Knicks Morning News (2015.07.19)

  • [New York Times] Sports Briefing | Pro Basketball: Raptors Add Bismack Biyombo (Sun, 19 Jul 2015 04:00:03 GMT)

    Toronto signed Biyombo, a free agent who played last season with the Charlotte Hornets, to a one-year contract.

  • [New York Times] N.B.A. Salaries Explode, Even Among Average Players (Sun, 19 Jul 2015 03:06:45 GMT)

    With a $24 billion television deal that was to kick in before the 2016-17 season, the pay is going nowhere but up.

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    Mike Kurylo

    Mike Kurylo is the founder and editor of KnickerBlogger.net. His book on the 2012 Knicks, "We’ll Always Have Linsanity," is on sale now. Follow him on twitter (@KnickerBlogger).

    56 thoughts to “Knicks Morning News (2015.07.19)”

    1. The league should really try to find a way to raise salaries for low-level players, including the D-leaguers. The current system is unfair to them, and means that many players who are on the edge of playing in the NBA will go elsewhere, such as Europe or Russia. The exceptions also need to be raised. For example, consider Alexey Shved. He is the sort of player the room exception is designed for, but the money isn’t enough to prevent him from going to Russia. And there are lots of guys in summer league who will sign in Europe or elsewhere instead of in D league. That makes the talent pool for replacement players much weaker.

    2. With the salary cap skyrocketing, maybe double the room exception? What then with the mid-level?

    3. I don’t think they need to take anything from the top. The top guys already are getting screwed by the CBA.

    4. Yeah, Isola also playing the “Knicks could have taken Mudiay and Bobby Portis” instead game. And will keep doing so as Portis likely plays better than Porzingis this year.

      He has good reason to hate Knick management, but he’s a miserable read.

    5. It’s been awhile now that professional hoop players are paid the equivalent to what the entertainment industry gets. Years ago, who even heard of the D league. As it morphs the comp will be there. Wanna get paid? And can’t make it at the box office? Go to Europe or China. It will be a life enhancement and broaden their horizons

    6. I don’t think the NBA is unfair to guys at the bottom at all. They’re mostly easily replaced and still earn seven figures. Most of them will stick around the league for a couple of years and then literally will be replaced. The guys above them are mostly hard to replace, and that’s why they earn more money. I really fail to see any reason that the worst players should get more money outside of what the market dictates they should get (under the controlled market system that exists).

      Now… some teams pay too much to guys who aren’t that valuable and some guys who are valuable can’t find a team to pay them as much as they’re worth, but that’s really a different matter.

      Good young guys get screwed, but that’s true across the major US team sports. Long-term contracts also tend to overpay players for part performance, but again that’s true across US team sports (maybe less so NFL where less money is guaranteed).

      The European dynamic is an interesting one. I’m just not sure that the NBA has much to worry about, though. Having marginally better 10th-15th men would probably hardly raise the level of play or boost earnings at all. I don’t know that they’re losing the opportunity to develop talent longer-term, either, because Europe has shown an ability to act as a farm system to develop the players and many players have shown a willingness to come back to the NBA after a tour in Europe. (Back when the Euro was crushing the dollar and a few rotation players were choosing Europe over the NBA… I thought maybe there was a threat.)

    7. I mean it’s less that lower-end players should get paid more because of their market value or their non-replaceability and more due to the fact that they don’t benefit from the rising cap in proportion to how they should (mid level players and upper level players benefit, low level players don’t because the exceptions and league minimum stay the same and that’s unfair–and fairness and proportionality matter, no matter what the market says). That being said, I don’t think we should take a pound of flesh from mid-level players or upper level players so as to make the lower-level players better off. A pound of flesh should be taken from ownership. Every player deserves a pay raise as they’re the ones who are quite literally putting the product on the court and aren’t paid in accordance with the attendant fact that they are the primary creators of value. Sports owners are little more than parasitic rentiers, and whatever “value” they create goes right back into their pocket or to projects of dubious economic benefit (stadiums! luxury condos! etc.)

      I’m sure people will disagree because they’re not socialists or whatever but that’s my 2 cents. I think my claim that money shouldn’t be transferred from one class of players to another and so ownership should foot the bill is a pretty plausible one that’s less politics-sensitive though.

    8. I mean it’s less that lower-end players should get paid more because of their market value or their non-replaceability and more due to the fact that they don’t benefit from the rising cap in proportion to how they should (mid level players and upper level players benefit, low level players don’t because the exceptions and league minimum stay the same and that’s unfair–and fairness and proportionality matter, no matter what the market says).

      I think you’re talking more about distortions on the market than the market itself. If players can’t get paid what they’re worth, there’s a problem with the system. (And I definitely think the cap system is full of problems.) These aren’t really the bottom of the league players, though.

      Every player deserves a pay raise as they’re the ones who are quite literally putting the product on the court and aren’t paid in accordance with the attendant fact that they are the primary creators of value. Sports owners are little more than parasitic rentiers, and whatever “value” they create goes right back into their pocket or to projects of dubious economic benefit (stadiums! luxury condos! etc.)

      If players create all the value and the rest of the organization (the rest of the organization, by the way, is not just the owners) creates no value… why the hell are the players playing for these teams? The answer, of course, is that the league creates a ton of the value. Over the years, the owners and everyone else involved have created powerful brands, a strong distribution model, and an infrastructure that the players cannot turn around and replicate easily… or they already would have. It couldn’t happen overnight, but if players thought they were better off barnstorming up their own league… they’d do it.

    9. I’m not saying that private ownership doesn’t carry value so much as that private ownership should be abolished. Players are the value makers proper–the economic value over and above that (I.e. the value created from the ownership and league structure) is predicated on the extraction and exploitation of the players as workers. Rentiers get plenty of economic value, but its all via labor less extraction. This is all standard Marx. So if you don’t find that persuasive, this is where you should get off because otherwise we’ll just be talking past each other.

      Saying that players are the primary or sole value creators doesn’t mean they could just make a league of their own, however. Players couldn’t create their own league because they don’t have the necessary capital (that is pretty much by definition–players are workers, not capitalists) so they’re essentially forced to play for the NBA and for private ownership.

      The way you get out of that is via socialization. To make a league that is fully in the players interest is by eliminating private ownership altogether and making sports teams in the retainer of their home cities. Of course that doesn’t fix every inequity (only full-on socialism could), but it would go a long way by stopping owners, who extract a majority of the profits (51% under the current CBA iirc) with a minimum of the work. You could say that owners deserve compensation because they take on risk, but if Marx and the socialist tradition is right, they’re really just playing with other people’s stolen money (that they extracted from their workers) and so aren’t entitled to the spoils.

      I find it convincing, but your mileage may vary. My other point which is less sensitive to your political orientation is that if money should be taken from anywhere to give lower level players a leg up, it should be taken from owners, not players.

    10. I’m also not sure how much “fairness” has to do with your argument.

      In a situation where teams want to pay more and literally cannot (the room exception, for example), I agree that’s unfair to the player. If all 30 teams are capped out (or close enough) and a guy can’t get paid what he’s worth… that’s not fair to him. Even in this case, though, he generally has options: he can go to Europe or Asia if his goal is to maximize his earnings. Those might not be his ideal options… but is not being able to get your dream job really unfair? Just about all of us are probably living unfair lives in that case.

      A minimum salary (in the NBA… not talking about an economy-wide minimum wage) is almost inherently unfair to everyone else involved. You’re artificially giving that player more than he’s worth, which has to come from someone else who actually deserves that reward. The players decided to help each other out there.

      And in terms of “fairness,” perhaps the players suffering the most under this system are the best in the league. Now, within the cap structure many of them would prefer to make $20 million and win than make $40 million and win less… but if you want to look at the players being “cheated” out of the most money… it’s probably guys like LeBron, Durant, etc.

      I think my claim that money shouldn’t be transferred from one class of players to another and so ownership should foot the bill is a pretty plausible one that’s less politics-sensitive though.

      Whether it’s right or wrong, this doesn’t seem to be the way that collective bargaining is approached in the major US team sports. It seems to generally be more of a matter of dividing the pot between the owners and the players, then dividing the players’ share among the individual “classes” of players. Again, the players actively decide through this process that they’re better off with the league than without the league.

    11. My response would be that it’s impossible to ensure fairness for players of every class under the current private league structure, but there are still imperfect ways to reduce that unfairness. Increasing the room exception due to the rising cap would be one, for example. My notion of fairness involves proportionality in the sense that when there is an economic benefit (ex a rising cap) every class and group ought to derive a benefit, even if the benefits aren’t equal. Minimum type and room exception type guys don’t garner any benefit from the rising cap, really and they should be accorded some, if only because everyone else is as well. For what it’s worth, I support removing the individual salary cap because elite players are treated unfairly. That’s not to say I endorse the system, but if we’re working within it, that’s a good but imperfect way of increasing fair treatment.

      And yeah I don’t think that’s how collective bargaining in the US works, I’m just saying that it ought to be that way, but it isn’t.

      Marxists would assert that everyone who lives under capitalism lives an unfair life. Again, ymmv, but I find hat persuasive.

    12. Players are the value makers proper–the economic value over and above that (I.e. the value created from the ownership and league structure) is predicated on the extraction and exploitation of the players as workers. This is all standard Marx.

      I think that is incorrect. The value of creating a fan base, of getting a TV deal, of getting sponsors, of building a stadium… these are the only reasons the players are as valuable as they are. LeBron is not worth $20 million annually if he’s playing in front of 1,000 people, say.

      Players couldn’t create their own league because they don’t have the necessary capital (that is pretty much by definition–players are workers, not capitalists) so they’re essentially forced to play for the NBA and for private ownership.

      NBA players don’t have the necessary capital? In and of itself that may not be true. If they all got together, they might literally have enough money to create a league. However… that’s really besides the point. They have the ACCESS to capital, and that’s what’s important. Many owners don’t outright have the money to, say, build a stadium… so they borrow it (when it’s not publicly provided, by the all-knowing public you’d like to entrust with ownership).

      The players could create their own league. They don’t because it’s highly uncertain whether they’d be in a better position once they did that. They’d have to compete against the NBA while working to build up and monetize a league. Then they’d have to run the league. They’d rather just take home a huge paycheck than go through all that for an uncertain payoff.

      Likewise, “public” ownership might well reduce the overall pot to the point where the players would make less instead of more. The crowd might be smarter than some NBA owners, but probably dumber than the group.

    13. Overall, Alecto… There are ways to improve things realistically. I’d suggest exploring those before proposing a revolution to society that’s already come and failed miserably. When cities own teams, the same politicians paying for stadiums will be essentially running the teams.

      My notion of fairness involves proportionality in the sense that when there is an economic benefit (ex a rising cap) every class and group ought to derive a benefit, even if the benefits aren’t equal.

      My notion of fairness involves people benefiting from something they had nothing to do with being unfair. So does yours, apparently, because you think it’s unfair that owners get anything. The guy at the end of the bench who is barely hanging on to a spot in the league and creating no value beyond what 50 other guys in the D-League or at home on their couches would create being rewarded for his teammates doing better is, to me, much less fair than an owner being rewarded for building or investing in the infrastructure that allows those players to make even a fraction of what they do. (And locking that guy creating no value into a bigger contract may end up being even more unfair to the 20, 50 other guys who are just as good at basketball but can’t quite crack the league.)

      And yeah I don’t think that’s how collective bargaining in the US works, I’m just saying that it ought to be that way, but it isn’t.

      I’m saying I think that’s an unrealistic view. Someone has to invest in, build, and grow the league for it to make money. Whether that’s the current owners, players, cities… whoever. And whoever that is has to be compensated for that work. The fans create the economic value, not the players. Someone has to get the product to the fans.

      Marxists would assert that everyone who lives under capitalism lives an unfair life. Again, ymmv, but I find hat persuasive.

      I find your dogmatism very strange in the year 2015. I’ll leave it at that.

    14. @8 – I came here to post the same thing about Isola. He’s a douche and the poster-child for the ruthless NY press that chases players away from here. He, like the others like him, are to blame for the struggles of many NY teams. I truly believe that many free agents either leave the town or stay away to get away from the venom spewed by these types of writers. He wins the scumbucket-of-the-week award for this week with that headline and article.

    15. KJ McDaniels stays with Houston for 3/10.

      @BobbyMarks42 2h2 hours ago

      McDaniels had been searching for a team with room to land an offer sheet. No team would bite at a starting number north of 6m per.

    16. As someone who lives far from NY (but I read plenty of NY based sports stories), what is the reason for Isola? Personal vendetta? Jealous never-was? Just good old yellow journalism?

