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Paul Allen's Money Trouble

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It's a touchy subject.  

Exactly what shape are the Blazers in financially given the economy's downturn?

The surface indicators are positive:

  • Attendance is maxed out at every home game and season-ticket sales this year were way up.
  • The team is most likely headed to the playoffs and will earn additional revenue they have not seen in previous years.
  • The team enjoys a very profitable, albeit controversial, cable deal with Comcast.
  • Larry Miller has a global vision for the team and took the the troops on a corporate retreat to Arizona. 

But the past few months have been full of bad -- really bad -- financial news for Blazers Owner Paul Allen.

In short order:

This raises a question that one national writer recently asked me: "Are the Blazers still a deep-pocketed team willing to spend money on good players?"

Of course that's a difficult , if not impossible, question for an outsider to answer.

But it's one that needs to be asked in this new financial era of the NBA, an era in which: the league laid off 9 percent of its workforce, the league projects declining revenues and season-ticket renewals, and the highest-profile NBA agent is stating that the NBA's financial system is broken.  

Given the tough financial conditions, the league has already taken steps to help its teams.  According to a recent Sports Business Journal article, 15 of the league's 30 teams responded "yes" when asked if they would be interested in financing negotiated by the league.  The article stated...
The 15 teams can use the money for any purpose, but covering operating losses may be high on the list.    

As recently as 2007, Portland reportedly posted the second largest operating loss in the league (25.1 million dollars).  According to 2008's Forbes survey, the team's financial picture is much healthier but the team still operated at a loss.

Given Paul Allen's recent losses and the team's past operating losses, it is possible that, despite being owned by the league's richest owner, the Blazers could be one of the 15 teams looking to tap into the NBA's financing offer.  

As the Sports Business Journal noted, capital is hard to come by in today's "illiquid" credit environment and the league's negotiated interest rates were considered very good. Asked last Thursday why a hypothetical team might tap into that money made available by the league, Blazers Assistant General Manager Tom Penn stated, "Sometimes it's just smart business to want the money because the cost of getting it is so low. I think that was part of the reason for the league-wide financing. They were pooling all that borrowing power to get an awesome interest rate. So that made it just smart business to go borrow it."

Importantly, Penn noted, "I think it would be inaccurate to think that everyone that is borrowing money from that or any other debt source is doing it because they need money."  In other words, one shouldn't assume that teams need the financing simply to make ends meet; there could be many motivations for a team to tap into the financing.

Asked if he knew of any specific teams that would tap into that financing (other than Orlando which was mentioned by name in the SBJ article), Mr. Penn said he did not. 

In response to direct questions about the organization's response to the league's recent financing offer, a member of the Portland Trail Blazers communications staff told me yesterday, "no comment - we will pass on the financing questions."  

This caught me by surprise because, as recently as last June, I had an hour long-plus conversation with the team's then-COO, in which "no comment" was not uttered a single time.

Although Kevin Pritchard stated last Thursday that "if the economics get worse, that might be better for us" due to Allen's wealth, one can't help but wonder, given the recent series of hard knock news for Paul Allen, if that is really the case.  On Courtside tonight, Pritchard admitted that "We still have to run [the Blazers] as a business because I want this team to be here for 50 years... I feel a responsibility to that." And on Thursday Penn acknowledged, "the overall financial crunch, the recession, could affect business, all businesses, including ours.  [The recession] could affect player transactions" around the league.  

Has it already affected player transactions here in Portland? 

Don't be too quick to dismiss the Blazers' non-trade of Raef LaFrentz's Expiring Contract as a basketball decision determined primarily by locker room cohesion and on-court productivity.  And don't underestimate the financial importance to the team of avoiding the luxury tax.  

And whatever you do, do not sell short the financial implications of Darius Miles's salary being added back to the team's books.  You can see why an email or two might have been sent if it meant potentially saving millions of dollars and/or increasing the team's financial flexibility in an economic environment that has possibly caused a 10 figure hit to Allen's net worth.  

Lastly, definitely don't assume, like I did last week, that because this summer will be a bigger buyer's market than the trade deadline, that the Blazers will necessarily be buying.  In fact, it's probably prudent to temper your expectations for the team's activity this summer.  On Courtside, Pritchard assured Blazers fans that "when the time is right, [Paul Allen] will go for it."    

At this point, Blazers fans can only hope. And wait for the "right time."  Because it could be awhile.

-- Ben (