We’ve all heard the stories about this lockout, and the reasons why the NBA and the majority of the league’s teams have been losing a ton of money the last few years. As long as the lockout is in, the NBA and David Stern will say this is something they have to do, since the league cannot function while losing money. But after Deadspin published an article recently suggesting the Nets weren’t losing the amount of money that they actually said they were, political and statistical mastermind Nate Silver attacked the NBA’s claims as well.
Yesterday on the New York Times blog, “FiveThirtyEight,” Silver wrote:
Instead, independent estimates of the N.B.A. financial condition reflect a league that has grown at a somewhat tepid rate compared to other sports, and which has an uneven distribution of revenues between teams — but which is fundamentally a healthy and profitable business. In addition, it is not clear that growth in player salaries, which has been modest compared to other sports and which is strictly pegged to league revenue, is responsible for the league’s difficulties.
Even as it stands, however, the Forbes data suggests that the league is still profitable. Its operating income — revenues less expenses (but before interest payments and taxes) — is estimated to have been $183 million in 2009-10, or about $6 million per team. The N.B.A.’s operating margin (operating income divided by revenues) was about 5 percent in 2009-10 and has been about 7 percent during the life of the current labor deal.
A 5 percent or 7 percent profit is not dissimilar to what other businesses have experienced recently. Fortune 500 companies, for instance, collectively turned a 4.0 percent profit in 2009 and a 6.6 percent profit in 2010 (both figures after taxes). Profit margins in the entertainment industry, in which the N.B.A. should probably be classified, have generally been a bit lower than that.
Silver came to the conclusion that NBA owners aren’t necessarily locking the players out because they are losing money, but rather because they believe if they could reduce the salaries, they could make exponentially more money.
So earlier today, the NBA released a press release disputing pretty much every claim made in Silver’s blog post and calling the data from Forbes ” inaccurate and we do not know how they do their calculations. Forbes does not have the financial data for our teams and the magazine’s estimates do not reflect reality.”
The release pretty much goes one by one, diving into each argument and posting something to counter it. While Silver says the NBA is a “fundamentally healthy and profitable business,” the NBA wrote: “The league lost money every year of the just expiring CBA. During these years, the league has never had positive Net Income, EBITDA or Operating Income.”
While Silver said ticket revenues have increased by 22% in the last decade, the NBA said that number is actually only 12%.
While Silver said 17 NBA teams lost money last season and that the losses were relatively small, the NBA countered by saying “In 2009-10, 23 teams had net income losses. The losses were in no way ‘small’ as 11 teams lost more than $20M each on a net income basis.”
Those are just some of the highlights from the back and forth between the two parties. Silver in a sense does agree that there needs to be change – he contends greater revenue sharing in lieu of the salary cap could work well for the NBA just as it is used in Major League Baseball.
At the same time, Silver and the NBA clearly disagree on a number of financial numbers, all of it falling under a cloud of doubt/uncertainty that is forcing every NBA fan hanging in limbo this summer to answer the question: who do they believe?
What do you think? Who do you believe?
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