Grantland’s NBA writer Zach Lowe recently published an exclusive article about the brazen power play Jason Kidd used to acquire more money from the Brooklyn Nets, which ultimately landed him with the Milwaukee Bucks. While that situation is still one of the most bizarre to occur on the coach’s level, it’s what Lowe disclosed about the economics of many NBA teams, especially the Nets and Los Angeles Lakers, that got my attention.
According to Lowe, the Brooklyn Nets is “projected to have a $144 million loss over the 2013 – 2014 season.” The Nets will join eight other NBA teams to lose money after luxury-tax and revenue sharing are finalized within the league.
After the Nets acquired Paul Pierce and Kevin Garnett, last season, the team’s payroll ballooned to over $100 million; about $45 million over the salary cap. A payroll that high comes with a higher luxury tax bill. For the Nets, it’s estimated to be about $90 million. Combined, the Nets had to payout close to $200 million for a team that failed to fulfill its win now goal. To put the Nets financial loss into greater perspective, Lowe shares that the Washington Wizards is projected to suffer the second-highest financial loss in the league. But the Wizards’ hit is significantly less than the Nets, $13 million. Between the highest and second-highest money losers in the league is a ridiculous $131 million. Although Mikhail Prokhorov practically shits money, it’s no wonder Prokhorov wants to reduce the Nets payroll.
The Knicks also had a payroll which yielded a high luxury tax bill. But when the same guy who owns the team also owns the arena, and the regional sports network that broadcasts most of the team’s games, and, and, and…the team always wins (off the court). Though the Nets and Knicks share a market, the team’s business models are very different. While both team owners may have money to throw at players, the Nets don’t have enough alternate revenue streams to stop the bleeding. Russian billionaire Prokhorov learned a very expensive lesson in NBA Economics 101.
Here are a few additional points from the article, including the Lakers’ stunning financial scenario:
• The Thunder are indeed paying into the revenue-sharing system, rare for such a tiny market, but they’re slated to make nearly $29 million in profit when everything is netted out. That’s the fifth-best projection in the league, trailing only the Lakers ($100.1 million), Bulls ($61 million), Rockets ($40.7 million), and Celtics ($33.1 million). Again: This memo does not capture the complete financial picture for any organization, but between this estimated profit and the general escalating value of all NBA franchises, it’s fair to take these numbers into account when debating the Thunder’s decision to trade James Harden and duck the luxury tax.
• Holy cow, the Lakers! They end up with that huge profit despite contributing a league-high $49 million to revenue sharing. The league’s revenue sharing is complex, with payouts and contributions tied to all sorts of variables — market size, profitability, earnings benchmarks, and other stuff. A few teams, including the Lakers and Knicks, play in markets so large they are disqualified from ever receiving revenue-sharing payouts.
• Speaking of the Knicks: They’re actually expected to take a net loss for the season — something around $3.5 million. But don’t worry, they’re still insanely profitable. They made $58 million on their own, and will “lose money” only because of their huge revenue-sharing contribution (nearly $27 million, no. 2 behind the Lakers) and the giant tax bill they paid for a lottery roster. And, again, the figures do not account for the value of Madison Square Garden, on which the Knicks do not pay any property taxes. Hooray, civic handouts!
• Sneaky profitable teams: the Spurs, Jazz, and Nuggets, nos. 6-8 in the estimated net-profit rankings. All three finished under the tax, and the Jazz and Nuggets receive nice payouts from the revenue-sharing system. The Spurs will pay into that system, but they made a boatload on their own.
Good grief! The Lakers’ profitability is $100 million AFTER paying $49 million in revenue sharing?!! On top of them stinking and finishing with the sixth worst record in the NBA, last season? Even with all of that, they still managed to lead the league in profitability.
The league’s intentions to distribute the wealth via luxury tax bills and revshare contributions are solid attempts to even out the playing field, but it will always be impossible for teams in minuscule markets to compete with the Lakers or Knicks. There are unavoidable inherent advantages of playing in a larger market. The opportunities for unlimited revenue streams such as the big payout the Lakers received from its 20-year, $3 billion Time Warner Cable deal will never cease. This article is a prime example of that. It also makes a strong argument against “The Big 3 model,” who are only interested in teaming up in large to mid-sized markets. But that’s another article for another day.
If you’d like additional insight into the NBA’s economic model or Kidd’s greed for more power and money, read the entire article. It’s well worth it.