Public Relations War Begins During NBA Lockout

The NBA officially locked out its players at midnight on Thursday, June 30, a move that has threatened the entire 2011-2012 season. The unofficial public relations war began at 10:45 am, Tuesday, July 5.

Yesterday, Nate Silver of the New York Times questioned the NBA’s claim of financial distress. (The NBA’s rebuttal is at the end of my summary of Silver’s piece).

The NBA claims that 22 out of the 30 NBA teams are operating in the red. Silver pointed to independent estimates from Forbes that show a more financially stable and most importantly, healthy business in which the NBA has grown at a “tepid rate” since 1989-90 compared to other sports. Forbes estimated that 17 out of 30 teams lost money last season, but the major market teams (Knicks, Bulls, Lakers) profited close to $150 million combined and made up for most of those losses. Silver suggests this information lends itself to increased revenue sharing like the MLB.

Below is the NBA Financial Performance from 1989-2010, adjusted for inflation. The chart was cited in Silver’s article from Forbes and Financial World.

The Forbes data suggests that the NBA’s ticket revenues are down 6.1% compared to five years ago. Players salaries have increased 5.4% from five years ago, but according to Silver, salaries have followed a similar trajectory to league revenues. Player salaries are strictly tied to league revenue. This is the crux of the labor dispute. As of right now, the players are receiving approximately 57% of league revenues. The league wants that number reduced to 45% or even as low as 40%. But Silver points out that the portion of revenues earned by NBA players are similar to other major sports leagues.
The data indicates growth in non-player expenses has outpaced that of salaries — 13% over five years. Silver explains this by pointing out digital media ventures and overseas investments. Still, these investments have had a major impact on the NBAs bottom line, according to Silver.
The Forbes numbers suggest that the league made approximately $183 million last season, despite player salaries and large operating expenses. The league cites their own numbers which claim a $340 million loss. Silver called into question the league’s claims, citing “unusual accounting treatments” and suggested that roughly $250 million were “paper losses that would have no impact on a team’s cash flow.”
Silver also cited the sale prices of NBA teams including the Golden State Warriors ($450 million), Detroit Pistons ($420 million) and Washington Wizards (551 million), as signs that the market for NBA franchises is healthy and above Forbes estimations of their respective worth. Silver also suggested that the Forbes estimated worth of the New Orleans Hornets matched their own financials, proving Forbes’ accuracy.
Still, the NFL made more than a billion last season and the MLB made $500 million. Silver suggested that the NBA is more comparable to the NHL. In the NHL, player salaries makes up 54% of league revenues. So why do NBA owners want to cut player salaries to 45%? Well, according to Silver, owners think they can. Cutting salaries would save owners approximately $500 million per year. This is the issue. Owners have the luxury of knowing they can wait an entire year for the players to blink, get what they want and make up the losses in three years, like the NHL.
Today, the NBA countered with statistics of their own. Their rebuttal is below and in its entirety via RealGM.
The information from Forbes that serves as the basis for this article is 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.
Precisely to avoid this issue, the NBA and its teams shared their complete league and team audited financials as well as our state and Federal tax returns with the Players Union. Those financials demonstrate the substantial and indisputable losses the league has incurred over the past several years.
The analysis that was posted this afternoon has several significant factual inaccuracies, including:
“(The NBA) is a fundamentally healthy and profitable business” 
• 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.
“Many of the purported losses result from an unusual accounting treatment related to depreciation and amortization when a team is sold.” 

• We use the conventional and generally accepted accounting (GAAP) approach and include in our financial reporting the depreciation of the capital expenditures made in the normal course of business by the teams as they are a substantial and necessary cost of doing business.

We do not include purchase price amortization from when a team is sold or under any circumstances in any of our reported losses. Put simply, none of the league losses are related to team purchase or sale accounting.
“Another trick…moving income from the team’s balance sheet to that of a related business like a cable network…” 

• All revenues included in Basketball Related Income (“BRI”) and reported in our financial statements have been audited by an accounting firm jointly engaged by the players’ union and the league. They include basketball revenues reported on related entities’ books.

“Ticket revenues… are up 22% compared to 1999-2000 season”

Ticket revenues have increased 12% over the 10 year period, not the 22% reported.
“17 teams lost money according to Forbes … Most of these losses were small…”

 Forbes‘ claim is inaccurate. 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.
“The profits made by the Knicks, Bulls and Lakers alone would be enough to cover the losses of all 17 unprofitable teams.” 

• The Knicks, Bulls and Lakers combined net income for 2009-10 does not cover the losses of the 23 unprofitable teams. Our net loss for that year, including the gains from the seven profitable teams, was -$340 million.

Forbes‘s estimates — a $183 million profit for the NBA in 2009-10, and those issued by the league, which claim a $370M loss…” 

• Forbes‘s data is inaccurate. Our losses for 2009-10 were -$340 million, not -$370 million as the article states.

“The leaked financial statements for one team, the New Orleans Hornets, closely matched the Forbes data…” 

• This is not an accurate statement as operating income in the latest Forbes data (2009-10) is $5M greater than what is reported in the Hornets audited financials.

UPDATE: Via Boston Globe: Union spokesman Dan Wasserman said the NBA projected a decline in revenues during the 09-10 season but they actually rose, so the final losses should have been much less than the league said. “So yes, we feel there is more than adequate basis for questioning their projections and financials,” Wasserman said Wednesday.

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