    17. As someone who lives far from NY (but I read plenty of NY based sports stories), what is the reason for Isola? Personal vendetta? Jealous never-was? Just good old yellow journalism?

      This Deadspin piece gets into most of the relevant details. The short version is that the Garden is run by awful people, and tries to exert a Kremlin circa 1981 level of control over the media.

    18. So any chance to add Seth Curry? Any other summer leaguers out there that could help? I heard Isiah Thomas say in an interview that most teams are just looking to possibly find a role player or two in the SL who could play 7 to 10 minutes off the bench.Is that the extent of the talent here?

    19. To recreate the NBA would probably take somewhere between 50-100 billion dollars of capital and at least a decade or two of development – assuming you could even get that kind of money (which you could not) . The replacement cost of many of the bigger franchises is probably well in excess of 1 billion dollars. That doesn’t count everything the NBA itself has invested. When you have that kind of capital invested, it needs to generate billions of dollars of free cash to justify its existence – just like any other large businesses. Even if we assume the accounting for NBA franchises understates their true profitability, I doubt it’s by enough to say that NBA franchises generate enough free cash to justify their lofty valuations. The assumption must be that many owners buy NBA franchises in part for the intangible benefits of owning a professional sports team and on the hope someone else will be stupid enough to pay an even bigger premium to the intrinsic value at a later date if they choose to sell. It’s kind of like the greater fool theory. The values are definitely growing, but the income streams do not justify the values. There’s no way in hell the players are underpaid because there’s no way in hell the NBA owners are generating the required 10%-15% return on capital no matter how understated the accounting is making things look. Some players may be underpaid relative to others, but that’s a different story.

    20. @22 – aslep, thanks for that link. I knew most of that but in pieces. It’s good to see it put together. The article, however, tries to put Isola in a good light, but I think he’s clearly bitter and wants them to fail. Some of what he writes seem intended to help them fail.

    21. @26 – I made the mistake in an earlier thread to call it a double elimination but really that second game was a “consolation” round. Only winners of the first round moved on. Apparently they wanted to give teams a minimum of 5 games so they added the consolation round.

    22. Ty Lawson to the Rockets!

      For? And how does he fit next to a guard who needs the ball in his hands as much as Harden does?

    23. stratomatic,

      I’m not sure how you came up with the $50-100 billion number. Whatever the number, if you had all the stars in the NBA in a new league… I think you’d be able to raise it (among the 30 or whatever franchises you’d presumably set up). I also think you’d start to get NBA assets at discounted prices as that league crumbled (especially arenas, which would presumably be your biggest expense and one of your biggest bottle necks to compete head-on with the NBA). I think it’s theoretically possible, but the risk you’d have to take on to do so is exactly why players are negotiating with the league and not starting their own league.

      An NBA franchise seems like a pretty safe investment so I doubt 15% annually would be the return for a comparable asset. When you consider the capital appreciation and the profits they’re making, I would be surprised if NBA owners are not in-line with or above the long-term S&P CAGR of 10% or so. (You can amortize or depreciate a lot of things to look like you’re losing money… including the purchase price and capital expenditures.) I’m sure that prestige plays a role in valuing NBA franchises, but I also think that there is a ton of money being made, the amount of money being made has only been going up, and there’s a very limited supply of teams with what seems like a fairly ample supply of would be owners.

    24. Sources: As part of deal for Ty Lawson, Houston will send Kostas, Pablo Prigioni, Joey Dorsey, Nick Johnson and a protected first to Denver.

      From Woj….

      Interesting deal….

    25. So two guys we traded away go in a deal for a guy we should have drafted in the first place. Somehow, everything in the NBA is a reminder of how badly we’ve sucked for so long.

    26. Good trade for both sides pending what the protections on that first rounder were. Pity Denver couldn’t deal Lawson before he became radioactive though.

    27. So two guys we traded away go in a deal for a guy we should have drafted in the first place. Somehow, everything in the NBA is a reminder of how badly we’ve sucked for so long.

      D’oh! I misread Kostas as Koufos, and I was all, “Huh? He’s not on Houston!”

    28. Damn, Houston actually got a 2017 second round pick in that deal? Morey is impressive.

    29. Per Bleacher Report

      Wojnarowski indicates that point guard Pablo Prigioni is part of the trade, but Denver intends to either trade or release him in the next 24 hours

      But I don’t think the Knicks want him. He’s more likely to be picked up by an experienced team that needs a backup point guard. Miami and the Clippers come to mind.

