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Rex Tillerson. Jeffrey Immelt. Alan Mulally. W. James McNerny. James Skinner.
Mark Cuban. Jerry Buss. Jerry Jones. Robert Kraft. Hal Steinbrenner.
I’m guessing that, unless you’re a total business geek, you at most know only one or two of the names in the first group. But you probably know all of the names in the second group, and even non-sports fans (who at least are minimally aware of current events and have a pulse) know three or four of them.
Nonetheless, those 10 men have something in common. They’re all filthy rich. The big difference that separates the famous rich guys from the non-famous rich guys is that the famous ones own sports teams. The non-famous ones are chairmen and/or CEOs of some of the world’s biggest companies (in order, Exxon Mobil, GE, Ford, Boeing, McDonalds), each of which is worth more than every NBA franchise put together.
It would be silly to deny that ego isn’t one of the biggest reasons, if not the biggest, a rich guy would buy a sports team. If you’re not satisfied with having a personal net worth of around the same size as a small island nation, then you can enhance your public profile and get famous by buying a sports team. Even if you’re just a super-rich sports fan, you know you’re going to become more famous if you buy a team, so you don’t buy one if you’re not cool with having a higher profile. Maybe you won’t be Mark Cuban famous … but, well, most Thunder fans (and all DT readers, for sure) know what Clay Bennett looks like, right? What about the major shareholder in Love’s, a major corporation that also calls Oklahoma City home? Can you name him or identify him if he was pumping gas next to you at Love’s?
Malcom Gladwell’s excellent column for Grantland discusses the growing assumption that sports teams should be run like for-profit businesses, while in past decades they were run as if they were either expensive toys or, if the owner was a little less egotistic and a little more community-oriented, practically a public trust. Gladwell illustrates the point with the legendary (and legendarily racist) former Boston Red Sox owner Tom Yawkey. Yawkey didn’t care about losing money and losing games without an integrated team because the Red Sox were a luxury purchase to him, and he did as he saw fit without regard for maximizing profit. But the NBA’s lockout is primarily driven by the owners’ desire to ensure they get the maximum profit Yawkey eschewed.
This is something I’ve long thought about, and I was glad to see a writer as astute as Gladwell bring it up in a widely read forum. Wouldn’t we as fans and sports consumers be better off if sports owners treated their franchise more like trophy wives and less like the business that got them rich in the first place? Trophy wives are expensive to maintain, and in financial terms are money-losing investments. But they, uh, bring a lot of enjoyment in a few select arenas in life, make you look good in public and are fun to show off. A business is something you run with the sole purpose of making money. That’s not fun, that’s a livelihood.
Sports owners should stop kidding themselves. None of them are paying their mortgages with their team. Their children won’t be coming home to an empty fridge if the team makes only a modest profit or outright loses money. It is, or should be at least, more like the gambling portion of a Las Vegas trip’s budget. It’s the money you can afford to lose, and if it turns out differently, that’s just icing on the cake. The money for food, lodging and transportation comes from somewhere else.
Sports owners were only able to buy a hugely expensive team because they’ve got more money than is possible to spend in a lifetime. And if their livelihood depends on that sports team making money, or if they can’t make debt payments on the loans they use to buy the tam, they shouldn’t be wasting the money on that franchise in the first place and the league should deny the sale. I think we can all agree on this.
If I ever make the kind of money where I can afford a second car of my own (which would likely require going back in time and changing my major in college), I want to buy a badass sports car. Maybe a Porsche, or an Aston Martin if we’re talking truly big bucks. But that wouldn’t be my only car. I’d have my daily driver for trips to the grocery store, but I’d spend time staring at my second, more awesome car as it sat in the garage but nonetheless looking like it was going at 120 mph. I’d enjoy the stares at stoplights, the meaner-than-hell sound coming from the engine, laying strips of rubber in abandoned parking lots and generally calling attention to myself. Why not? But the dude whose only car is a Corvette is the one you need to worry about. It’s not at all practical, it’s a sign he’s trying a little too hard to be the center of attention and he’s going to call you for a ride to work if it snows.
And if I ever get Mark Cuban rich (which is not going to happen no matter how far back in time I go), I’m going to buy a sports team and probably be exactly like Cuban, whom I’ve always admired. He’s who I would imagine myself being like if I had his kind of money. I’d buy the team but sit in the front row instead of a box. I’d yell the refs and bring a checkbook with me to the game so I could drop off my fine money in the mailbox on my way home. I’d buy the six-figure bottle of champagne after I won the championship just because that’s a badass thing to do. But I would also only buy that team if I had no problem losing money. I’d have other ways to make sure I was able to make my private jet payments and pay off politicians to keep my tax loopholes open.
The only way to make this kind of owner more common is to change the culture of the sports leagues, specifically of course in this case the NBA. Let’s just have David Stern and everyone below him stop pretending that the NBA is a regular business. It’s not. It’s a sports league, and the team owners are incredibly wealthy guys who want to put their money to work on making them famous and feel like badasses. If a team is for sale, make sure that every owner knows that unless he’s buying a mega-market team, he’ll probably lose money more often than not, and he needs to be OK with that. If someone isn’t OK with it, then they shouldn’t buy the team. It’s that simple.
Is that realistic? Why shouldn’t it be? The biggest difference between sports today and sports of several decades ago is the exponentially larger pool of money that’s in play. But just because a team’s gross income has expanded beyond what once seemed possible doesn’t mean the team now must to operate at a profit. The net profit can still be slim or nonexistent, and the owner still has a scorching hot trophy wife (the team … and probably his actual wife) with all of the accompanying benefits.
The sports world doesn’t need more profitable teams. The sports world needs more deep-pocketed, ego-centric owners who care more about being high-profile playboys than making yet another dollar they’ll never be able to spend.
