Ripe for Financial Trouble, NBA and Other Leagues Must Step In

One year ago, Utah was the team ready to take the next step in the NBA Western Conference after a deep playoff run. Now, it will likely lose arguably its best player in Carlos Boozer, have ticket sales trending down almost 10%, and need a bank loan to prevent losing a second starter. To say fortunes have changed is an under statement. You can point to the economy, the free agent landscape, the impact of a disappointing season – or all of the above.

The most troubling piece is the need to take a loan to fund a matching 4-year, $32mm offer sheet for Paul Millsap. This on the heels of rumors that the Texas Rangers missed payroll recently, the Phoenix Coyotes required all sorts of help from the NHL to get through the season, and even some NBA teams may have need a boost to finish up the season.

Admittedly, I don’t have all the figures, since most teams hold financial data privately. Let’s look at the logic here though, a debtor must receive approval for a loan based on credit worthiness, which includes payment history, current debt ratios, projected revenues, riskiness – essentially your history in paying back and debt and the likelihood you will pay back in the future. Utah is already over the cap, thus will owe the league luxury tax above the salary expenses, and announced off-season ticket revenue is tracking 10% lower year over year. Given that, its likely the teams top revenue source will decrease for the full season, while expenses will increase with more salary and the tax. I don’t see any substantial new revenue sources available for Utah, considering they have lost a top player making the team less marketable, and are unlikely to make a deep, profitable postseason run since the team is not appreciably better.

To summarize, less revenue, higher expenses, not enough liquidity to make a contract offer – this seems like a high risk credit offering. In this case, its less of a lender problem and more of a league problem. Utah has signs of financial instability and these decisions can lead to franchise failures, most of which the league keeps behind closed doors and must sink central funds to keep the franchise running. The NBA and other major leagues should step in before this happens. Many smart people work at the league, with access to more financial detail than we will ever see, so we’d assume they consider this, but then why are leagues swooping in to help franchises meet payroll more and more.

A loan for Lebron or Wade is one thing, since those players can directly impact revenues. Paul Millsap will not have much, if any effect, in fact there is no guarantee he will make the team better. How many mid-tier players fall off the map? Is he worth this contract? Perhaps. Is Paul Millsap worth a team stretching itself financially? Not the Millsap I’ve seen.

The leagues need to institute better financial oversight, similar to what the government is doing to financial companies, except in the sports landscape of cartels, private ownership, and striving to serve the best interests of the league, less conflict of interest exists than in the case of GM. Think rationally, is Paul Millsap worth financial risk?

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

%d bloggers like this: