Archive for February 2009

Baller Bailout?

February 20, 2009

 Reported on Monday by Sports Business Journal, the NBA will borrow $175 million on Feb 26th.  According to an NBA source:

The money, which will be available to 15 teams, supplements an existing $1.7 billion league-wide credit facility that uses the NBA’s media contracts as collateral to secure loans for the clubs. The NBA surveyed its teams, and 15 responded they would like to tap into the new borrowing.

So who are the 15? Orlando‘s COO confirmed they asked for the line of credit in the article so that leaves us with 14 teams. Allow us to make a few educated guesses. We’ll consider the outward state of the franchise, attendance, locale and whether or not they are the New York Knicks.

Phoenix– It’s uncanny how the city of Phoenix and the Suns mirror each other. Expansion has been the key. Phoenix is the 5th largest US city largely because of its real estate growth with rising housing prices encouraging a sustained state of home-building, an industry feeding itself. Of course, Phoenix is now prepped for a second consecutive year of negative job growth and Maricopa county rapidly approaching 30,000 foreclosed homes, something tells me there isn’t much money to throw around on a Tuesday night game against the Kings.

The beauty of the D’Antoni-era Suns was the way they found undervalued players who worked for the system and excelled. Now they’re staring down the barrel of over $75 million in guaranteed contracts next season, nearly 50% of which is devoted to Shaq, Nash, Amareand J-Rich. Combine with withsigns that Steve Kerr is working witha mandate to cut salary and there is no reason to think Phoenix wouldn’t jump at the chance to access funding to help them cover operating costs sure to be impacted with what may be the lowest percentage of season-ticket renewed in the league next year.

Sacramento– The Kings were active at the deadline this year, seeming to be the weigh-station for most of the league’s action. With the California housing market depressed only slightly less than that of Phoenix, a rapidly rising unemployment rate and significant wage reduction in nearly all major industries, the Kings ranking of worst home attendance seems to make a bit more sense than our previous theory of a citywide rebuff of Quincy Douby. The Kings are set to shed about $16 million in cap space this year but they have a new arena in the works and are likely looking for something to keep that project viable more than anything else. They make the list.\

New Jersey– Just like Sacramento, the Nets are looking for some of that bridge money to carry them to their new arena. Devin Harris is an emerging star who looks like he may have been had for a more than reasonable contract extension and Vince is still waiting for that drop-off but, other than Stromile Swift’s expiring contract, they are committed to the same  group of marginal players next season. While they may make the playoffs this year, their attendance numbers are some of the worst in the league and the damage to the financial services sector has made it difficult to expect disposable income steered towards the Izod Center, particularly with their notably high ticket prices. If Ne Jersey has its sights set on the summer of 2010 and moving into a new arena, few franchises would be in more need of the credit line than the Nets.

Memphis– At the beginning of the year, it looked like Memphis might actually follow the path of the Mid-Atlantic cities and come out of the current meltdown stronger than before. Housing prices have remained relatively unchanged compared to the rest of the country but their growth was powered by three major industries: finance, real estate and a burgeoning auto-assembly industry. So… How do you think that’s working out? Memphis just traded away their best point guard for a draft pick, they’re only higher in attendance than the previously-mentioned Kings and their highest paid player is Antoine “Big Shimmy” Walker. List ’em, Danno.

New Orleans– The unutold story of New Orleans is the other side of housing. While housing prices in New Orleans actually slightly rose in 2008, Chris Paul’s work in those NBA Cares commercials seems to be the only home-building in the Big Easy, the rise in price attributable to the decreased supply. The increased cost of a home has then slowed the already-glacial migration back to New Orleans following Katrina. The Tyson Chandler attempted trade was just another symptom.

Detroit– So goes Detroit, so goes the streak. February 4th saw the end of what was 259 consecutive reagular and post-season sell-outs for the Pistons. NBA.com recently publishedan article on the tough times ahead for Detroit basketball and things look grim; the 0-16 Lions are actually taking in more cash than the Pistons. Yes, the Pistons have over $36 million coming off the books next year with the expiring contracts of A.I., Sheed, McDyess and Walter Hermann and you have to applaud Dumars for being ahead of the curve, making his salary dump trade early in the season while GMslike Steve Kerr and Kiki Vanderweghe waited too long and were left holding the bag when the best that could be expected, let’s be honest to ourselves here, was a low playoff seed and a first-round exit. The Pistons are in full-scale rebuilding mode and with the 27th pick plus three second-rounders in the 2009 draft, it’s unlikely that those cap savings will be anything more than a cushion against what could be a crippling few years.

Washington– This seems counter-intuative. The D.C.-Metro area is one of the new urban centers in the country actually projecting growth over the next year, showing unemployment rates at percentage points below the national average. But unlike other regions holding steady (Houston, Dallas…), much of D.C.’s growth can be attributed to spending by the federal government- not the sort of dough that gets spent on corporate skyboxes. There will still be law firms, accounting firms and lobbiestswho will re-up those season deals but the future doesn’t look as bright as other regions that don’t demand a level of transparency. Combine this with a committmentof over $75 million next year, $16 million dedicated to Mr. Glass, a high draft pick with guaranteed money and attendance in the bottom third of the league and, unless an off-season trade brings them the relief they’ll need, the Wizards are in for a rough 09-10.

Miami– Not every franchise looking to borrow has the outward signs of fullscale economic meltdown. While Miami’s housing market was hammered over the past six months, many of the property owners were investors, not Miami residents. Further, Miami’s real estate market tends to be high-end so even a drop in value may not preclude Miamiansfrom making it to the American Airlines Arena. Oh, and the Heat just took on around $34 million worth of Jermaine O’Nealover this year and next, not the sign of a franchise underwater. So why does Miami make the list? They want a bridge. With their sights set on the summer of 2010, having the flexibility of some league bread over the next year allows them to float along next year or, if Riles is feeling punchy, make that much-rumored run at Carlos Boozer this off-season.

Los Angeles Clippers– The curse, dear Baron, is not in our stars but in ourselves that we are Clippers. Los Angeles is in a similar situation as Miami. L.A. home values are depressed by more than 30% compared to last year but the difference between this depression and that of Miami is that these homes tend to be primary residences, not vacation homes. Foreclosures have yet to peak and the city faces double-digit employment in the very near future. Were the Clippers the only show in town, the slowdown might be tolerable but the Lakerseat up much of the available basketball revenue, averaging about 3,500 more tickets sold per game, with the highest average price in the league, the Lakers take in about $112,000 per game in ticket sales alone- that’s approximately one Steve Novak per every seven games. The Clippers also have some of the most significant contract commitments over the next two seasons ($30 million for Baron and Z-Bo alone in 10/11) and little hope of making the playoffs, there’s every reason to believe LAC would like to work with a safety net for a while.

Indiana– The Pacers looked primed for a playoff run this year. They have an emerging star in Danny Granger, serviceable bigs and a system that seems to play to the strengthsof the team. 56 games into the season, Granger is taking a few weeks off, Dunleavy is done for the season and the Pacers are on pace for a truly disappointing season. Home prices have remained comparatively stable in the region but wage shrinkage has limited household disposable income, not a great sign for a franchise that ranked in the bottom three in attendance for the past three seasons. Indiana’s manufacturing sector might benefit from President Obama’s “Buy American” provisions but it won’t be enough to grant comfort to a franchise who will likely have to work to avoid the luxury tax next season.

Golden State– There are no better fans in the league than those packing Oracle Arena every game. You can’t doubt their passion but we might have to start questioning their wallet. The Oakland/ San Fran housing market was torpedoed in Q4 ’08, job growth has slowed and unemployment is ballooning. Low ticket prices could keep attendance in the top third of the league but season ticket renewals are suspected to be down and corporate sponsorship has declined. Along with all this, Chris Mullin likely won’t be able to push the franchise under the cap this year unless Jamal Crawford opts out. Unless Monta Ellis has an obscene year in 09/10 and Mullin is able to sign a clever one-year deal (Rasheed Wallace or Lamar Odom, perhaps?), it will likely be back to the lottery for The City both this year and next.

Charlotte– This is a strange situation. Wall Street South was hurt badly by the purchase of Wachovia by Wells Fargo and Bank of America’s stock devaluation, as many BofA workers counted the high value of compensatory stock as their primary source of wealth. That said, there are some silver linings. Bank of America is aggressive in acquiring devalued assets which they hope to turn around and other finance firms are looking to move operations to the city and take advantage of a highly-skilled but currently displaced workforce. It would be nice to say this is partly the reason the Bobcats stockpiled overpriced vets during the season but the disappointing answer is likely that these are “Larry Brown Guys” and that’s the essence of the team’s current strategy. If you’re going to go that route and have attendance numbers that hover among the worst in the association, an infusion of cash to help address the red of basic operating costs should be the way to go.

Minnesota– This team wouldn’t have been listed prior to the McHale Surge. They’ve got a low cap number, a fair amount of cheap talent and desirable expiring contracts next year in Mike Miller and Brian Cardinal, prime targets for teams looking forward to, say it with me, the summer of 2010. So why are the T’Wolves on the list? Look for them to be active this offseason. With McHale now on the bench and young players like Kevin Love and Rodney Carney contributing, GM McHale might look to give Coach McHale a hand by throwing some money around and bringing in a vet or two. But if you build it, it doesn’t mean they’ll come. Despite a robust package heading their way from Obama’s stimulus package, unemployment is rising and it will take more than building a highway to get fans to the arena on nights when the Celtics aren’t in town. If McHale can time this right, he could have a rising franchise just has his city  is feeling a real economic boost. And if he doesn’t? Well, we’re going to need a bigger bailout.

New York– Really? The Knicks? The New York Knicks? New York should be raking it in. They have the second-highest average ticket price in the league and consistently rank in the top third in attendance. They play in the world’s most famous arena and sell more merchandise than few NBA teams. Sure, the New York economy has been hit as bad as anyone but the Knickerbockers are no Broadway show. That’s not the point though. Like a pampered prep school graduate, the Knicks are looking at a gap year. The world knows the Knicks are looking for two or maybe even three max contracts in two summers and have done everything they can to position themselves. That means taking on a lot of junk this year. The Knicks aren’t in trouble but it’s easy to see them looking for some extra capital to shore things up this year and next before they sign LeBron, Wade, Amare, Bosh, Yao and Darko. What, you didn’t know Darko’s contract was up after next season? Get with the program.

 

UPDATE:  Today is the day!