NBA because of the public money that has been invested in its venues," said Jim Grinstead, director of Revenues from Sports Venues, which tracks how sports facilities make money.
In Orlando, the city sold $311 million in bonds in 2008 to help finance the Amway Arena -- a sparkling, downtown gem that is bar-none the most modern and immaculate arena in the league. But in the spring of 2010, Fitch Ratings downgraded the bonds to junk status and warned that the city faced the threat of defaulting on the debt payments as early as November 2012. Despite the potentially crushing impact of losing games -- or perhaps, an entire season -- in an arena the city cannot afford, the Florida attorney general's office told CBSSports.com Wednesday it has no plans to investigate.
"This does not appear to be under the Florida attorney general's purview," spokeswoman Jennifer Davis said.
The office of New York State Attorney General Eric Schneiderman is investigating whether the NFL lockout violates state antitrust law in an attempt to protect constituents who could be economically harmed by the loss of Bills home games in Buffalo and the canceling of Jets and Giants training camps. A spokesman said Wednesday that Schneiderman has not made a decision on whether to intervene in the NBA lockout. In Texas, home of three NBA teams, the attorney general's office was not aware of any plans to investigate the lockout's impact on the local economies in Dallas, Houston and San Antonio.
As for Orlando, at least the city will have some cool stuff to sell on eBay if it defaults on the arena debt. According to city purchasing records reviewed by the Orlando Sentinel, among the expenses for the "plushest government-owned building in Central Florida" were a $10,000 conference table and eight $2,100 conference chairs for Magic executives; 264 designer bar stools for luxury suites at $892 each; and that $87,600 Zamboni -- even though there's no hockey team in the building.
"You want to protect yourself against Zamboni inflation," said deMause, a frequent critic of sports stadium and arena boondoggles.
To be fair, the vendor did sweeten the deal by throwing in two hockey goals. But more to the point, it makes you wonder how many Zamboni-like expenses there are on the owners' books -- books they are using to make the case that the players are to blame for their financial woes.
Industry analysts estimate that about two-thirds of current NBA arenas received some form of public financing. Even some of the privately owned buildings (in Sacramento, Chicago, Boston, Detroit, Denver, Philadelphia, Toronto, Utah and Washington, D.C.) received some indirect public benefit such as land grants, tax breaks or both.
NBA spokesman Tim Frank said Wednesday owners only depreciate the portion of arena expense that came out of their pockets. Also, for multi-team or multi-use buildings, only the basketball portion of depreciation is included in the owners' losses, Frank said.
But several of the teams performing the poorest financially -- and thus most responsible for the NBA's decision to lock out the players in pursuit of a better labor deal -- are located in the smallest markets and received massive public assistance for their arenas. In addition to New Orleans and Charlotte, Memphis' FedEx Forum was financed nearly entirely by the sale of $250 million in public bonds. In 2010, the Memphis Chamber of Commerce released a study pegging the annual economic impact of the arena at $223 million. If that were true, Memphis would be crippled by an NBA lockout lasting the entire season. But deMause said fear not: The tangible impact is only $5.3 million in state and county tax revenues, less than a third of the annual cost of paying off the construction debt.
"If these owners and players want to do business the way they want to do business, then don't take any money from the public," said Brian Frederick, executive director of the Sports Fans Coalition, a fan advocacy group.
It is no coincidence that all three of those cities house either expansion teams or relocated teams, since sweetheart arena deals were the only hope for those markets to land NBA franchises. Arenas in New Orleans and Oklahoma City were built on spec, as a lure for teams that eventually relocated there.
"Teams demand it, and local officials cave," deMause said. "If you say to New York City or Chicago, 'You're never going to get a team if you don't build us a new stadium,' I wish more people laughed outright, but at least they'd be skeptical. In Charlotte and New Orleans, it's easier to make the 'We're going to put you on the map' arguments."
To that point, Madison Square Garden in New York was essentially 100 percent privately financed, while Chicago's United Center received public benefits only in the form of a small amount of infrastructure costs, according to the Marquette research. A person with knowledge of MSG's financing arrangements, who did not want to be identified as divulging proprietary information, said the building that houses the Knicks and NHL's Rangers benefited from a waiver of building permit fees and sales tax on construction materials. A $775 million to $850 million renovation under way at the iconic structure is being financed with no public funds, though the building does benefit from a property tax exemption.
But NBA arenas receiving most or all of their financing from the public are not limited to underperforming teams in hopeless markets. The San Antonio Spurs, a small-market team and model franchise with four championships in the past 13 years, had the AT&T Center built in 2002 mostly with $145 million in funds generated by a county tax hike and increases on hotel and rental car taxes, according to the Marquette research. The Spurs are owned by Peter Holt, who is leading the owners' bargaining fight with the players as chairman of the labor relations board.
Nor are cities off the hook for stadium costs even after a team abandons them. The city of Seattle received a $45 million settlement from owner Clay Bennett to pay down debt from a publicly financed renovation of Key Arena after the SuperSonics relocated to Oklahoma City. But according to Newell Aldrich, legislative aide to Seattle City Councilmember Nick Licata, the city will still be paying for the defunct Kingdome through 2015 even though the building was imploded in 2006. On the bright side, the city finally will be out from under the debt incurred from the Kingdome's replacement, Quest Field, in 2020.
All of this leaves Harvard economist Judith Grant Long, the nation's preeminent expert on sports stadium financing, scratching her head. Long has devoted much of her career to researching the economic impact and financing of sports facilities, and is working on a book that promises to be the holy grail of this elusive pursuit -- tracking not only publicly divulged aspects of stadium and arena financing, but also public subsidies that even those who've unwittingly been paying them for years don't know about.
Long is skeptical of the notion that the NBA lockout -- or the NFL's, for that matter -- will have much of an impact on local economies. That's because she and countless other economists have concluded that sports arenas don't provide any significant economic benefit to the community where they're built, which makes you wonder why the public keeps paying for them, only to now have the beneficiaries shut down the industries they were intended to showcase.
"Most of the economists who work on these issues have moved on to greener pastures, having determined that hundreds of their studies have had no impact on the course of public policy," Grant Long said. "We still dole out billions of dollars for major league sports facilities."
And now we have two locked-out sports, an $87,000 Zamboni, and bills that will not wait for the games to return.
http://www.cbssports.com/nba/story/15317168/nba-losses-justify-player-pay-cuts-open-the-books-and-show-us
7/14/2011 12:02 AM