As LeBron James and other top NBA free agents cash in, league is left to confront its economic woes
Thursday, July 8, 2010
In the last week, NBA executives have criss-crossed the country in private jets and luxury automobiles, passing out whopping contract offers like business cards and begging James and other free agent stars to accept their $100 million deals instead of those from other teams. On Thursday, the first day contracts can be signed, at least eight players are expected to ink deals totaling around $800 million.
Yet many who have observed the frenzied courting that has infected entire cities -- Miami-Dade County was officially renamed Miami-Wade County for the week as the Heat sought to re-sign all-star guard Dwyane Wade -- say the free-flowing funds and mad grab for stars belie a league in financial distress, its owners engaging in economic recklessness that is all but encouraged by a broken economic system.
Twenty-five of the 30 NBA teams lost money last season, according to two people with access to the league's accounting, and NBA Commissioner David Stern has publicly claimed the league would sustain $380 million to $400 million in losses in 2009-10. Stern declined to comment for this story.
The NBA Players Association disputes those figures and contends the league is in far better shape than its accounting indicates. But even the union acknowledges that more than a half-dozen franchises are in financial trouble. They "concede the point," an individual with knowledge of the union's thinking said, "that seven, eight, nine teams need help."
Making their moves
As the speculation surrounding James's decision hit a fever pitch Wednesday -- most believed he would choose to either stay in Cleveland or sign with New York, Miami or Chicago -- Wade and fellow free agent Chris Bosh appeared on ESPN to announce that Wade would remain with the Heat and Bosh would join him. Both could earn as much as $125 million over six years, but the pair might accept less if they can lure James to Miami.
Already in recent days, Amare Stoudemire has said he will sign with the Knicks for $100 million over five years, and Joe Johnson has said he will return to the Atlanta Hawks for $119 million over six.
With the collective bargaining agreement between the owners and players due to expire next July, some say the league is headed for a financial day of reckoning not unlike what the NHL went through when a lockout wiped out the entire 2004-05 season.
"Basketball does have a serious problem," said Robert Boland, an attorney who has negotiated NFL contracts and is a professor of sports management at New York University. "The NBA has not yet had its great cost cut."
With the average NBA franchise ending last season $13 million in the red, according to the league's figures, many owners are gambling, perhaps foolishly, that the expensive addition of a star player from a historically talented free agent class will generate interest in their franchises and ignite a significant payoff in the box office.
"Ten years ago if you had said there'd be six players earning nine-figure contracts, people would have looked at you like you had two heads," said Robert Tilliss, the founder of Inner Circle Sports, a sports financing firm that works with the NBA and several teams. "But the teams feel they need them to attract fan interest and [boost] all of these other revenue streams . . . It's just the way the system is set up."
Many NBA owners or ownership groups are burdened by the high cost of paying off debt from recently built arenas or recently purchased franchises; by next year 15 teams will have gotten new arenas and around a dozen will have experienced ownership changes since 1999. Meantime, gate receipts were down about $100 million from last year, a drop of about 8 percent, according to two people with access to the figures. The drop came largely because teams cut ticket prices in the wake of the recession; attendance fell just over 2 percent.