First of all I doubt the owners buy teams just to become famous and inflate their ego or could care less if they lose $. It's their money, and if they want to spend it on a sports team to make a profit, more power to em!
They should be ok with losing money???? Easy to say when it's not your money!
Telling other people what to do with their money? Not a good idea. It's easy to be generous with OTHER peoples money.(especially, if they have more than I do)
Many fair points in here. But the economic realities are that the rich guys who buy teams are ok with losing money when they are making that amount x 10 in outside businesses. Sure- its easy to use a rational actor model that would suggest they could sever the NBA franchise and make more money, but a combination of psychic and economic benefits are what drives individuals, in other words : psychic benefits can only outweigh economic benefits when economic benefits exceed economic losses.
@ jfunk5710
Let't not get confused about depreciation, depreciation represents the recovery of a cost amortized over the period of an asset that lasts for a significant amount of time. Not including depreciation would be like spending 100 million upfront and never being allowed to consider that as a cost of doing business. The players call BS because of a short sighted look at actual cash losses- look more long term and including depreciation makes perfect sense. I'm not taking sides- but general accounting and business principles suggest that actual cash losses in a given year are not the whole story.
you know, this piece is what ive been thinking for a while. I knew it was like 300 million straight cash loss. Of course you will lose money when investing in a team. NOT EVERY TEAM can go on to be cash cows from the get go. And what guy is seriously like...ok..last 400million dollars here, gotta invest it into a team that hasnt won in 14 years, if this doesnt work, my house is gone, the wife will leave me ect... lol.
If your able and willing to purchase a sports franchise the money they make shouldnt be your bread and butter so to speak :P .
all i know is from a fan perspective, if they postpone the season cause of this squabble then the popularity will decrease majorly and THEN we can talk losing money. the nba was at all time high in popularity last year because of exciting teams like the thunder and what not.
This piece strikes me as exactly right. It is well known that many of these pro sports teams lose money, sometimes the best teams lose money, and yet there's seldom serious difficulty finding a potential owner when a franchise sells. They knew this wasn't exactly a profitable business and they still willingly got into it.
@doof, yeah it is big market vs small market, or more rich owner, like cuban, who isnt really big market but acts like it and small owner like jordan.
If the team was run without regard to a profit motive as if they didn't care if they lost money then they could not deduct the loss on their taxes. Hobby losses are only deductible against hobby income. So at the very least the owners have to pretend that they care about profits.
Also the owners tend to be people who through intelligence and business savvy have made an immense fortune or at the very least have managed to not lose what they were given by mom and dad (with the exception of the Maloofs). The players tend to be a group of people who through extreme athleticism and skill make million dollar paychecks, then live paycheck to paycheck and often go broke when their athleticism finally fails them. So I find it amazing that everybody tends to think that the owners are morons compared to the financial wizards that are the players. Depreciation is a deduction because it represents a cost. If you are going to take out the deduction of $10 million a year for depreciation then you must think it is totally reasonable for a team to write off a $600 million dollar loss the year they buy the arena, you know when the cash actually leaves the door. (I use arena because it was used earlier, I know very few teams actually own the arena, regardless of what the asset is, if an asset is purchased it must be written off eventually.) I think instead I will go ahead and laugh when I listen to players try and breakdown financial statements discrepancies.
I really wish the lockout would just end so the players could get back to bouncing rubber against the floor and the commentators could get back to admiring how pretty rubber bouncing against the floor is.
i know they have to keep a united front in regards to the press, but i wonder how much infighting there is among the owners. it seems more and more the actual issue is big market vs small market, not owners vs players... but i don't see much coverage from that perspective.
yeah, which is why it would be nice to see the real cash number, it probably isnt that much per team
Just for clarity, the NBA is really losing $300M (or whatever the number they say they are losing is)but that is not a cash loss.
They are allowed to deduct Depreciation of assets which is not a real cash loss. For example if their stadium depreciates by $10M a year, they count that as a loss, even thought they didn't actually lose $10M.
That's why the players called BS.
There are owners or former owners, like george shinn who needed to make money, they simply didnt really have the money to afford a team and take a loss each year, the thunder ownership can afford to lose money and write it off on their taxes. I don't think the teams should be expected to lose money, but they should be allowed to if they want, no hard cap.
The problem is they have a system that tries to be capitalist and socialist at the same time, a pure capitalist league would have no caps and a pure socialist league would have all revenue shared.
The other fact is the value of the teams expands at such a rate even if they lose money each year when they sell they still make a net profit.
We really don't know how much the teams are each losing, the nba says 300 million combined over 23 teams, which is probably overstated but that could be each team losing 13 million or it could be 4 teams losing 50 million and 19 teams losing 5 million. If there are extreme outliers they should try and sell those teams to owners who can afford the loss or contract the league. However if it mostly even across all the teams the big market teams just need to do some revenue sharing and make up the losses for the smaller markets.
Player salaries are too high and need to be cut and that will take a lot of teams out of the losing money column.
Remember when Aubrey McClendon was fined $500,000 for saying he would be pleased if the team could so much as break even in Oklahoma City? The fine was mostly because it suggested they had already decided to move the team out of Seattle, but I imagine it pissed Stern off even more because it proved Gladwell's thesis statement before Malcolm wrote it.
Yeah it is a vanity purchase but $350M is a lot of money, even for people with a lot of money. I don't think it is unreasonable for them to be somewhere between break-even and a 10% annual return (depending on how ambitious the owners are/how strong their market is).
That said, an owner could lose money every year and if the league continues to gain in popularity (read market-cap) they could still sell the team to the next guy for a hefty profit.
Just a couple of things to think about.