    30. I want Pablo back, and if we can’t find playing time for him I’d be happy to see him replacing Fisher.

      PS: Actually, I hope the Spurs pick him up.

    31. Ted,

      Informed businessmen do not consider potential “appreciation” in the valuation of an asset. They discount the projected cash flows of the business back to the present using an appropriate discount rate given the risks of that business relative to the alternatives. If you start building potential appreciation into your model of thinking , you are essentially playing the greater fool theory.

      To make this clear, I’ll give you an example.

      Ballmer paid around 2B for the Clippers.

      Why not pay 10 billion if the Clippers are going to appreciate 10%-15% a year?

      The reason is that if you think like that you wind up in a situation kind of like real estate investors in 2006 and 2007 (playing greater fool). Naive home purchasers were projecting that home prices would keep going up. They never actually looked at the true measure of the value of the homes they were purchasing – which was the income streams.

      Think of it like this. Appreciation is a “benefit” of a growing stream of earnings. it is not the valuation metric. The value is almost entirely a function of the stream of earnings and interest rates.

      If you ask me, NBA owners are overpaying for NBA franchises based on their cash flows these days. But this is a case where to a large extent I think they know it. They are willing to overpay for the privilege and intangible benefits of NBA ownership. They are also hoping there will be a steady stream of billionaires to follow that will be just as foolish. :-)

      All that said, I think the earnings streams are going to grow for a long time and I think owners that are overpaying now are likely to be able to sell for more later. There are a lot of greater fools in this world when it comes to owning a sports franchise. :-)

    32. stratomatic,

      I have an MBA from a top school and work as a strategy consultant. Please refrain from the ignorant condescension.

      We are not talking about modeling expected returns, we are talking about actual returns. Actual returns for an owner are going to include the appreciation in value of the asset they own. (Say you own stock in Company X. Company X stock is up 20% even though CFs are up 10%… your theoretical, undiscounted return at that moment is 20% plus any dividends you may have gotten along the way.)

      In terms of expected returns for a prospective owner… Appreciation in market value is generally going to be driven by appreciation in cash flows. You yourself are saying this… unless all NBA owners are “fools.” We don’t have information on NBA team’s cash flows. We do have information on their valuations from actual transactions. Therefore, it would probably make sense to assume that cash flows are increasing roughly in-line with valuations.

      So… how about actually discussing the issue instead of trying to talk down to me using basic business concepts?

    33. Ted,

      I was not being insulting. I was explaining a widespread misunderstanding in the media about business valuation that leads readers astray when it comes to NBA valuations. I had no way of knowing your educational background.

      But if you want throw around qualifications, I’d be more than happy to. I am a multi millionaire that made virtually his entire net worth investing in the stock market and have owned shares of Warren’s Buffet’s Berskshire Hathaway since 1987. So I know what I am talking about when it comes to valuing businesses.

      An owner’s return upon sale will include any capital appreciation plus the dividends he receives, but as I said, the valuation should in no way should include the prospect of capital appreciation. It is entirely a function of discounted cash flows that can be taken out of the business.

      It’s very unlikely that most NBA valuations are justified by those cash flows because the NBA has stated that many franchises are losing money. Even if we assume, as many contend, that the accounting is not reflecting economic reality (in other words Silver is FOS), it is extremely unlikely it is off by enough to justify valuations of well over 1 billion for some teams and in excess of 2 billion for the best. I can only conclude that owners are paying these premium prices because of the intangible benefits of sports ownership and hoping there are enough fools to follow that will feel the same. They may be right. That’s the generally accepted view anyway. They are paying up because these businesses are like their big boy toys.

      If all of that is true, then the players cannot be underpaid.

    34. Wish I wasn’t 5 in 1987 and could have bought some of the Berkshire Hathaway stock. Are you worried about what will happen when Buffet passes away?

    35. Wish I wasn’t 5 in 1987 and could have bought some of the Berkshire Hathaway stock. Are you worried about what will happen when Buffet passes away?

      I wish I bought a lot more of it. I was young and just starting out. Damn!

