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NBA / Jul 6, 2011 / 4:00 pm

NBA Disputes Claims About Their Financial Losses

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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.

…and:

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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  • http://www.MVPresidesinChitown.com Chicagorilla

    billionaires are trying to swindle millionaires or vise versa….all the while im stuggling to pay my bills from month to month. So basically, fuck both sides. + don’t want to hear that bullshit. If teams are losing money like that, then they should fold the team. Maybe 30 teams is too much, shit there’s like 8 teams in Cali alone.

  • First & Foremost

    Unrealistic solution that might work…

    League wide lottery and fantasy draft, auction style. Jersey sales would plummet but every team hasjust about an equal chance to build a ocntender. Players have to learn on the fly of how to play with a different team each year. Cash Cow players get moved to different teams every year. Or they can even have an auction keeper league.

    Think outside the box

  • 2cents

    @Chicagorilla has it right. Why the hell does the average fan have to put up with the squabbling over billions? The players themselves should fall in line. Imagine if we were able to go to our own boss and strike until we got a share in the revenue the company makes??????

    Take your millions playing an Fn game and shut up already.

  • GMC

    I am very subjective in this issue but that nate silver is garbage. When silver talked about NBA data, he used before tax. Wehn compared to fortune 500 companies, he used after tax. Taxes should easily hit 50% therefore its only about 3 mil per team. Think about it, a mid level exception is about 6 mil, which means mediocre bench players are making twice as much money as the godamn owner. Thats like saying the cashier at burger king is raking in the dough while the owner struggles to pay for rent.

    What Silver said here is very misleading as he obviously is very biased. I am upset we are in a lock out just as much as anyone, but in all fairness, things should be presented they way they are without little tweaks here and there

  • GMC

    oh and fuck you nate silver

  • Kobeeeee

    I wanted to add some comment but GMC said erverything needed to be said.

  • Sam

    The players are idiots. If they really cared about the league and not just ‘feeding their families’, Latrell Sprewell style, they would accept the hard cap and a salary roll-back.

    Instead they are busy claiming the owners make far more than they claim. I don’t believe it. Jimmy Dolan obviously should be sharing some of his fat TV money but that’s not going to stop a team like my New Jersey Nets from losing money when their building is empty for every home game.

    Basketball needs parity and yet the players are trying to sabotage the game they love by leaving small market teams to form juggernauts in already successful markets.

  • George W Kush Sr

    Blame goes both ways. How does Orlando have the right to complain when they’re $30M over the cap? They’re paying $ for $ tax and have the balls to say they only made $3 million dollars last year? That’s dispicable.

    And players need to take some cuts too, there are fools in the league who couldn’t walk up the stairs without injuring themselves(Eddie Curry) but made $8M/year. $8M/year to eat tacos and flash his driver! WTF!! SMDH

  • karmatic

    real issue is laid out nicely by ethan strauss at hoopspeak.com; the value of the tv rights for nba games is going thru the roof over the next 5 years, and the owners have NO intention of letting that influence the current deal, and that is BS.

  • http://www.wtf.com Chicagorilla

    Let me make sure I don’t confuse anyone of you on where I stand.

    Fluck the Owners.

    No way in hell will I ever believe that a billionaire is putting money into something that isn’t returning a nice profit for them. This entire lockout is about the future money the NBA is about to make and how much of that they DON’T want the players to try and get.

  • loozer

    @GMC +1
    @Chicagorilla yeap, they do… just look at European soccer teams… on the other hand, they put money into something that’s worth it for them (publicity, relations, etc) it’s not all about money in the rich man’s world… it’s about power