Sunday, 27 November 2011

How the NBA is in Trouble

There are two ingredients to today's NBA financial mess.  Basketball, for all purposes....is a business at this level....not a sport.

The Chicago Bulls have eleven players on their rooster at present.  At the highest level is this guy....Carlos Boozer....who makes $13.5 million a year.  At the bottom level....is John Lucas, who makes $947k a year.  Half the players on the team are pulling in $4.5 million or less.

So you take this Lucas guy and analyze his situation.  He pays around forty percent of his income to state and federal taxes, plus property taxes and car taxes.  You carve off around $75k for his agent who did the deal.  At this point....he has around $450k in money.  Guys get silly and borrow a bit to buy a house, a boat, a car, etc....that they can't really afford.  By the end....Lucas likely has $250k a year that is really his own money.  But wait, we haven't discussed investments for the future.  Nor have we discussed the potential for an ex-wife or some kid that he while in college.  As the number eleven guy on the team....he's going to be lucky if he lasts around the league for seven years, and then what?

The Boozer dude?  Same story.  Except he's got forty folks coming up with investment schemes that promise twenty-five percent return....which are all bogus in some nature.  Or he buys into a sports bar that continually loses money.  Or he has a wife that plotting the take-over of half his income by age thirty.  Or he buys into a real estate deal which never matures.

In essence, the players are mostly all broke.  Some might find the right investment counselor and actually have a nifty portfolio by age thirty-five, and retire to some ski valley in Colorado to enjoy the rest of their life.  But out of five hundred possible players in the NBA, we are talking about twenty of those guys being that smart.

The second ingredient are the owners.  The big guys are owning teams in Boston, Philly and Atlanta.  Then you've got these teams out in San Diego, New Orleans, and Indiana....which are marginal.  The little guy teams are dependent on amazing deals with the arena, which the city cooks up to help them or hurt them.  Since they never go to the playoffs....there are fewer t-shirts bought and the appeal to the locals are less.  So you have owners who are proud and show up at fancy meetings in New York City, but the truth is that they are probably pocketing only ten million a year for a team that they had to pay $200 million for.

As most would calculate....it would only make sense to dump a number of teams and get back down to twenty teams (instead of the current thirty).  But you'd be dumping a third of all the players and all these built arenas would be worthless in towns like Milwaukee or Minnesota.  So everyone fixes up the mess as best as possible and proceeds on.  It's basically a lose-lose situation, with money showing up in everyone's pocket, but never enough to really survive reality.  

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