Financial Analysis of the NBA Lockout

There are a lot of issues at play in the NBA lockout but as Alex mentioned in a previous post it all comes back to money.  The NBA owners have claimed huge losses, in excess of 300 million dollars, and are using the lockout to attempt to return to profitability.  This seems a perfectly reasonable decision, except for the fact that many independent organizations have released wildly different valuations of NBA teams.  This New York Times blogger users figures released by Forbes to compare the NBA to other professional sports leagues, as well as to Fortune 500 companies and finds that the NBA is less profitable than the other leagues but has grown faster than the average Fortune 500 companies have during the financial downturn.

The difference between the figures released by the NBA and those by Forbes and other institutions is caused by some questionable accounting processes on the part of the NBA teams.  When calculating operating expenses the NBA franchises count the interest paid on the loans to by the team as well as an amortized percentage of the money paid up front when purchasing the team.  This is a legal practice, but it does seem unfair to claim huge operating losses when these losses are caused by the original purchase of the franchise which in many cases happened years ago.  Manchester United finds itself in a similar situation as its owners, the Glazer brothers took out a massive loan to buy the team and are using the massive revenues created by the most valuable sports franchise in the world to pay off these debts rather than to improve the team.

The situation in the NBA is not as extreme as that of Manchester United but it is similar.  The difference comes from the very inequitable distribution of wealth in the NBA and a lack of a revenue sharing program.  Rather than lockout the players and possibly lose a season many people believe the problems of the NBA could be solved by revenue sharing.  As with many ethical issues in pro sports the side you take depends on whether you see ownership of a sports team purely as a business or as something more.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s