A lawyer who has been involved in the sale of NBA teams once told me, in no uncertain terms, that he has no idea where Forbes gets its franchise valuations. He said that even the lawyers on both sides of a sale, armed with troughs of detailed, finalized financial numbers, struggle to agree on exactly what a franchise is worth on paper.
In short, it is incredibly difficult for anyone to put a precise value on an NBA team.
That said, these numbers from Forbes are the best available to the public. The estimates are scrutinized, researched and considered carefully.
They must be read with at least a few grains of salt — and we can probably presume there are some gross inaccuracies — but this list paints a very good picture of the financial health of all the teams in the league.
When it comes to the Pacers, that picture isn’t so bad. While Indiana is only ahead of six other teams in terms of franchise value, you can see that their operating income (roughly, profit margin) is not listed in red text. Compare that to virtually all six of the lower-valued teams — not to mention a few larger-market teams worth more.
Market size, terrible attendance and JailPacer Era hangover considered, this is a step forward from a few years ago.
Remember, right before the lockout, the league (which was obviously drowning in statements expressing its own self interest) said that 22 NBA teams were losing money and that the league overall would lose a total of $300 million if the players didn’t agree to slash their salaries. That figure, said NBA head honcho David Stern, was actually an improvement. During the 2009-10 season, the league says teams lost $370 million. (The now-famous Nate Silver showed how cloudy the league’s claims may have been for what it’s worth.)
Regardless of those difficult-to-calculate claims, there was additional evidence that the Pacers were one of the teams that were facing dire financial straights. For the first decade of its time in Conseco (now Bankers Life) Fieldhouse, the team says it lost money in all but one season.
The main problem was the operating costs of running the building, which the team said was costing it as much as tens of millions of dollars per year.
Around this time, with the U.S. economy in shambles and the Pacers reportedly hemorrhaging money, owner Herb Simon, who Forbes says is the 218th richest person in the United States, started to question the arrangement the team had with the Fieldhouse’s owner, the Indianapolis Capital Improvement Board (CIB).
He said to the press that his desire was to make a deal with the CIB to lessen the blow of the operating losses so that he, an aging mogul who saw his brother and Pacers’ co-owner Mel Simon succumb to cancer in 2009, would not have to worry about the team becoming a burden to his heirs.
“The whole reason to do this [deal] is to put the team in the financial spot where it can stay here forever,” he said. “I’m getting on. I can’t be here forever. I can’t pass on a structure that doesn’t make sense to other people.”
They eventually worked out an arrangement under which the city would subsidize the operating costs of The Fieldhouse to the tune of $33.5 million over three years. This would guarantee that the team stayed in Indianapolis throughout the course of the deal and, likely, through 2019. (The Pacers would face at least some financial penalties if it left before then.) In December 2012, the two sides extend extended that agreement for one more year for a guarantee of another $10 million.
That was certainly one major cause of the Pacers, according to Forbes, moving from the red to the black.
The other reasons are products of the lockout: the NBA’s new collective bargaining agreement with its players and the league’s increased revenue sharing.
While precise numbers are not disclosed, the league has projected that Pacers is be one of the largest recipients of NBA’s new revenue sharing plan, which was passed along with the new CBA in December 2011 and may be bringing Indiana upwards of $10 million per season.
The benefits of the new collective bargaining agreement are more straight-forward: the players agreed to a pay cut of about 12%. The equates to an average direct savings of $10 to $15 million per team, depending on its overall salary. (According to league sources, the combined effects of these two factors alone could mean a net windfall of up to $30 million per year for the Pacers as soon as next season, though that number could come in much lower depending on how much money the league as a whole makes over the next two years.)
All together, we’re talking about injections of tens of millions of dollars from various sources that didn’t exist just a few years ago.
The Forbes numbers could be no better than mere guesses, but it is safe to say that this combination of savings and extra revenue has eased the the financial pressures that were recently a very real threat to the long-term sustainability of this team staying in Indiana.
Herb Simon never said as much publicly—instead only expressing his desire to keep the team in Indianapolis.But all the reports pointed in the same direction: the old business model had a rotten foundation.
The team is not completely out of the woods (it would help if more people went to games), and it probably will never be given the market size of Indiana, but Pacers’ fans can likely rest assured that they won’t be in the Kings’ position for the foreseeable future.
Tags: Pacers Financials