David Stern, the commissioner of the National Basketball Association, thinks ยour franchise valuations are going through the roof.ย In an interview this week with The Wall Street Journal, Stern calculates the ยshare priceย of the 30 NBA franchises based on the 2003 sales of the Charlotte Bobcats for $300 million cash.
Coincidentally or not, $300 million is reportedly what the majority owner of the Memphis Grizzlies, Michael Heisley, thinks the team is worth.
While Stern and Heisley certainly know what theyยre talking about and, unlike this writer, are fully qualified to talk about megadeals, here are five reasons why I would say the Grizzlies and most other NBA franchises are not worth that kind of money.
First, Staley Cates doesnยt seem to think so. Cates is one of the minority owners of the Grizzlies and one of the brains behind Southeastern Asset Management, parent of the Longleaf mutual funds. He and the other minority owners sat tight while Brian Davis made his ill-fated run at the Griz. I have a lot of my modest retirement savings invested with Longleaf. Iยve heard Cates speak enough times and read enough Longleaf reports to have a pretty good idea of what a value investor is. And itยs not someone who overpays. Itยs someone who buys valuable assets at bargain prices and holds on to them. My guess is that Cates and fellow minority owner Pitt Hyde would pay a small hometown premium to take control of the team but theyยre not going to be held up.
Second, Grizzlies guard Eddie Jones. The guy is making $15.6 million this year, nearly one-fourth of the teamยs entire player payroll. Jones was a good player a few years ago but no more. He has reached the tipping point where the professional athleteยs skills fall off the table. Against Philadelphia the other night, he botched a give-and-go under the bucket so badly it would have gotten a high school sophomore benched. The problem is that NBA contracts are backloaded so that fading stars make big money in the autumn of their years. Jonesย main value to the team is that he creates room under the salary cap next year.
Third, forward/center Stromile Swift, for many of the same reasons. Swift will make a few dunks that are highlights material. Otherwise heยs a mediocre player with a bloated contract who sits out lots of games each year because of injuries. As underachievers and benchwarmers, Swift and Jones have negative PR value to the team, just as Shane Battier had positive PR value because he always showed up and played hard even if he is only an average pro player.
Four, the Grizzlies are on the verge of an attendance tipping point. I literally could not give away our company tickets to the Philadelphia game. The excuses included ยI went to the Tigers game last night,ย ยYou couldnยt pay me to go see those guys,ย ยMy son has baseball practice,ย and ยHa ha ha.ย Finally I got rid of two of the three tickets. The three of us spent about $15 apiece. But what about the thousands of no-shows? If there were 5,000 no-shows, thatยs at least $75,000 in concessions sales. With 41 home games a year and all the newness worn off, the Grizzlies are in danger of becoming the Redbirds.
Five, true value depends on butts in seats and long-term ability to sell season tickets at face value. A better team with a better record will help, but not for long. When The Pyramid closed three years ago, the only thing I could think of to say was that it seemed like a good idea at the time and nobody knows how FedExForum will do after 13 years. And that goes for David Stern, too.
An NBA franchise is worth $300 million or $350 million only by the twisted logic and pay-me-later accounting that says Eddie Jones is worth $15 million this year. That was what he was worth at an auction several years ago when he was in his prime. In fact, he and most of his teammates have little real value based on the number of people who will pay (as opposed to going to a game on a free ticket) to see them play.
The Wall Street Journal story says eight NBA owners wrote Stern recently asking that more league revenue be shared with small-market teams, of which Memphis is one. Sternยs reply: ยAnd by the way, those very owners donยt agree with it, either based upon what they either just paid for their franchises or what theyยre trying to sell them for.ย
Stern was also asked if he thought NBA teams in Memphis and New Orleans will stay put even though they are struggling. His reply: ยIf you ask me that as the mayor of Memphis, the answer is absolutely. Youยve committed to us, you built a building, the city is supporting us and weยre going to support you, barring some event that we hope doesnยt occur there.ย
What sort of event might that be? An earthquake? A FedEx relocation? A succession of seasons like this one? Stern didnยt say. Meanwhile, the only thing supporting the $300-$350 million valuation of NBA franchises is the leagueยs greater-fool theory and a belief that television and foreign fans can save the NBA even if ticket-buying fans lose interest. ย John Branston