Nate Silver & Forbes: NBA is Not Under Financial Distress. NBA: Uh, Yes We Are


Interesting back-and-forth yesterday on the NBA lockout front: Statistical Genius Nate Silver wrote this lengthy blog post for the New York Times which essentially said that “the N.B.A.’s claims of financial hardship should be viewed more skeptically.” It took a few hours, but the NBA admonished Silver and shredded Forbes Magazine:

The information from Forbes that serves as the basis for this article is inaccurate and we do not know how they do their calculations. Forbes does not have the financial data for our teams and the magazine’s estimates do not reflect reality.

Silver, crunching numbers from Forbes and Financial World Magazines, wrote this sentence, which had to piss David Stern off: being an NBA owner is “fundamentally a healthy and profitable business.” Well, if you own one of the premiere franchises, it is. Writes Silver:

The other factor is the distribution of revenue from team to team: 17 of the 30 N.B.A. teams lost money in 2009-10, according to the Forbes data. Most of the losses were small, and the league was still profitable as a whole because of profits made by successful franchises like the New York Knicks, Chicago Bulls and Los Angeles Lakers, who together netted about $150 million by themselves. But there are a sizable number of owners who have reason to be unhappy.

This argument will boil down to the Forbes “estimates.” Where did they get them? What formula – if any – was used? If they’re wrong, by how much? Nobody’s optimistic about the NBA lockout, but it’s early, so doom and gloom will reign supreme. If you’re wondering what a post-lockout NBA might look like, Silver seems to think the NBA will soon look MLB – at least from a revenue sharing point of view.

In some ways, the N.B.A.’s present condition closely resembles that of Major League baseball before its 1994-95 strike. Baseball was still profitable as a whole in advance of the strike, but about one-third of its teams had lost money in 1993, according to Forbes, while just four teams accounted for almost half of all league profits.

The solution that baseball has since adopted — greater revenue sharing in lieu of a salary cap — could also be a natural one for the N.B.A.: the profits made by the Knicks, Bulls and Lakers alone would be enough to cover the losses of all 17 unprofitable teams. (Players might have some reason to object to revenue sharing — some versions of it are the economic equivalent of a tax on player salaries — but they would probably prefer it to the more draconian measures that the league will try to impose.)

I’m not a huge fan of revenue sharing in MLB – plenty of owners are gaming the system and pocketing profits while consistently putting an inferior product on the field. While there will almost always be a gap between the big spending owners and frugal penny-pinchers (happens in the NBA and NFL), the chasm in MLB is jarring: the Royals spend $36 million, the Yankees $202 million.

But here’s why revenue sharing might work in the NBA – unlike MLB and the NFL, one draft pick can turn the fortunes of a franchise (save for the occasional exception, like Peyton Manning). The drawback, of course, is if you get chosen 1st overall and you’re stuck in Siberia (Cleveland? Memphis? Toronto? Sacramento?) for half of your career. What if your inept front office can never attract the necessary free agents to build a contender? Or consistently bungles trades?

Worst-case scenario in revenue-sharing: You’ll have a handful of small-market NBA teams serving as a farm system for the future superstars, who eventually leave for the bigger markets. That’s often how MLB feels. Or is that already happening in the NBA (see LeBron, Carmelo Anthony, and maybe, Chris Paul)?