      I am not worried about any fluctuations in the stock price based on an announcement that he’s terminally ill, has passed away, or that he’s stepping down etc… The businesses are positioned well long term and the company should increase in value for quite awhile without Warren. I am concerned about the talents of the replacements and the faith prospective businesses sellers might have in the new management. Berkshire gets some attractive deals because of Warren. That’s like trying to replace babe Ruth. So at some point I’ll probably diversify a little more. Right now I see very few things I want to invest in and cash is also very unattractive at these interest rates. Tough environment.

    36. Strat,

      What I’m saying is that you assumed by background/knowledge without knowing it. (Hence the ignorance comment.) I don’t care what stocks you invested in 30 years ago and I don’t care where I went to school or what I do for a living… I am saying, let’s discuss the issues instead of pretending we know more than each other. You keep repeating the same points without addressing mine. In turn, I am repeating my same points that you have ignored in your responses. This isn’t much of a discussion.

      Again, we were not talking about valuing an NBA team. We were talking about the actual return realized by NBA owners. We don’t know what their cash flows are. We do know roughly the market value of a franchise. You are assuming that a lot of very successful people are really stupid, rather than assuming a bunch of people who have actually seen franchise financials know more than you about what they look like.

      Again, when you are depreciating the value of an arena or amortizing the purchase price of a franchise… it is extremely easy to report negative earnings. The value of an organization is based on its cash flows. Not on SEC or IRS reported earnings. (Silver can be telling the truth that NBA teams have negative earnings, and their cash flows can still be positive.)

      You are making pretty huge assumptions and taking a point about NBA ownership having a conspicuous consumption component to the extreme. That owning an NBA team may not be the best way to invest $1 billion doesn’t mean it’s a terrible way to invest it. It’s widely accepted that there’s a prestige component to franchise ownership. I don’t know that it’s accepted that you’re throwing your money away.

    37. NBA teams are also a different asset class than publicly traded equities, so there are going to be some differences in how you value them. DCF is not the only valuation methodology and in many asset classes it is supplemented by comparables analysis because market expectations are based on future rather than historical performance (and future CFs are highly speculative… a DCF is only as good as its assumptions).

      I think that the monopolistic aspects of the NBA probably reduce risk compared to an S&P 500 company. So, I don’t think a 10-15% return is really the benchmark (10% is about the long-term S&P annual average). I don’t know where the expected return is, but I think it’s probably below 10%.

      I don’t know if your contention that a prospective owner should disregard market comps is as applicable in the NBA as stock markets. There are only 30 teams now and probably not a ton more in the future, with one marketed for sale every so often. Capital appreciation is implicit in the DCF valuation you’re referring to because it is assumed to be driven by the value of future cash flows. Insofar as a demand for NBA franchises exists separately from a general demand for investment (investors see value beyond the CFs, be that a halo effect helping them make money in another business or intangible benefits)… the scarcity of supply is probably relevant. (This isn’t so much the US housing market as it is an exclusive, gated community. The person who ignores the difference between a house in that community and an average house is probably the fool.)

      I don’t know what NBA financials look like, but beyond cash flows vs. earnings Silver could also be pulling a bit of a slight of hand saying that franchises lose money based on how they recognize inflows and outflows from/to the league.

    38. Ted,

      The ONLY point I was trying to make initially was that owners have to generate an adequate return on their investments in order to justify them. By extension, to make a good case that the players are underpaid as some have suggested, IMO it would help if you could demonstrate that owners have been generating excess profits on their invested capital.

      That requires an explanation because not everyone here has an MBA in finance or has been investing for 30 year. Most people (including many journalists that cover the NBA) don’t understand that being very profitable is not the standard by which you measure business success. You measure it in great part by return on capital. I was also trying to explain why looking at rising prices as a justification for future investment (a many do) is a fool’s game.

      IMO, given the valuations of NBA franchises (an average of about 1 billion now with 11 of them in excess of 1 billion), NBA teams are going to have to generate a significant amount of free cash flow in coming years to justify these prices. We don’t know exactly what each is generating, but there is enough public information to get a feel for what the valuations look like relative to revenue and earnings. This is from earlier in the year.

      http://www.forbes.com/sites/kurtbadenhausen/2015/01/21/average-nba-team-worth-record-1-1-billion-2/

    39. Part 2

      My contention is that despite favorable prospects valuations look very high. I think the generally accepted view is that some rich people are willing to overpay relative to the underlying economics to have the intangible benefits of sports ownership and trophy status. I have no reason to dispute that. I wouldn’t do it. Warren Buffett would probably laugh at the idea. But some rich people are willing to do it.

