NBA's Owners Foul Out
06/08/2007 |
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Even if the National Basketball Association does not lose a single fan or corporate sponsor because of the investigation into one of its referees betting on games he officiated, the scandal is going to cost the league’s 30 team owners a fortune.
It is no secret that the NBA has long coveted eventually placing a franchise in Las Vegas. The city hosted the NBA’s All Star game this past season and welcomed the pro basketball's annual Summer League. Mayor Oscar Goodman has been outspoken about his desire for an NBA franchise, and league commissioner David Stern has been warming to the idea recently, saying he would not stand in the way if team owners wanted to put a team in Sin City.
The seduction of Las Vegas is powerful. None of the major sports leagues have a team in Nevada, which means NBA team owners would get first dibs on high rollers and corporate sponsors looking to entertain clients. Moreover, Las Vegas and the state of Nevada are economically vibrant.
Among the 200 largest metro areas in the U.S., Las Vegas ranks second in job growth during the past five years while Nevada’s gross state product has increased at a 7% annual rate over the same period, tops in the nation. At $42,780, Nevada has the 12th highest GSP per capita.
True, Las Vegas is the country’s 48-largest television market. But with its television ratings in decline, basketball’s economics are more about selling $200,000 a year premium suites and $10 cocktails than television viewers. And there is no doubt that casinos would line up to finance a $400 million state-of-the-art arena for an expansion team. What better way for a casino to lure patrons to its hotel and roulette wheels, a formula that's worked with professional boxing for years.
How much would an expansion team in Las Vegas fetch? The last time an NBA team changed hands where the new owner also obtained operating rights to a modern arena was in 2005 when Daniel Gilbert paid $375 million--or 3.7 times revenue--for the Cleveland Cavaliers.
A team in Las Vegas would not produce the revenue of the New York Knicks ($185 million) or Los Angeles Lakers ($167 million), both of whom have extremely rich local broadcasting deals. But with a new arena the Las Vegas team could easily generate $140 million a year in revenue, the same as Dallas Mavericks.
That would place the expansion price at roughly $500 million--or $17 million for each existing NBA owner. Oklahoma City, which has hosted the New Orleans Hornets for two seasons while Louisiana recovers from hurricane Katrina, is considered the other top contender for an expansion team. But Oklahoma City is smaller than Cleveland and its economics are not much better.
Thus even though the team has been playing in the seven-year-old Ford Center, it produced a league-low $78 million in revenue. Sure, a permanent expansion team in Oklahoma City would get perhaps $12 million or so more in revenue than the Hornets received from sponsors and broadcasting fees. So figure an Oklahoma City team would rake in $90 million in revenue, which would place its expansion value at around $350 million, or $150 million less than the Las Vegas team.
That means the debacle cost NBA team owners $5 million each. Besides the immediate $17 million dividend for team owners, an expansion team in Las Vegas would have a positive long-term impact on team values because it would have set the bar higher for subsequent transactions.
But with all the negative media attention the betting scandal is getting, NBA owners can forget about placing a team in Las Vegas for at least a decade. You can bet on it.
(This article was written by Michael K. Ozanian, and appeared on forbes.com)
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