Looks like it may be time for our first ever published debate between Andrew and I! As my fellow HoopDat writer described, Malcolm Gladwell wrote an article for ESPN’s Grantland website which addresses the issue of why the NBA should not be profitable for its owners. Gladwell claims that basketball isn’t actually a “business” and therefore, the question of whether or not the owners make money isn’t an important one. A day later, Tom Ziller of SBNation wrote a rebuttal suggesting that Gladwell’s analysis of the NBA’s current situation was oversimplified, and that it is completely reasonable for NBA owners to aim to make money from operating their respective teams. So who’s right and who’s wrong? While Andrew and I both acknowledge that both sides make some good points, he leans toward Gladwell’s side; I, however, am in Ziller’s boat, and here’s why.
To Gladwell’s credit, there are absolutely some professional sports owners who own their franchises simply for the sake of owning a franchise, much like his Dan Snyder/Redskins example. For owners like this, turning a profit is a secondary goal, which often negatively impacts other owners who make profitability a priority. I can also see his comparison between owning a sports team and owning a work of art. Gladwell indicates that there is a certain “psychic benefit” element in owning a professional franchise, much like with a painting, which increases its value in a way that numbers cannot indicate. He goes on to discuss the differences between recent sale prices of NBA franchises and the price at which Forbes Magazine values each of these franchises, noting sizeable variances. To put it bluntly, Malcolm Gladwell oversimplifies the process that goes into the buying and selling of a professional sports team. After reading his piece, this is the formula that he seems to suggest:
Franchise Sale Price – Forbes Franchise Valuation = Owner’s Psychic Benefits
By combining all of the previously noted points, Gladwell arrives at the conclusion that as an NBA owner, you should not expect to make money, and if that is the main reason for which you own an NBA team, you are better off selling your franchise to someone who’s main reason for buying is love of the game. I’m sorry, but I just don’t buy such a simplistic reaction to such a complex problem. The answer to the NBA lockout is not “Hey, owners – don’t expect to make money; if you do, sell your team to someone who doesn’t care about whether or not their team is profitable.”
In Ziller’s response, he makes the same point as my equation above, noting that “Gladwell has so embraced this idea of psychic benefits as drivers of sports team ownership he ignores that these psychic benefits are just part of the equation.” I couldn’t have said it better myself. Ziller explains that while the Forbes valuations of each team is a very good estimate of a team’s actual worth, Forbes does not have access to any team’s books, so its valuations are far from an exact science. He uses the Forbes’ analysis of the Pistons as his example, and it is a great one. In just one year’s time, Forbes changed its valuation of the franchise from $479 million in 2009 to $360 million in 2010, suggesting that the Detroit team lost a whopping 25% of its value. Impossible? No. Highly, highly unlikely? Yes. Ziller suggests the following as a possible explanation for the huge drop-off, and I can’t help but agree – “once the Pistons went on the market, Forbes realized it had overrated the team’s drawing power in the current environment. When Forbes butchered the valuation, they took off too much.” By bringing all of this information to the table, his main point is that you cannot simply chalk up every difference between a team’s sale price and Forbes’ suggested price as a pure psychic benefit premium. There is so much more that goes into valuating a professional sports franchise that cannot be accounted for in such simple means. This point becomes even more relevant when Ziller provides evidence about some teams whose owners sold out for less money than Forbes’ published value, data that Gladwell conveniently left out of his argument.
Moral of the story? Owners can strive to make their NBA team profitable. No one said it would be an easy task, but it is FAR from an unrealistic or impossible one, as Gladwell seems to indicate. Andrew makes a great case, but I wonder if he asks the wrong question – instead of should sports owners be profitable, shouldn’t it just be, can they? The answer is yes; just not in the way that the majority of these owners currently go about their business. Almost any devoted NBA fan will tell you that the owners have made countless mistakes that have contributed to the lockout which the league currently faces, but that doesn’t mean that there’s nothing that the owners can do to make money; those mistakes are ones that can be learned from so not to be duplicated. Given a new CBA, in addition to (as Ziller mentioned) some shoring up of their books and more rational decision-making, and NBA owners can give themselves a legitimate chance to achieve profitability.