      In conclusion, I see no evidence whatsoever that owners are generating huge returns on invested capital. If anything, even with the fudgy accounting and tax benefits, the returns are probably mediocre. So it’s hard to claim that players are underpaid. What I think we do have is a situation where some players (the very elite and some recent draft picks) are underpaid relative to other players. That’s different than saying the players are underpaid or criticizing the owners for their profits.

    40. to make a good case that the players are underpaid as some have suggested, IMO it would help if you could demonstrate that owners have been generating excess profits on their invested capital

      Agreed. Don’t think you’ve shown that’s not the case.

      the generally accepted view is that some rich people are willing to overpay relative to the underlying economics to have the intangible benefits of sports ownership

      I think that the view is this has something to do with it, but I don’t know if the general public is aware how much. And the degree to which it’s true is what matters. (The article you’ve linked to, for example, points out a number of improvements to cash flows.)

      The premium is also not just about intangible fun for rich guys. Owners may do much better in their primary businesses because of the notoriety of owning an NBA team. And it’s an asset class with monopolistic features, huge growth and limited opportunities to buy in.

      In conclusion, I see no evidence whatsoever that owners are generating huge returns… even with the fudgy accounting and tax benefits, the returns are probably mediocre.

      What evidence do you see period? Forbes estimates? How have you quantified the value of tax shields they’re using?

      it’s hard to claim that players are underpaid. What I think we do have is a situation where some players are underpaid relative… That’s different than saying the players are underpaid or criticizing the owners for their profits.

      I don’t think you’ve really shown this. You have used an expected return that seems completely out of line with the asset class you’re talking about, then used made up numbers for the actual return ignoring some other features of this asset class, and

      Along the way, when some of these things have been pointed out to you, you have not even bothered to address them let alone incorporate them in your opinion

    41. One issue that I have with your position is that I think you’re missing a lot of the details of this asset class. You seem to be holding investing in an NBA team up to this “would Warren Buffet invest in it” criteria. Buffet is an amazing investor, but he’s also one specific investor with one particular investing philosophy. I’m on board with saying “if Buffet invests in it, chances are it’s a good investment.” I’m not sure that the opposite is true, though. Buffet’s framework for evaluating the success of an investment is not necessarily shared by everyone. This goes beyond whether people are trying to maximize the financial return. Different investors are attracted to different asset classes based on a number of factors including risk tolerance, their own expertise, how actively involved they want to be in managing their assets, etc. Buffet has his philosophy (and with such a large portfolio there are probably multiple strategies going on at once, of course). There are other people making a lot of money doing things that Buffet might not find particularly attractive, though. Almost by definition not everyone can have the same investment philosophy… people would probably have no return since they’re all buying the same things and there would be huge opportunities not getting investment.

      The pro team sports in the US is a monopolistic market. Part of my argument is that we don’t really know what teams’ cash flows are, but part of it is also that an investor with a lower risk tolerance might prefer the nice, steady income from owning a little monopoly over the potentially greater return of owning equity in a company that is more likely to have its entire industry disrupted in, say, 5 years. (Dolan, for example, is probably broke if he doesn’t own a bunch of monopolies.) Investors who think they are particularly well suited to add value to an NBA franchise or to benefit another business (Cuban, say) may also see value Buffet would never capture.

    42. Ted,

      There’s a reason you get a lot of grief on this forum. You turn posts that should require 10 minutes of a person’s time into a major time commitment that people don’t have.

      I could respond to everything you said, but I’m not here to debate the business valuation process with you for the next 6 months. I already know how to make money doing that. There is no perfect answer to some of these questions. Business valuation is in some way subjective and personal. For example, you may think 10% is an OK return because it would be similar to the S&P 500 and sports franchises are not high risk. I would want a lot more because I could build a relatively riskless passive portfolio that would generate 10% long term fairly easily. If I was mega rich and owned a sports franchise, part of my life would be dominated by running it properly. So I’d want more to justify the extra work and stress of being active.

      Some of the valuation items you mentioned are significant to some people, but Warren Buffett would laugh at them and so would I.

      Some are significant to overall business and justify why some people are willing to pay up, but are not relevant to the actual value of the basketball business.

      There was quite a bit of public disclosure on what some of these franchises have been earning along with estimates of the tax benefits and a discussion of the tax issues during the last CBA negotiation. If you want exact numbers, we aren’t
      going to get them. But it’s pretty clear owners are paying lofty valuations and players are not getting shafted given owner cash returns.

    43. No. I did not ask you to take 6 months. I asked you to acknowledge that I was even making any points at all, instead of repeating yourself 12 times. The reason you wasted your (and my) time is that you kept saying the same thing in different ways rather than having a conversation. I get your points. I have gotten them all along. You can stop repeating them at any point.

      I get a lot of grief because some people on here are very stubborn and prefer to tell people what they think than to have discussions. You ask them to explain the nuances of what they’re saying, they can’t, and then they lash out at you for questioning them.

      You keep saying things about what owners cash flows look like without providing an ounce of evidence. Warren Buffet would laugh at that. You are also ignoring some of the things I’ve said, then trying to regurgitate them back to me. It’s maddening. I tell you X four times, then two hours later you turn around and say “well, you know X is the case.” Yeah, no shit. The value of actual discussion is that different people bring different information to the table. You might benefit from internalizing what other people are bringing to the table.

      There was quite a bit of public disclosure on what some of these franchises have been earning along with estimates of the tax benefits and a discussion of the tax issues during the last CBA negotiation. If you want exact numbers, we aren’t
      going to get them.

      I’ve told you several times that reported earnings for tax purposes are not the same thing as cash flows. I’ve given you specific examples of tax shields any business can use, and speculated about specific ways the NBA might manipulate earnings to make things look worse at the franchise level. This is one of those things you’ve chosen to ignore rather than address.

    44. Ted,

      You are doing the same thing to me that you do to everyone else. You are difficult to have any kind of conversation with. When people post, you dissect every sentence looking for something to disagree with or you demand detailed data backing every one their views. What you are failing to understand is that people don’t have time to collect and rehash everything that went into their knowledge and opinions. Knowing how you are, some people are probably purposely trying to avoid conversation with you.

      I’ve told you several times that reported earnings for tax purposes are not the same thing as cash flows.

      It should be obvious from the conversation I understand this. I did address it in a generic sense.

      Even though write-offs like depreciation are not cash charges, they are generally represent real economic costs. Analysts like to use EBITDA to put businesses on equal footing for comparison purposes, but the “D” is almost always a real cost.

      I saw an analysis of the impact of the tax benefits during the last CBA fight. I don’t have that document and I’m not going to pour over public documents to try to quantify this stuff for you. It wasn’t significant enough to change my conclusion on the business returns. I wouldn’t use that as a significant valuation criteria anyway. I would consider those tax breaks as justifying some owners paying a premium, but not part of my personal valuation process.

      Synergies are similar. If some owners find synergies between their basketball operations and other businesses, I would consider that as justifying them paying a premium, but I would not consider that part of my own valuation process. I value businesses as stand alone entities. If a businesses I own can find synergies, I’m as happy as pig in crap, but I personally won’t pay for them.

    45. The Forbes article gave some operating earnings numbers (before interest, taxes, depreciation, amortization etc… ) along with their estimates of the values, some transaction prices, and projections going forward with the new media deals.

      The values of these businesses justifiably rose after the new CBA and again when the new TV deals were signed, but the multiples still look too aggressive for me to imagine that the owners are getting high returns even though we can’t account for every quirk in the accounting.

      Beyond that, I have to end this. I have real work to do.

    46. I just thought I one thing I can add without pouring over data. The NBA has a monopoly position in men’s professional basketball in the US. That gives it an advantage, but in some ways it’s not really a monopoly. The NBA is also part of the sports entertainment business. On some level it competes with football, baseball, hockey, soccer, boxing, MMA and other major sports for viewership, attendance, sales etc…. There is some precedent for some sports slowly losing their appeal relative to others. I don’t see that as a big risk. Basketball is growing in popularity. But I do see a lot of people write articles about the sport that I think misunderstand the nature of the business. NBA teams compete for players and wins, but they do not compete with each other economically the way Coke and Pepsi do for example. They are all in this together competing for entertainment dollars against other entertainment and leisure businesses.

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